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Franklin American Mortgage
Company – from $20 million a year to $2 billion in lending in only nine years
Financial
Banking
Not Public
Franklin American Mortgage Company
501 Corporate Center Drive – Ste. 400
Franklin, TN 37067
Phone: 615-778-1001
Dan Crockett
President and
Chief Executive Officer
Interview conducted by:
Walter Banks
Co-Publisher
CEOCFOinterviews.com
July 2002
Bio of CEO,
Daniel G. Crockett has been President and Chief Executive
officer of Franklin American Mortgage Company since he purchased the company in September
1994. Crockett was hired as the first loan officer at the company, formerly known as
Merchants Home Mortgage, in 1993 and promoted to Vice President of Production before
acquiring the company 15 months after being hired. He facilitated growth from a small 5
employee mortgage broker operation to a 115 employee multi-faceted mortgage banker with
three branches. He created relationships with the following and expanded them to their
fullest potential: Department of Housing and Urban Development; the Department of Veterans
Affairs; Fannie Mae; Freddie Mac; Ginnie Mae.
Major achievements of the company under the leadership of Daniel Crockett include
reversing negative financial trends and turning the company
into a profitable Inc. 500 institution with increased
volume of 1400% over the past five years. He originated Conventional, Jumbo, FHA, and VA
residential mortgage loans and initiated establishment of a wholesale table funding
division.
Before joining Franklin American Mortgage Company, Daniel Crockett resided in Tokyo, Japan
teaching English conversation and studying the Japanese language and business culture,
from May 1991 to July 1991. From January 1992 to December
1992, he was a financial planner with J. H. SHOEMAKER & CO., INC., and participated in
their Mentor program working directly with their corporate Vice President.
Daniel Crockett’s education includes a Bachelor’s degree in of Business
Administration, which he received in 1991 from LAMBUTH UNIVERSITY, Jackson, Tennessee and
is a graduate of the Mortgage Banking Association School of Mortgage Banking. His
achievements include being an All American in both College Football and Baseball, becoming
a Licensed Real Estate Agent in 1995, completing the Series 6 and 63 Securities Exams, and
registration with the SEC and NASD. Affiliations achieved from 1995 to 2002 are Mortgage
Bankers Association of America, National Association of Mortgage Brokers, Tennessee
Mortgage Bankers Association and Tennessee Association of Mortgage Brokers.
Company Profile:
Franklin American Mortgage Company (FAMC), a privately-held mortgage banking firm
located in Franklin, Tennessee, is a full-service professional mortgage banker licensed to
provide residential mortgages in more than 25 states. FAMC, which provides a host of
diverse, flexible mortgage packages for customers with a variety of backgrounds and needs,
is committed to helping families and individuals achieve the dream of home ownership.
An emerging leader in the mortgage industry, Franklin American Mortgage Company is fast
becoming a preferred lender for consumers and mortgage professionals across the country.
They have created a new Correspondent Lending division, designed to service small to
mid-sized lenders across the nation. The
division will harness FAMC’s growing national presence to provide high-quality
services and products to these institutions and their customers. This will help smaller
lenders compete with larger “mega banks” in an increasingly tight market.
FAMC offers borrowers, brokers and lenders the strength and security of a forward-thinking
national mortgage company, dedicated to remaining an industry trendsetter. FAMC truly
values its relationship with each customer and mortgage professional they work with,
maintaining a company tradition of responsiveness and personalized service characteristic
of a much smaller organization. This philosophy has enabled FAMC to become one of the
fastest growing mortgage bankers in the nation.
Franklin American Mortgage Company has offices in the Tennessee cities of Franklin,
Jackson and Johnson City, and in Greenville, South Carolina and Irving, Texas. The company
is FHA Direct Endorsed, VA Automatic, an LAPP authority and a Fannie Mae, Freddie Mac and Ginnie Mae Approved
seller/servicer.
CEOCFOinterviews: Mr. Crockett, please give us a
brief history of Franklin American Mortgage.
Mr. Crockett: “We were
originally incorporated in May of 1993, as a mortgage broker under the name of Merchants
Home Mortgage. I began my work here in July of 1993, and was the first loan officer hired
by the company, along with serving as the fourth employee of the start-up at the time.
In September of 1994, I acquired the company from the original parent. At that time, it
was struggling financially and was not even a “company”. We started with five
employees, grossing less than half-a-million dollars in revenue, and $20 million in total
lending volume; these numbers are very small.
We began to focus on growth and I helped the company move in some
directions that it had not been going in at that point. We incorporated and started a
subsidiary, our wholesale lending division, under the name of Franklin American Mortgage.
This name change, from Merchants Home Mortgage to Franklin American Mortgage, occurred in
February of 1994, prior to my purchase of the company. I changed the name due to the
tainted view of the original company within the community, allowing Franklin American
Mortgage to have a new start.”
”In August of 1995, we started what today is our largest division—Wholesale
Operating Division, which involves buying loans from mortgage brokers. As our clients,
they deal with the public, take the application, process the file, and send it to us. We
then underwrite and fund it, and from that point, it becomes our asset. This type of
purchasing is how we have achieved the majority of our growth.
In August of 2001, we started our third division—Correspondent Lending
Division. We buy closed loans from other mortgage bankers and banks. This is an edge for
us and we look forward to it providing additional growth as we move forward, enhancing our
ability to compete and diversify ourselves in the market place among the industry of
mortgage banking. That concludes the story of Franklin American Mortgage from a macro
standpoint.”
CEOCFOinterviews: What would you say excites you the most about
Franklin American Mortgage?
Mr. Crockett: “The thing that is most exciting is to have
started at $20 million a year and to have grown to $2 billion in lending in only nine
years. It is more difficult to construct and build a platform from $20 million to $2
billion, than it is to go from $2 billion to 10 billion.
Although we have been fortunate and have done profitable things as an
organization, I think the future of our company is ahead of us.
With the addition of new leadership in our Correspondent Division on the operation side of
our company and the scale we are able to achieve now that we are larger and on the radar
screen, there is a lot of value that we can attack and procure in the market place. We
will benefit from those opportunities by becoming even more competitive. We will add some
of the value we are going to attain in the market place back to our product and price,
continue to grow our market share, and enhance our bottom line with it as well. As I said
before, I feel our future is still ahead of us-- there are many things yet to be
done.”
CEOCFOinterviews: Looking at the success of your Wholesale
Division, do you think that the Correspondent platform will do equally as well?
Mr. Crockett: “Yes, I believe that long-term the Correspondent
Division will be our largest volume producing operation. They had it a bit easier, from
the bottom-line standpoint; I think they will be profitable immediately. They’ve
profited somewhat already, but we previously had the infrastructure in place, the capital
equipment, requirements and office equipment in place.
Because we had the capacity from an operational stand-point internally to bring those
people in and enhance our ability to generate revenue from a different sector, all we had
to do was to create the strategy, hire the staff, and go to work. From a revenue
stand-point, I don’t know whether they will achieve the numbers that our Wholesale
Division will, given that the gross margin in that business is any where from 50-75% less
than a gross margin on the wholesale side. It is a volume-driven business, however, I
believe they will be very successful and provide a tremendous amount of growth to our
bottom-line as we move forward.”
CEOCFOinterviews: What made you venture into correspondent lending,
and can you explain Correspondent Lending?
Mr. Crockett: “Correspondent Lending is where we acquire a
closed loan, a finished product; we make the credit decision and fund the loan ourselves,
therefore assuming more risk.
On the Correspondent side, we spread the risk more because we are dealing with other banks
and mortgage bankers with a minimum of a 250 thousand dollar net worth on one side, and a
minimum of a million dollar net-worth if they are going to do government lending and
under-write those loans themselves. We are able to spread some of the risk because the
clientele there is more astute and solid financially. Therefore, they can absorb some of
the losses that come from lending.”
”We purchase the finished product and acquire the asset after the majority of
the work is done, and from our standpoint, the operational cost to procure that loan is
much cheaper for us. On the Wholesale side, we under-write, fund, and do many things that
we do not do on the Correspondent side, but then again the margins are much thinner.
We are not going out and buying loan products from the Bank of America, Wells Fargo or
Chase. We are buying from the regional and small local banks, public companies, private
banks, and some private mortgage bankers that are anywhere from half our size to
one-twentieth of our size. A real niche occurs for us because the “big players”
are not going after our clients, they want to buy loans from companies that are doing 2
and 3 billion dollars a year like us, rather than “Joe’s local bank” down
the street who is doing 100 million dollars a year in lending.
Our clients get personalized service and we make them feel important valuable—they
are valuable to us, as opposed to a larger competitor that does 50-75 billion dollars a
year in lending—a hundred million dollar a year client for them is not important as
it is for us. From a service standpoint, we can provide a lot of value to our competitors
who are much larger than us.”
CEOCFOinterviews: What gives you the advantage of purchasing these
loans over competitors that might have similar designs?
Mr. Crockett: “From a capacity standpoint, we push our people
to perform 15-20% above average to the industry standard. We hire very good people and
there is no one in the organization that has not had an incentive program or bonus plan.
That provides value and will provide value to their life if they perform at these levels.
We are a young management team and very involved in technology; our systems are
advanced. The first reason we are able to compete though we are not so large is because of
our operating capacities and our ability to produce and perform above average on the
operation side.”
”We also do not have the capital infrastructure, the overhead, and the
bureaucratic levels of management that our competitors do, because we are very “hands
on” in our leadership team. We do not have excess capacity in administration
operations or production. Because we are efficient, pay attention to our expenses, and
perform as near to 100% capacity at all times, we are able to achieve profitability levels
we need to. Furthermore, we do not need to procure the most excessive gross margin in
order to get there, making us even more competitive.
The third reason we can compete is our service. We provide services our competitors cannot
because they are larger and have multi layers of management, and because there is not much
focus from upper levels in the client base. We seek to be focused on our client base; we
serve our clients—teach them to process loans, help them to understand HUD, FHA, and
VA lending, along with providing them with mortgage banker service.”
CEOCFOinterviews: You then work strongly with your clients.
Mr. Crockett: “Absolutely! We work to achieve a partnership
with our clients. Many people talk about that but very few people affect that.”
CEOCFOinterviews: You have many reps working out of their homes; is
that a trend or is it just something you find prudent?
Mr. Crockett: “I think it is pretty basic. Wholesale and
Correspondent is what we call third party lending. The sales force of third party lenders
is going to be remotely located because on the wholesale side, they are covering anywhere
from half of a major city the size of Chicago, to a two-and- a-half state territory.
On the correspondent side, it is more regionalized. When covering that kind of territory,
you are traveling a lot. If you are near an operating center, it can be a benefit, but if
not, it is inconvenient. It is not a competitive disadvantage to have them working out of
their home because they are not really office people.”
CEOCFOinterviews: Do you see that as something that you will
implement in your Correspondent Division?
Mr. Crockett: “That is correct. We will continue to do that on
the Correspondent side, along with continuing the Regional. We may have two reps in
Dallas/Fort Worth and one rep on the wholesale side that will cover Tennessee, Kentucky
and North Alabama. On the Correspondent side, one rep would cover the entire southeast,
because you are dealing with a smaller, condensed market place as opposed to Wholesale
with numerous companies in one particular area you are covering.”
CEOCFOinterviews: In what regions do you market your business?
Mr. Crockett: “We are mainly in the southeast and southwest.
Our largest presence is in the southeast, southwest and mid-west. Our market share
potential, even in those areas, is ahead of us, especially in the Correspondent Division.
I am also confident we will continue to become more competitive on the Wholesale side, and
grow our market share in those areas.”
CEOCFOinterviews: How much market share do you have currently in
those areas?
Mr. Crockett: “It is probably less that one half of 1%
collectively. We might be at 3-5% in Texas for example, on the wholesale side.
Collectively if you measure the capacity and productivity of those areas, and measured our
volume as opposed to the potential of the territory, our share is less that one half of
1%.”
CEOCFOinterviews: Will future growth come by future penetration
into your current markets or by expanding markets?
Mr. Crockett: “I think both; we are going to continue to
penetrate the markets we have been in. We have been in business for nine years, and still
are an immature company. Half of the sales force has been with us for less than two years.
We will certainly grow through market penetration and through expanding our markets as
well.”
CEOCFOinterviews: Do you see yourselves as becoming nationwide
company?
Mr. Crockett: “Absolutely! That is what we are working
towards. Year in and year out, we are arriving in more territories and expanding our
horizons one day at a time. In a few more years, we are going to be there. It is very
exiting.”
CEOCFOinterviews: Do you feel you have the cash and/or credit to go
forward?
Mr. Crockett: “Yes, generally speaking we have a significant
net-worth and a strong equity position in the corporation. We have little to no debt; our
long-term lease obligations are limited.
We could liquidate the company tomorrow and walk away with a significant amount of
money-- we are in sound shape financially. When you are a privately held company as we
are, with very little debt and very little capital and infusion to start with, cash flow
can always be a challenge, especially when you grow as we have. However, we have managed
very well and our cash position currently is stronger than ever. I am hoping that our days
of struggling with millions in cash are behind us, but if we grow another hundred percent
in the next twelve months, I am sure we will have those challenges again.
This is a cash-intense business; we are a lending institution. Financially speaking, we
are a very sound and profitable company. I feel very confident that we will continue to be
in the near future.”
CEOCFOinterviews: In closing, what point would you like to get
across to the business community?
Mr. Crockett: “I think it is very important first and
foremost, to have a very defined vision. We have grown and built our executive team and
established strong leadership-- a word we promote heavily. We are not big on
“management” and “supervisor.” If we have employees who need to be
managed and supervised, we ask that they go and find employment elsewhere. I want my
people to lead and I want their people to want to be led and to perform better than
average. We push our people each day to work on improving in everything
they do as a person and a professional and in their spirit—that is what we promote.
Leadership is important, and it all starts with the vision from the executive. The
vision all the way from dress code to what the business strategy is going to be. We are
“old school” here, we wear suit and tie every day and professional dress for the
ladies. We are not casual, we do
not have casual days and we will not have casual days as long as I am the President of
this company. I do not think it promotes a productive atmosphere, especially if you are a
financial institution or a white-collar driven product company. Our clients and our
customers appreciate that when they come to make the largest purchase of their life, our
employees greet them in a business suit or a professional dress. It makes them feel safe,
comfortable and confident in the person with whom they are working.”
”The CEO needs to have a clear vision and impart that vision—that is what is
important. Along with the clear vision, hiring the right person to help you execute and
implement your plan is vital. For us as senior executives at Franklin American, our
purpose is to build our systems and equip our people to go out in the market place and
compete and win the game in mortgage banking. It is our job to make sure they have the
tools to do that.
Third, make sure you pay attention to administrative needs. Many fast-growing companies
fail to spend money on non-revenue generating individuals. Whether it is quality control,
accounting, or other areas, it is very important to make that sacrifice early on and
invest in a good CEO or COO to make sure your business is managed appropriately from an
internal operating standpoint.”
CEOCFOinterviews:
What about logistics?
Mr. Crockett: “Logistics are
important; if you don’t know what you are selling and what your margin needs to be on
what you are selling, you obviously can’t make money. In addition, I am a Christian,
and the most important thing for me is that I am a man of character and integrity. I try
to be a man that is pleasing to God-- that is my number one focus. The reason that we have
been successful is that we have been blessed, and we have been able to procure our
blessings from the Lord onto the company and He has seen fit for us to be successful. From
a practical standpoint, I have spoken of the things I think are important.”
CEOCFOinterviews: Would you invite major corporations who are
building facilities to contact you?
Mr. Crockett: “Yes. Our
Correspondent Lending Division helps facilitate the development of larger companies who
are interested in lending, on their behalf. Usually they would go out, acquire a platform,
and then bring in their own people.
Strategically, it
is very important to be defined about what you are doing, we are a fairly
“vanilla” company; we are a diversified institution within what we are going
after. What we are after is Fannie Mae, Freddie Mac, and HUD lending, the core of what we
do.
We are not trying to be all things to all people, yet we are not afraid to compete,
create, and add demanded products to our menu that are competitively and consistently
priced. If there were a way to recreate the mortgage banking business, someone would have
done it before I did. It is important that whatever business you go into, you promote an
atmosphere and attitude of competition in which you are not afraid to compete. We are not
afraid of the “Chase Manhattans” of the world. We compete on one hand and on the
other hand, we do business with them.”
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