Mr. Deitch is co-founder and Chief Executive Officer of Teraverde. Previously, he was a co-founder, Chief Executive Officer, and Director of the American Home Bank division of First National Bank of Chester County. Under his leadership, American Home Bank was named one of the fastest growing private companies in the United States by Inc. Magazine and a top 50 national residential lender by American Banker and National Mortgage News. Mr. Deitch has served on the Board of publicly traded and privately held banks and non-bank companies. He was Chairman, CEO, and co-founder of Keystone National Bank and Keystone Financial Mortgage Corporation, and Executive Vice President of Keystone Financial, Inc. Mr. Deitch also served as Chief Credit Policy Officer of Keystone Financial Bank. Prior to Keystone, Mr. Deitch was President, CEO, and a director of Parent Federal Savings Bank throughout Parent Federal’s acquisition by PNC Bank. Mr. Deitch received OCC and Federal Reserve consents to serve as an executive officer and director of troubled banks and bank holding companies, and he has successfully remediated four troubled banks. He has excellent working relationships with state and federal regulators. An active speaker, Mr. Deitch has published numerous articles on the financial services industry and often is quoted in the industry press.

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Jim Deitch - Full Episode - Coest2Coest - Digitally Transforming
the Mortgage Banking Industry
To watch complete episode, visit Brian Coester on Youtube.
Mr. Deitch is co-founder and Chief Executive Officer of Teraverde. Previously, he was a co-founder, Chief
Executive Officer, and Director of the American Home Bank division of First National Bank of Chester
County. Under his leadership, American Home Bank was named one of the fastest growing private
companies in the United States by Inc. Magazine and a top 50 national residential lender by American
Banker and National Mortgage News. Mr. Deitch has served on the Board of publicly traded and
privately held banks and non-bank companies. He was Chairman, CEO, and co-founder of Keystone
National Bank and Keystone Financial Mortgage Corporation, and Executive Vice President of Keystone
Financial, Inc.
Mr. Deitch also served as Chief Credit Policy Officer of Keystone Financial Bank. Prior to Keystone, Mr.
Deitch was President, CEO, and a director of Parent Federal Savings Bank throughout Parent Federal’s
acquisition by PNC Bank. Mr. Deitch received OCC and Federal Reserve consents to serve as an executive
officer and director of troubled banks and bank holding companies, and he has successfully remediated
four troubled banks. He has excellent working relationships with state and federal regulators. An active
speaker, Mr. Deitch has published numerous articles on the financial services industry and often is
quoted in the industry press.

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Video Transcript
Brian and Fritz: 00:00:00 We're going this summer, this summer. All right. For. Do you
want to get us going? All right. So, uh, everybody. Welcome to
the show is coastcast. Welcome to the lion's den with Brian and
Fritz got our special guest, Jim di John. He is the founder, co-
founder and chief executive officer of Terra Verde. A salsa is
also the author of the book digitally transforming the mortgage
banking industry. The Mavericks quest for outstanding profit
and customer satisfaction is available on Amazon. It's a fantastic
read. I highly recommend that if you're watching our show and
you're in our industry, you obtain a copy of this book, it will help
you. So it's hard to build friant dam now, Jim, now the
mavericks quest. So. So I, I think you had something to do with
that name, right?
Jim Deitch: 00:00:46 I certainly did because some, we're really looking for people
that are on both innovative and willing to really a maverick, so
to speak.
Brian Coester: 00:01:12 Now. Now, now, now let's talk about maverick. So you maverick
in the form of a top gun, right? So you were a, you five fly
airplanes sometimes, right?
Jim Deitch: 00:01:24 I sometimes fly airplanes. Yes.
Brian Coester: 00:01:27 I've heard about it,
Jim Deitch: 00:01:27 the right side.
Brian and Fritz: 00:01:35 I got to ask you, is it F15 Eagle, F14 ever go, what are you, what
are you flying? Give us what you're flying. I'm curious.
Jim Deitch: 00:01:40 So I closed a number of aircraft because the one that's been
most fun, 51 much bang until World War Two a year crack had
the privilege of being at the state in three different versions of
that all compliments so that we loudermilk and stallion 51. So
those are by far the most fun aircraft
Fritz: 00:02:01 I have to ask Jim because I'm, I'm, I'm a history buff. Big Time,
big time, big time or more history about P51 is my favorite
aircraft by the way, not just of the war, not just of a piston
driven aircraft. Uh, for those who don't know, it had a unique
mono wing design the way that the plane was designed and
initially it had an allison engine was very under-powered. It

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didn't really perform. They stuck at giant Rolls Royce engine in
there. And then that really helped the allies to win the war for
the most part at least to, to really establish air superiority. I've
got. And there were multiple versions of it. So when Jim says
he's flown in three of them, I'm going to ask which versions now
other folks may not know. This is strictly for me because I'm a
Dork, but I got to know which versions of those did you get the
flying d? Did you get to fly the 51 d?
Jim Deitch: 00:03:00 So, uh, all three aircraft were on 51, uh, one, uh, one is crazy
horse, the other page where it's [inaudible] and the third one
was a up, which stands for a little lunch and they're all based
out of Florida. And uh, owned by louder bellingcat sign. Fifty
one. And you're correct on the performance of the aircraft. It
was good to [inaudible] 1000 feet was supercharged of the
roasteries Merlin. When it comes to life, there's no sound on
earth like a Merlin turning over. And when you push the throttle
forward, it is just a tremendous, a tremendous feeling just to
have that. It's really applying museum in your hands and you're
correct. And Alemdar flow wing, even if you are a pull the
power back within those out. It just accelerates really quickly.
But it's, it's an amazing piece of technology and you know, one
of those things is really the thing that drove me to write this
book and I was on a panel with Bill Anderson, Jonathan core
from Ellie Mae, a nema get, sorry, from blend at the MVA
chairman's and we're talking about the costume make alone.
And one of the things on that panel that I threw out was did you
realize it cost more to build a buick suv or compostability Buick
Suv Labor about $2,300 of direct labor to put together than the
$2,600 based on Emba our performance statistics to
manufacturer alone. I thought this is crazy. I mean it just can't
be
Brian: 00:04:34 And the buick my last longer than that alone, right? Yeah. Well,
and so to that point, so I think for the last better part of, you
know, let's say 10 years they've been talking about the digital
transformation in the mortgage industry and let's say that
started with the concept of going paperless and then the
concept of xml and then now you're seeing a artificial
intelligence and block chain. I'm starting to be used. Where do
you think that's going? Where do you think, to your point, um,
the mortgage industry has traditionally been behind in
technology too, but where do you think that's going?
Jim Deitch: 00:05:24 That's a great question. And the technology exists today to do a
mortgage loan as quickly as, as one can do a credit card or, or
personal loan or auto loan back is the number of constituents,

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particularly the gfc that just require things to be done in a way
that essentially had its genesis in the late thirties when fannie
mae was created. So the concept of all the verification of paper,
the concepts of all the things that needed to be done in
sequence really just prescribe what is required to be done to
get that mortgage done. But, uh, it almost have the ability to
innovate and use technology. And the reason is if you don't
have a perfectly manufactured love, we all learned in 2007,
eight, nine and beyond, you have a very high likelihood to buy
that loan back. You different. Nothing that had to do with the
underlying characteristics of the loan performance alone.
Jim Deitch: 00:06:32 But if the technical document defect, so people are very, very
weary about about technical documents, defects, we then layer
on dodd-frank and some of the things that flowed out of that,
like trips which puts statutory number of days before you can
close a loan because presumably you want to inform consumers
and give them a chance to really review the documents. But
nonetheless, that's just had a lot of kind of the process and the
name of consumer protection. So all those things kind of cut
against the technologies of block chain, which I think will be
useful, you know, not this year, not next year, but clearly people
are beginning to build this, this permanent, immutable record
that technically almost blockchain and it will be here. It's just
the uptake is slow because there's so many different
constituents in the mortgage banking problem.
Brian: 00:07:24 You know, what's interesting is, so, so, you know, Scott Cooley,
right, guy a Scott, coldly founded a contour which was sold to
Ellie Mae. That's now the basically encompass. He always told
me that, you know, the mortgage industry is about 10 to 15
years behind current technology. Uh, and that is just purely
based on complexity where it's just enormously complex to, you
know, with all the title company Appraisal Company, loan
origination, system verifications, every it has got to be dotted,
every t got to be crossed and he uses the example, you know,
let's use the example of Buick, of manufacturing a car from
scratch every single time, uh, and the idea that each of them is
unique to the person that's buying them right where it's like
each loan is a little bit different, even though the city is still
fannie, Freddie, each of the steps are a little bit different.
Brian: 00:08:24 Each of the underwriters opinions on what, what is a Fannie, uh,
you know, uh, what has met, um, for any requirements and
what has not, uh, he's a little bit different way. What is it, you
know, cause you know, some lenders will go down to this on
credit score for an Fha loan, some don't. And like within those

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variances creates this kind of have a clustered manufacturing
process. Right? Your manufacturing loans, what do you think
would be something that. I'm on a loan application process,
right? Because you see a lot of variations in a loan application,
some of them, you know it's going digitally, but what do you
think is preventing the mortgage industry from going forward or
is it or is or nothing preventing it and now things are going in
the right direction.
Jim Deitch: 00:09:17 yeah. That's a great question because a lot of the answer that
question really in two ways. First is the technology there that a
best in class load manufacturer could do a really great job. She's
fantastic and costs and operational efficiency and do it as
quickly as regulatorily is possible and the answer is yes. I think
it's probably a 10 day period to meet all the regulatory
requirements, so if you could get everything done within those
10 days technically to close a loan, depending on how you count
the days. The next question is, is there a technology that would
enable you to do that? If you could have a fundamentally stable
in uniform process? In the answer to that question is yes. What
really strikes me as very interesting, and this is all going off at
the NBA statistics as well as discussions with a number of the
Americans who were kind enough to volunteer their thought
leadership.
Jim Deitch: 00:10:21 It comes has to two things. One is this is a business that still has
been very, very high content of human interaction and human
touch and interaction as the customer relationship side to
answer problems that a customer has is perfectly appropriate.
That shouldn't be there. In fact, the research in this book that
kind of touched on the 25 mavericks as well, so I'm doing the
research that the best experience is a digitally enabled process
where a human being either face to face or via telephone or
email is responsible and can answer questions correctly. The
first time when you put that together, the Jd power survey of
mortgage satisfaction, the numbers get above 800 every time. If
you don't and you slow down when you don't deliver what you
promised, where you don't uphold those promises, when you
come back and back and back at the same time looking for
information that the customer believes has already been
provided.
Jim Deitch: 00:11:24 Very frustrating in the sport, but if you think about the retail
side, the traditional retail mortgage banking loan officers go to
officers. They want to do it their way, so typically and
particularly independent mortgage bankers that are heavily
retail, traditional retail focused. That's their process to

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accommodate the originated, which means that you don't
always have the same basic process in place. Which means that
then becomes dependent on the processor, the underwriter,
the closure in the originator and we've done some research that
shows that there are people when you chain them together,
originator, processor, underwriter, closer part extremely fast
and getting up stuff and there are other combinations that are
extremely slow. It's clear and looking at the data that the few
lenders that have really thought about the process in terms of
the fastest path to the speediest path through the origination
process, and there's not too many lenders are doing the
diagnosis that says on average it takes three days to close a loan
from applications to consumer closing at the title agent, so an
agent or a title of training, but the variation and there's very
wide.
Jim Deitch: 00:12:41 The variation may be as fast as 25 days, 200 days and those tails
on that. That standard deviation or we're customer satisfaction.
Particularly the slowest part of the standard deviation is where
customer satisfaction just pumps. So I've never met a lender
that hasn't told me that there asked for better than the industry
average, but when you look at the actual curve of how long
each customer took. Yes, the average is 42, 43 days, but there's
a lot of people that are 70, eighty, 90 days and you look at those
files and you begin to look at why and that's where the real
benefit of digital transformation can be had. When you look at
why and you begin to see what slows things down and how can
I, how can I speed that up? That is, that is the key.
Brian Coester: 00:13:35 Yeah. So, so let's talk about that. Um, you know, speeding things
up, being, you know, a speeding things up, getting things going
in the right direction, you know, the key to it all. Um, what have
you seen being the most effective ways of, of, of improving, you
know, if you're a lender and you're trying to improve operations
and you're trying to get things, um, you're trying to get things as
efficient and effective as possible. What have you seen the, the,
the main sort of way of doing that?
Jim Deitch: 00:14:11 No, that's a great question. And I got a couple of insights that
their details pretty are completely in the book from a number
of, of the Mavericks. And I'll start you down this line and say,
you know, Brian, when you think of a loan officer and let's talk
retail this for the moment, we think of a loan officer who is that
loan officers, costumer in the loan officers. So who's the
customer?
Brain Coester: 00:14:36 The borrower.

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Jim Deitch: 00:14:39 OK, and that's a perfectly correct. The answer is every other
customer that loan officer might be thinking about the realtor.
Absolutely right. Is there another did loan officer to be thinking
about, and this is a trick question of every loan officer I've ever
had these series of questions to has never answered. This is
actually the customer that makes the biggest difference in
whether I get paid or not and whether the loan closes or not.
You know who that customer is. The realtor gets the investment
alone, can't get sold, gets sold if the loan is not meeting the GST
requirements, they are buying that loan and therefore they the
customer. So here's how this is probably the best insight that I
got from talking to all the mavericks. You have to build the loan
if you're going to meet with the customer in mind, but the
customer you really want to think about first is the end investor
because they want to defect free loan that is documented and
put into the underwriting specifications and when you do that
and build that successfully, that loan goes through.
Jim Deitch: 00:15:51 Post-Closing gets purchased or securitized depending on the
nature of the lender that if it's done properly and that loan is
completely documented, the mortgage banker is not going to
hear from that investor again because it goes to determine
performance. Great. If not, that's why they took the risk, so he
designed the process starting at the back about what does it
take to make it perfectly manufactured loan and then work
forward to the point of customer contact. If you do that, you
find that you construct the manufacturing process in a way that
it doesn't be Andrew [inaudible] have a lot of extra steps is
what's necessary to meet the needs of that end investor
starting with the back going forward. So that was one incident.
The second. Yeah. The second insight was virtually everybody's
business process was designed pre-trip and becomes not hours.
Yeah. And the way the CFPB promulgated the Regulations on
trip was they threw it up against the wall, really didn't have
clear guidance.
Jim Deitch: 00:17:05 It was posted home wants so everybody knows, ready thought
they were ready, but then there are cover vacations so to speak,
and by the time it came out people were just happy to navigate
the process and patch things together. Jonathan Cora Kelly may
calls patching things together with people just putting human
faculty on the problems you just tackle. The problem's over with
humans and that's what happened to trip. Everybody put a lot
of effort and checkers checking checkers, checking checkers
because the penalty for being wrong is very, very hard when
you do that yet, so you have a process that really is designed to
produce perfectly manufactured loans. Do you have a process
that is perfectly designed to meet the trip in clients, meet all

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those. Those complexities imposed by that on top of the
underwriting complexities like competing stable monthly
income and the DT and an atr requirements of trips. All that
makes a lot of complexity and really taking a blank sheet of
paper and said, if I want to do this and design it from the back
end forward to meet all the regulatory requirements, what
would my manufacturing process look like
Brain Coester: 00:18:24 we're doing today? Is that something that um, is that something
that you is, you know, Ma, I don't know how many lenders, let's
say would have that skill set, right? Is that something that, you
know, you outsource, you hire for, you know, if you're a lender
and you're sharing it, you know, obviously this is something that
is, you know, the digital transformation, right? Uh, if you, W,
how would you approach that if you were a lender?
Jim Deitch: 00:18:54 So I would approach it, you know, really taking some of your
senior people and just asking what is it that, if you could design
this process from scratch starting at the back to make fully
compliant and fully salable loans that meet the investors that
you seek to serve because they are your customers. How do you
construct the chain of events that get you to from that endpoint
than forward to provide the customer experience? If you want
to have, if you think about some of the things that have
happened in terms of digital transformation, there's been a lot
of activity on the front end with blended, some marty and
others that have really made it a lot easier process for the
consumer. It's a lot more transparent. If the consumer is willing
to provide credential, you can cut down on the documentation
requirements, but once it gets into the processing and
underwriting of the traditional mortgage banker, that degree of,
of a transparency and ease of use hits the reality of manual
processes, manual underwriters, all of those trip requirements
that are there.
Jim Deitch: 00:20:01 All the investor overlays, if if, if they're employing imposed all
those complexities. Infants currently as human process, if you
look at $2,600 a compensation, expensive benefits to
manufacturer alone, which was the Q1, 17 numbers coming out
of Mba that imply 60 to 70 hours of touch labor, so think about
that safety to 70 hours. Somebody's disclosing it, somebody's
product, something, the college, the camera's picking up the
file, looking at document, doing it again, passing back and forth,
underwriter from initial initial approval. Here are the conditions.
Go get them. Conditions come back, but not quite right. They'll
get them again. Back and forth, back and forth, back and forth.
It is incredible. But the, the, the lungs take 50 to 70 hours of

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touch. Labor to do exterior Schiano for new pens. Crazy that it
takes another writer for hours to essentially make a credit
decision, let alone and productivity on the Mva stats are 40, 45
loans a month from an underwriter is doing pretty well.
Brian Coester: 00:21:10 Yeah. When you, when you think about all the tools available,
spending six hours basically all you know, four hours. So what
are you talking about? You know, you're, you're talking about
getting um, you know, getting done at a, you know, let's say
starting at 9:30, uh, you know, spending 10:30, 11:30, 12:30 on
the launch, coming back at 1:30 and then spending from 1:30 to
2:15 on it, checking your emails and going home. You know
what I mean? May maybe spending a little longer, but you're
not, you're not, you know, it's like, that's a long time in theory
for one approval that is pretty much defined.
Fritz: 00:21:55 Well, let me, I want to jump in as an underwriter was a writer
for Fritchman's in underwriter by the way. So I'd like to give
someone some perspective on the underwriting side of it or, or,
you know, from, from an underwriting side of it. And actually I
should mention to you that when I was on a writing, um, we
had the benefit of, we did have multiple files in multiple
packages of files that we would look at that were presented
purely in a digital sense. OK. Um, now that being said, there's
still a lot of manual work that goes into that review process and
I think where we're moving is in is where we're going to get into
more of a digital review process, which should simplify things.
And I want to take a minute before I give the underwriting, you
know, sort of day to day what my day would look like as an
underwriter or how it would break that up.
Fritz: 00:22:41 I just want to mention again that, uh, if you're, if you're just
joining us joining, just warning us or you're just looking at a
checking our clips, a spirits and Brian were all on with James
Dyson, a co-founder and chief executive officer of Terra Verde.
And the book let you know, again, digitally transforming the
mortgage banking industry, the Mavericks Quest for
outstanding profit in customer satisfaction. And he's got some
great points in there. He's been making some really, really great
points on the show about what's in that book. So I encourage
everybody to go to Amazon. Check that out, make sure you pick
up a copy, especially if you're in our industry, it's going to help
you. And if you're not in our industry, it's going to give you a
good understanding and insight of how things work. So one of
the things that happens is an underwriter.

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Fritz: 00:23:24 So part of it is you don't typically get all the way through one file
in the first city. OK. That's, that's really, that's really part of it. So
you know, as an example, I'd come in and I'd have 15 loans that
day and go through these [inaudible] loans and under. Right
now the issue there is it will be great if I had everything I
needed in 15 of those files that I wouldn't have an issue. I could
just fly all through, fly right through all 15 of them, or they
would go right through. And in that sense, if I have everything in
the file, probably only takes with an experienced on a writer at
most a couple of hours to review all the documents, go through
all your checklists. OK? Because they're all know the standard
stuff. All the, the i's are dotted, the t's are crossed, right? And
you've got, obviously you've got to double check every single
thing.
Fritz: 00:24:13 You take nothing for granted, right? So you're redoing Dti,
you're looking again and then come to recalculating all those
things. That's really what takes the, you know, that that is what
takes the bulk of the time on a clean file that's done and ready
to go to finish the review on and then get it out to the closing
department. Now here's the issue. The problem is you got
maybe one out of 20 or one out of 15 that were actually clean
that way that you could send, write it through because in a lot
of cases you find it an expired document you'd have. Then you'd
have to go and request it. You'd have to stip for it, OK. Or You'd
have a question about the appraisal and you'd need a correction
and he got a stip for that, uh, or you need to, you know, you
calculate something and it wasn't calculated correctly by the
processor.
Fritz: 00:25:01 So you've got to recalculate it, send it back. So in a lot of cases
why there's a delay in the, with the underwriter for the
underwriter is because they're not just verifying the information
that's there. They actually have to go back and ask for the
corrections that they need to make that file clean so that they
can put it through to closing. Now, I think where Jim is going to
go with this, and I'm hoping I'm right on this, otherwise I'll
sound really foolish, but if we're looking at transforming the
underwriting process and the process and process, if that's
going into more of an automated, you know, in a, in a, in a ditch
sort of digital review with, you know, as, as, uh, an automated
in a way that's going to save a lot of time because now the
underwriter, rather than having to dig through the file for two,
three hours to start putting together all the steps can run it kind
of like how we do auto people, how we run ourselves through
their weed.

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Fritz: 00:25:51 It comes back because it knows what to look for. The system is
built. It's smart enough to know what to look for. OK? Based on
the criteria we give it and it spits back the [inaudible] list
essentially and says, here's what we need. And I think we're
moving in that direction. And then the underwriter's job would
be to verify that the data at this point, that the data entries
correct, and it would really kind of almost minimize or, or
somewhat reduce the responsibility of the underwriter for
making the decision, which will also accelerate the decision
making process from the underwriter because again, remember
if an underwriter makes a mistake once, once they lose their
job, so, so they, they're, they're going to look at something,
whereas you may look at it once or twice a couple times.
Verified good. It looks good, sign off on it. Whereas the
underwriter is probably gonna look, they're going to sign off on
it and then before they release it, they're just going to go back
and double check everything
Brian Coester: 00:26:44 again just to make sure now, Jim, any, any, any, any comments
on that? I mean, you're obviously dealing with this all the time.
So I mean, uh, is, is a lot of the um, let's say delays done in the
mortgage industry. I'm done by let's say, you know, let's say
poor designed, um, you know, investor packaging requirements,
meaning, you know, you're, you're trying to put something in a
box, a, you know, you're shipping something on Fedex and the
box is too small or too big for what you're shipping and it causes
problems down the road and so they're not packaging things
correctly. And then secondly is, um, you know, they're not
getting the full order on the first time, meaning they're not
getting all the information they need on the first go around and
having to go back and forth six or seven times just to get basic
information that they knew they were going to need.
Jim Deitch: 00:27:44 I'll give you two examples. You know, having been a lender for
third years, there were loan officers that knew how to structure,
who had to submit a file and the processor would look at that
file from an underwear originated with really, really skilled and
they'd be very happy because they knew properly structured. It
had the documents that we needed to customers properly
disclosed about what they needed. Not only the the consumer
disclosures, but here's how much cash you need. Here's what's
going to happen next. You owe us these documents. I need
them by tomorrow to keep this loan on track and it's the
processor has all the information and can assemble that and
prepare the underwriting transmission. The underwriting job is
fairly easy because the processor was supported by your loan
officer who properly structured the file and documented those

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funds go through and you know, 15, 20 days and we see it with
our clients.
Jim Deitch: 00:28:34 There are combinations of loan officer, processor underwriter,
closer or loan file, just just sail through. They failed through with
virtually no defects for post-closing and the loans perform, but
it really comes down to can you induce the customer on the
front end through the loan officer and we're talking retail down
primarily to provide all the documents and all and be responsive
and for the loan officers to know what the program is, to really
have a clear cut sort of accountability as to what they need to
do. The processors, accountabilities are clearly what they need
to do and the file comes through in. The underwriter can touch
it once approved, conditionally check all the documents that
come back after that conditional approval to close ups and
there were files to go through that. They're also file from help,
right?
Jim Deitch: 00:29:30 And then you know as an underwriting file from hell, looks like
you're going to touch it 10 times and it's just going to continue
to go forward. The other point that was I think is really good is
that is the fear factor a. it's been instilled in everybody in this
industry who touches that file. If something goes wrong, it's
your reputation, your job, so you make a bad loan or you miss a
critical documentation requirements that loans either
unsaleable or it comes back for repurchase. That's not a career
enhancing move and as a result you can get underwriters who
are very, very cautious because that's the environment that that
has been created over the last five, six, seven years. Look at
what nok has come back. Look at the statistics of the of the
credit box that Freddie and Fannie or buying, you know, an
example, an example in the book, I was in New York, writing
with a cab driver whose name was Tamir, and we got to talking
and I said, Samantha, what are you doing in New York City?
Jim Deitch: 00:30:29 So I came and I waited, want to raise a family? I've got a wife
and two children. I'd love to buy a house. So how do I live in
East [inaudible], Uber? I'm dragging lift. I'm delivering a four
restaurants. I sub at night for doorman a couple of times. I do
some handyman work, five cyber, six sources of income. I'm
thinking, wow, if I were a processor or an underwriter, how am I
going to deal with that? The doorman income and cash, the lift
income is is independent contractor. The Ubur income is
independent contractor. The delivery services, independent
contractor and severe work. Twenty needs to work, but when
he wants to be with his family, he doesn't work. So does that

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income look like perfect way to the way you speak? No. It's all
over the place. So how to underwrite that
Brian Coester: 00:31:19 from my perspective, it's sort of like, you know, you can put
things in such a box and I used to do this thing inside the mind
of the appraiser, um, which, you know, you sort of like
guidelines versus the way homes are built are two different
things, especially once you get out of the suburban area and
you know, especially as we go towards let's say what I would
call e-commerce based economy, where from my perspective
you will have sterling Virginia to DC and there's five packages to
work for Fedex wasted per say, economics perspective is it's
cheaper to just give the packages to Fritz, pay him 20 bucks to
send my driver to drop off the same five packages. Right? And
you're towards that. Like with companies like let's say e Lance,
uh, that have, you know, independent contractors, you know,
fiber. We can get something done anywhere in the world.
Brian Coester: 00:32:48 Uh, Uber, all these things, you know, a taxi take out were
almost. It's like you're going to see from my perspective, a lot
more flexible base positions and the, you know, similar to the
way it was. Let's say in the 19 hundreds where most people
were sort of self employed and these mom and pops are digital
mom and pops and so are they getting ready for that? Is that
something that just that. Just tease them off. I mean, is that
common on demand economy, pound pound for that year for
that, you know, on demand economy, is that something that
they're getting ready for or is that something they're afraid of?
They didn't know how to handle it.
Jim Deitch: 00:33:30 When you say who
Brian Coester: 00:33:32 the investors, the investors, the investors.
Jim Deitch: 00:33:36 I think if you wanted to figure out how not to fix the accesses
that occur in the song was just a tremendous intentions as to
virtually but hard coding. Forty three percent of PPI into a
requirement of a qualified mortgage and the EPR requirement
makes it really difficult to exercise underwriter judgment
because 43 is the heart day unless the loan is eligible for sale to
fannie and Freddie and that notch, which at one point was was
pretty big. It's been kinda rolled back now to, to a smaller
number, but nonetheless, there's disparity between what
Freddie, Fannie will by what a private bank or private investor
prior to labels securitizer can do and be with him and her. So if
you put on a requirement on the income at the same time
we've gone to a gig economy where job mobility is much higher

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and you just have to wrong thing looking at, they're looking at
this.
Jim Deitch: 00:34:42 Affordability is really important, but the industry is stuck with
this 43 dps now. Certainly there's just, there's ways around it.
You can look at residual income, you can teach people to think
about that, which is a fork in the road of the process. So I'll give
an example. Um, you know, I saw some statistics from corelogic
and others is defect rate on income is something like half of all
these assets that are looked at in the files and review. So half
the income computation related. And when you look at the
number of files that have defects of any kind, it's still a pretty
high number. So think about this. Um, I walked from the
manufacturing facility that makes a very large parts for earth
moving equipment and oil industry equipment. He's parked
weigh hundreds of pounds to thousands of pounds. They have
50 to 60 operations on where they're drilled their machine
tolerances of a thousandth of an inch and it's done reliably and
each time the operator who's doing this on a, on a, on a
manufacturing platform does it.
Jim Deitch: 00:35:50 They look at the bill sheet, they build it, they tested someone
else's looking at it before they, they, they use actually turn them
loose to, to manufacturing the part and as it moves down that
line of manufacturing, it comes out the other end and the
defect rate is zero and you go, how can that be? This is hard.
You've got people that are skilled operators but they're not
physicists or college degreed individuals. They really, really very
good. A tradesman I think can make these parts without any
problems and complex parts. Think about southwest airlines,
went through their training facility as part of the research, got
to understand how difficult it is to dispatch an aircraft. She
wasn't properly to get it to the right gate to get the
maintenance done.
Brian and Fritz: 00:36:39 Probably that's something where it's like what they please
explain in one sentence, the world and all that is within the way
and you don't even get the fly southwest as great as they are.
Don't even get the fly P51. I'm going to bring the conversation
back into those Mustang's at some point. Going to do it.
Jim Deitch: 00:37:02 Yeah, well get. We'll get that, but my point is that you can do
that reliably and the airline transportation industries had no
fatal crashes in the last 18 or 19 months and they are making
money and they moved 250,000 or more people a day just
because they have a process that is the same degree of
regulation is not tiger because you're not talking about people's

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lives as opposed to a mortgage, but they reliably do it because
they have a process and they follow that process and people
training and that process is unbending and that process works,
but yet the pilots still have the freedom to break off and
approach and slide visually if they wish. They still have the
freedom to to, to, to essentially take the route and picked the
maneuvers that they need to do and to request whatever they
want from some of your traffic control. Same as a
manufacturing process I spoke of earlier that people have the
freedom to do that, but they know the end game is to make the
product perfect, to deliver the passenger safely on time and
deliver the parts completely free of defects to thinking in the
mortgage business, but picking the morphine businesses, he put
consumer happy. Keep the realtor happy. Sixth alone after the
fact.
Brian Coester: 00:38:16 Just they got that mean that, I mean they're just happy they got
the loan. Let's just be real here. There, there, there, there. Well,
to a certain extent, I think also, um, and this sounds a little like
far fetched, the maturity of the sales process in the mortgage
industry to me is still somewhat immature. Meaning like in the
car business is, is the, the, the manufacturers are concerned
with manufacturing, right? The sales aspect is done through
dealerships. Very few except for Tesla have distributions
directly. I mean there are some, but there's very few. Whereas
in the mortgage industry, you're responsible for manufacturing,
delivery, and selling at the same time. I think with the digital
technology, you look at companies, let's say I'm like Wyndham
capital, Jeff Douglas Straight Guy, um, you know, they're
building technologies to where they're doing purchase business,
online realtor relationships online. I'm managing the purchase
process online.
Brian Coester: 00:39:23 And as that kind of continues and let's say online is the
destination versus, you know, up to let's say five years ago, it
was kind of a combination of both. Right? I think you'll still see
that, right? Because it's hard to, you know, kind of adjust these
anomalies when you have an industry that is somewhat
fragmented where I liked the sales process is OK, you know, am
I sending them on a paper application? Is the realtor getting
going to get involved in going to say no use my lender is um,
you know, is the lender not going to be able to do the loan
process for a variety of reasons, you know, what does the
underwriting timing, the variants and underwriting time, um, or
closing time is tremendous. Like you have some companies that
can close a loan in 60 days and you have some companies that
can close a loan and let's say seven days like, dude, get my
buddy over at movement.

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Brian Coester: 00:40:18 Right? Where that alone creates confusion amongst consumers.
Right? Like if you said, OK, well you go to this company and you
want to buy a car, it takes seven days and you go to this
company, you want to buy a car and it takes 90 days. Well that's
Kinda different. You know what I mean? When you're talking
about the same in car, which is a fannie, Freddie product. Um,
do you think that. What do you think that, uh, well, number
one, do you agree or disagree with that point regarding some of
his transitioning in the, in the sales process? But then secondly,
where do you think it's going to end up two years from now? Do
you think it's all digital or do you think, what do you do with the
consumer retail groups? I'm the art director. Can direct to retail
groups or do you think is going to be some hybrid? Flatten that
question. But
Jim Deitch: 00:41:12 Yeah, so let me first answer the question from Maverick, we
spoke to and, and to a Maverick the sense is a hybrid, not
necessarily using a face to face, but if you don't have the ability
to have a human intercede and answer questions and coach of
the borrower through the process, you probably are going to
have a difficult time. So the pure retail side, uh, you know,
clearly even pure retail is a hybrid because many loan officers
will give the consumer a link and said, hey, go load your
documents, go, go pre-populate some of this information. So
when we're together we can spend more time, uh, you know,
managing your data and managing the transaction structure as
opposed to trying to just fill out the [inaudible]. Having said
that, I still have a couple of friends that, that, that out by hand
because that's the way they do it. They've been in the industry a
long time and that kind of change.
Brian Coester: 00:42:14 I think that's always going to be the case though. Like I always
think he's talking about the automation of appraisals, right? And
it's like there's always going to be an element of automation
and then there's always going to be an element of a block and
tackle, right? I don't think it's going to be either one or the
other. Like there'll be companies that had carve out niches
locally that you know, nobody could compete with. And then
there's going to be companies that go pure digital, pure online,
everything almost cert extent compete in a different space.
Right. You know what I mean? Like the guy who does the
channel three manually, he's still may be able to do that, you
know, for the rest of his career, you know, and be fine. Um,
Fritz: 00:42:56 well think about it this way more. I think the, the, I, I do agree, I
think because there's always going to be some element or some
holdover of any industry that doesn't want to advance to the

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next step of technology. And case in point, if you go to central
park, you can still ride around on a horse and buggy. They go,
OK, now granted it's a very, the technology or lack of, in this
case as applied very differently. It's not necessarily, you know,
like [inaudible] library stable, so it's not necessarily for
transportation of goods. We don't necessarily move products
that way anymore. We don't necessarily use that as a primary
form of transportation for individuals. It's more of a recreation
and fun kind of thing, but there's still some element of it that
exists now. I think the same thing is going to likely happen as
we've made the transition digitally in the mortgage industry,
just like self-driving cars.
Fritz: 00:43:51 You know, uh, at this point, you know, we're being told by 2020,
which is only two years away, that self-driving cars are
essentially going to become ubiquitous and you're not in the
trucking industry is going to be gone and you're not going to
have truckers anymore. It will just have automatic automatic
cars, self driving cars. Again, there's going to still be a human
element involved as long as humans are involved. There's going
to be a human element involved. But I think what we're looking
at here is, uh, and, and what Jim's really focused on is how
we're going to utilize that technology to make, to minimize the
human interaction or minimize the human element. Right? And
make the focus on the human element, the service aspect of it.
You know what I mean? Because that's the part of it that the
technology can't replicate the human service part of it, the
interaction, the human or actually to Jim's point, the person to
answer questions, right? The person that can intervene if
something needs to needs to have an answer or resolution.
Jim Deitch: 00:44:52 It's a very solid point because when we talk about digital
transformation, successful digital transformation occurs when
you take the low value added commodity activities like
collecting documents or we're doing the mathematics or
something that file that can be digitized. And with thoughtful
process starting at the back end going forward, you didn't make
a lot of process improvement that it really makes a difference in
the amount of labor and touch labor. And we work that has to
be done. So I don't think we'll get to the point. I don't think we'll
get to the point where is never a loan officer involved, but
here's, here's the point that I think comes through from all the
average human interaction with the customer or the reader
should be on high value added relationship building activities. It
should not be given me your pay stub for the seventh time.

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Jim Deitch: 00:45:46 It should be. Let's talk about how long you gonna be in the
home. Let's talk about what's going to happen to income. Do
you have a left calf to comfortably live in this house and do all
the other things that are there and almost should I float? Should
I? Should I lock? Should I take an arm to take a sip? All those
types of questions, build the trust and the relationship of the
lumber rack for the loan officer or who's ever interfacing with
that customer. That's the high value adds. It probably shouldn't
be digitizing. What shouldn't be digitized is just all of the
processes to get that information to verify and get into a place
where an underwriter can say, yes, it makes sense. Yes, there is
nothing left for me to do. I put all these conditions and I can
reliably say and comfortably say with certainty this little needs
to requirements.
Jim Deitch: 00:46:33 We invested in a way that is possible today just by, I mean
literally starting with the back and working for quickens
approach to business. They really need the pro, the customer,
but they are a direct lender that has the highest consumer
satisfaction. Eight years in a row you look at death penalty still
from pulte mortgage. They never meet the customer. The
customer is always presented to them through a direct to
consumer channel. They achieved tremendous relationship with
the customers and they achieved tremendous, uh, uh, customer
satisfaction scores from a customer you're never face to face
meet that customer. I've got through her process of buying a
home in Florida and it worked pretty well. The person that was
my loan officer, I got to know pretty well and most of the time
we were talking about high value add stuff. Yeah. I didn't have
to get my tax returns three or four times, but you know, there
you go.
Brian Coester: 00:47:32 Well, yeah, you were only going to happen by the way, with
having that human interaction and so to that point, right? So
what do you think? I think most companies right in it and you
know, you travel around just like I drive around and you all go
see all the, the, you know, all the, all the executives or the
mortgage company and I think most companies are in a time
where most ceos are in a position to where they're unsure what
to do, right? Where you look at the traditional retail guys and
they're thinking to themselves, you know, I'm going to steal
away my relationship. Right? And then you look at the online
guys and your rent and they're thinking, man, I don't know what
they're doing this whole thing. Go Online. Uh, but uh, what it,
what it really comes down to is it, is

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Brian Coester: 00:48:26 process and service and then the elimination of inefficiencies,
right? Like, you know, process and service and then the
elimination of inefficiencies, right? So the first guy that can
figure out how to have loan officers working from their house in
a call center environment that can also go out and do
customers, you know, you know, uh, interaction is going to be
the winner, right? But, but no, but, but on a serious note, where
do you think is the best place to start reviewing and if you were
going to try to make a culture change or process change, if
you're a call center and you got to figure out what are you going
efficiencies you have to eliminate to build better customer
relationships, do purchases or if you're a traditional retail and
you're figuring out what improvements do I need to make it so
that I can compete in the digital world, where would you start?
Jim Deitch: 00:49:19 So it really depends on the model select and if you're going to
be in the retail model was with traditional loan offices or
branches you have, you have the highest complexity deal with
because of the loan officer will employee a good loan officer so
hard to find. Everybody wants to look at what's happening to
the, you know, the commission rates. And the sign-on bonuses,
you know currently the really, really, really hard to find good
loan officers, retain them and get them into a system that that
repeatedly does what is needed to be done, rely reliably,
manufacturer alone, or you can put in the more activities you
can think about what's the role of that loan officer, what they
shouldn't be doing and what they shouldn't be doing, and if you
go to a lender and the answer is well, the loan officers have
control over whether to disclose or not or you know, how they
collect documents or whether we use loan officer assistants to
collect the documents or what was exactly expected in the
surface level of when the package needs to actually be
submitted in processing.
Jim Deitch: 00:50:24 If you have a really undefined process, you're to have a great
degree of variability. Some will be really, really good because
they figured it out and other loan officers will struggle because
they don't have that structure. So it's the balance between the
channel you pick and retail is clearly the most difficult and the
most expensive, but if you get it right, it's the most rewarding. If
consumer directly have more control because the loan officers
are really working on a scripted environment where the lead
comes in, they know what they need to do, they have the ability
to work on that particular product within a system that has
much less variability. And so, uh, you know, the consumer direct
purchases probably as difficult as the traditional retail, but it's
more relationship driven because of the is more relationship

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driven because the customer and the realtors are in close
proximity. The consumer direct. It's not in close proximity.
Brian Coester: 00:51:22 You guys are a little sharper to just from what I've seen, the
retail guys, I mean you get some guys who are pretty studs. I
mean they, they could be, you know, a lot of these guys on
companies in their own right at some time period of time. And
to a certain extent in some of the guys that I know that our
retail guys own, other businesses, they just are really good at
sales. Really good at. There's guys that I know that do, you
know, loan officers that also flip houses, owned the building
that are pretty savvy to say call center guys. Generally speaking,
are newer to the industry. This is maybe their first or second
job. Some of them are scripted environment variables. Being
minimal element is almost in the retail side. I mean I'm sorry, in
the traditional, let's say a call center side has almost been like
make a number of phone calls and answer the phone, not, hey,
did you take your local five realtors to lunch or check in calls like
you know, they're more production oriented. What do you think
the call center is going to be able to make the switch?
Jim Deitch: 00:52:53 Yeah, I can't do it because the, the, the consumer is getting
more and more use to the digital channels. For example, the
largest cohort of Amazon prime users is between 25 and 35
years old. The second largest cohort is between 55 and 65 years
old. That consumer wouldn't pay $99, so you don't have a prime
member if they didn't intend to use Amazon for a large number
of their purchases. So digital adoption is not a millennial activity
is not really an age activity because when you look at the
cohort, so who is using digital to acquire physical products
through Amazon, for example? Uh, it, it's pretty well
distributed. So if you look at some of the jd power numbers,
about how many people in 2017, for example, use a digital
channel to do some of their applications were to provide some
information to the lender.
Jim Deitch: 00:53:53 The answer is almost one attitude and it's growing at a very
rapid rate. In 2012, that number was 13 percent. So the
adoption is coming in. It's not, it's not necessarily channels
specific. And you can do a really good job at retail with a very
high customer satisfaction, very high profit. Looking at quicken,
I mean there are a hundred percent direct to consumer looking
at holding a hundred percent direct to consumer so that that
works. You just have to structure the environment and get the
people who are able to work well in that environment who are
good at creating relationships without seeing someone face to
face. Um, if you look at the ships of the, of the share in

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mortgage originations over the last seven or eight years, the
independent mortgage bankers are now well over 50 percent of
shear and the reason is they are really good at being local.
Jim Deitch: 00:54:47 They're really good at having the loan officers that have the
capability of the structuring, create those relationships and the
banks have fallen behind for two reasons. One, I think to some
extent the larger banks that said, we'll just buy this and
correspondence costs, we don't need to be out there trying to
pound the pavement to some extent. And secondly, the
creativity of the loan officers, particularly entrepreneurial loan
officers that own their own company or incorporated in a small
to moderate size independent mortgage banker, very sales
oriented, better than the loan officer that takes a salary,
commissions to a bank on Friday, May 6th. Did you see that
shift towards the channel help to, um, so I don't think there's a
writing answer. What the right answer is, is think about the
process starting in the end with the salable loans, the servicing
process will work through to the front, really think about all
those steps that are taken and, and look at removing all the
band days, all the work around checking the checkers, checking
the checkers that humans, apple, so to speak and re-engineer
the process so it's as close to straight of a line as soon as you
can get it.
Jim Deitch: 00:56:03 And realistically an underwriter's connect if it's twice as perfect.
But it is possible. So again, I want to be respectful.
Brian Coester: 00:56:13 Absolutely. I'm it. So, so, so last question and we want to
comment on this too, but, um, what advice you give to today’s
independent mortgage broker.
Jim Deitch: 00:56:30 So there's two pieces of advice. The first is that the cost and the
liquidity issues that one faces business slows down requires a
lot of productive proactivity in looking at how you manage your
costs and how you manage your structure and to make sure
that you retain the most productive people. So that's the first
one. The second one is you have a lot of opportunity on the cost
side by really looking at that process and finding the fastest
path to the speediest path through. And if you do that, you can
go up good, you can make a good return on your investment if
you don't and you aren't constantly looking to upgrade the
process and make sure that people that you have hired are the
most efficient people. You're going to feel the margin pressure
and a lot of a lot of my friends feel that margin pressure in there
and they're being proactive about working to resolve it.

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Brian and Fritz: 00:57:26 Fred's, any comments? Oh, that's good. Good advice. Definitely
good advice. Yeah, I do. Actually. I have a couple of things that
I've got as a takeaway and I want to share. Uh, the first and
foremost is that there is value in relationships. There's always
value in forming those relationships. There's value in creativity
there, there's, and, and, and really the, the, the big note I have
here is what Jim just said, which is the path to being successful
is to establish the process and follow the process, OK, not to,
not to work, to the exception, to establish your process, clearly
work to that process. And in this case, if you want to get ahead,
please take his advice and think of the end investor as the
customer, the ultimate customer for that loan. Because in
reality that is the end result. The end customer of that loan is
the investor who's going to buy it.
Fritz: 00:58:22 And so if you start and you established your process with that in
mind, you work from that. You follow your process the whole
way through each time and you understand the value of
relationships and what those mean for your business. I think
you'll have a good opportunity for success and I just want to
mention again, please guys check out the book. It's available on
Amazon. It is a five star rated book, which I will tell you you'd,
and by the way, multiple multiple reviews, you don't see five
star reviews on Amazon ever, OK for books, especially books of
this type where it's giving you insight and some instruction and
some advice on what's happening in the changing industry. So
again, the book digitally transforming the mortgage banking
industry, the mavericks quest for outstanding customer
satisfaction and while you're on Amazon checking for that book,
James Actually written some other books to click on his name to
get his author profile, check out some of the other titles he's got
as well because he's gotten a lot of great stuff out there. Thank
you Jim. One and thanks for everything. Right? So that was
good. That was great. I actually, again, I, you know, I'm excited
because again, having, you know, published a book myself. Uh, I
can tell you it's not an easy thing to do, but this, he's done.
Brian Coester: 00:59:45 He's, he's, um, he's done a couple. he's also, he, um, very
technical topics, right where it's like when you, when you meet
somebody who I'm the technical side is tough, you'd like to go
through a Fannie Mae, fha guidelines for it and you know,
encompass integration, um, you know, uh, go to the Ellie Mae
conferences, get early, may sir, get your cmb, get all those
things that you would need in the business owner business,
own a bank on multiple banks and then write a book about like,
Hey, here's what I think's going on. You know what I mean? It's
worth the read.

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Fritz: 01:00:21 Absolutely. It's worth a read and I'll say this. I mean, look, I'm
just for myself, you know, almost 20 years in this industry. And
quite frankly we just, we did this interview with him. He's kind
of changed a little bit of my perspective of how to think about
things. OK. Because I'll tell you, man, 20 years in this business, I
don't recall her ever having heard anyone else, particularly with
his level of success and look at things from a perspective of
having the end investor as the client because that's not a, that's
not a fault, it's just we're also focused and I think correctly so on
the borrower, OK, and the needs of the bar. We're providing the
best service to the bar or making sure that the borrower
understands the transaction and is and you know, taken care of
and that's of course their tremendous value.
Fritz: 01:01:14 That's absolutely important. Uh, not, not minimizing that at all.
That is absolutely, absolutely top of the list. However that
should go without saying in any industry that you're in a
regardless of what business you're doing. And actually just one
of the things that I was thinking about between, you know, with
you and I and how we interact and like one of the, well not
really. One of the things I really, really appreciate about you and
I'll just kind of publicly compliment you. Sorry to embarrass you.
I'm, is that what I do is when I watched Brian, I really appreciate
how you get excited about every interaction you have with
every person you interact with. And what I mean by that is what
I mean by that is you don't just get excited when you know we
have James on the, on the line and we're talking to him and
we're meeting with him and you know, we're getting all this
good insight.
Fritz: 01:02:05 You come in here and say, you know, the guy that made my tea
at starbucks gave me the best service and it was awesome and
I'm inspired by that and I want to do a great job too. And don't
minimize that because that's very, very, very rare quality for
people to have. And that's a quality that leads people to
success. And again, it's one of those things where it just goes
without saying. For you to have that mindset, it should be that
way for all parties in, in, in any service industry, any industry
where you have clients, customers, borrowers, whatever. But I
think, again, it is for us in the, in our industry, the mortgage
industry, but to Jim's point, it goes even a step further where
you really would have an advantage because everyone's
thinking of it that way, but now you'll have the advantage of
thinking about that an investor is the ultimate client because
that's the thing that's going to stop you, that's going to prevent
the hiccups, OK, that's going to help you create the better
process for you to follow and then becomes successful long
term.

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Fritz: 01:03:06 And guess what? It makes it a lot easier to give the best
customer service to a borrower and then get referrals from that
when you're process is so well defined and mapped out that
you don't have those hiccups along the way that you're able to
think about as he was saying the investor as the, as the client,
you know, what they're going to expect, you know, what they're
going to want. So you don't have these bumps going along the
way. You just have a smooth ride all the way through. And that
makes the customer service aspect easy.
Brian Coester: 01:03:35 Yeah, no, absolutely. Absolutely. Um, and, and to that point, I
mean, I, it's one of those things where, you know, I think
everybody's still trying to figure that out, right? Because
everyone always like when you just think about like the
seasonality of things, right? You could've been the best repair
man in the world and the most friendly customer service
oriented VCR repair man in the world and not have a viable
business model anymore. Um, but then at the same time you
could say, you know, blockbuster had the best customer service
and Netflix was horrible. They interact with you in person. They
didn't, they didn't, uh, they didn't, uh, do anything other than,
you know, mail you a DVD and now I guess dream a DVD,
definitely a cross section where you have to toy with what is
good customer service during a transitional business model
because you're talking about companies like blockbuster.
Brian Coester: 01:04:54 I'm like, Hey, you can't come here anymore. These stores are
now just shipping centers. You know what I mean? Because
there's always a certain element of customers that will want to
go there. And then how could you know, let's say Netflix kind of
say, hey, you can never come here, right? Like don't ever call,
don't email, just go online. And I remember you have to use to
have to wait where it wasn't even like they had it, it was like you
had to wait like on a cue like, oh, you were going to get this in
two weeks because it's, you know, we've got to get it back from
Bob and Bob doesn't have it anymore. And stuff like that.
Fritz: 01:05:38 I can speak to this one with serious level of authority because I
was not only a blockbuster employee and blockbuster manager
and blockbuster district training manager. I was the youngest
ever store manager that blockbuster video ever had. So far as I
know, I was only 21. I was like three days after my 20 first
birthday I took over my own store, which was an
accomplishment. Know blockbuster is a fascinating case study
and they're the best case study available presently for this. OK.
And the reason I say that is because at one point, blockbuster
worldwide in 2005 had over 9,000 locations. OK. That is an

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insane number of locations. 9,000 locations worldwide in 2005.
There are 51 left and all 51 of them. As far as I know it could be
wrong on this, but I'm pretty sure all 51 of those are owned by
one or two franchisees. OK. The way the blockbuster used to
run their business is they did not allow.
Fritz: 01:06:54 They didn't franchise out. If you wanted to buy a franchise, you
couldn't buy one. You had to buy an entire district of
blockbusters. So you had to have the entire county. OK. So you
had to have like 10 stores. So it wasn't easy to become a boy to
become a blockbuster franchisee. So the problem with
blockbuster, now, they were offered, they could've purchased
Netflix back in 98 or so when Netflix first started out for I think
about a million $2,000,000. And blockbuster said no. They said
no because their mindset was they were getting, oh, is it a
bunch of stuff here? But they were trying, they were getting
away from their core model, which was rentals. OK. And they
were trying to become a retail store, which was never going to
work was it was, it was a horrible way to do things. And
ultimately that's really what costs that Dan, their failure to
accept and transitioned [inaudible].
Fritz: 01:07:45 When you talk about a business in transition, here's a great,
again, the best example, because blockbuster did nothing to
transition. OK. On the scale after Netflix, their competition had
already captured the market and yes, you're absolutely correct.
Netflix did not have the capital or the reach to, to stock enough
to keep enough inventory in stock to where they could
constantly supply you with movies. So yeah, you had a waiting.
You had to wait. First of all, you couldn't, you couldn't get it that
day that you wanted. You had to wait for them to mail it to you.
Right. Then it wasn't available. You had to wait for it to be
available that they would mail it to you. Right. So their business
model. Initially it was really just built on the idea of
convenience. That's really what it came down to as part of us
honestly, was because blockbuster did not think in a proper
service way. They didn't think service one service wise in the
right way. Customer Service Wise, what's the number one
complaint? Everyone had my blockbuster late fees. Lasers
always hit you with late fees.
Fritz: 01:08:52 I pay $3 to rent the movie for five days. I'm late by two hours
and you're charging me and other 2 bucks. It's ridiculous. So
there was a huge backlash on blockbuster from that. Combined
that with the fact that, look, sometimes you can get too big and
when you got 9,000 stores worldwide and 99 percent of the
country and 99 percent of the world recognizes your logo is a

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rip ticket, you're probably too big, and the other side of that is
when you're that big and everyone knows it and you're basically
the only game in town, you're putting out all the other
businesses that are in competition with you and your so focused
on being right and not on doing right. In other words, we're
going to get our late fees because you're late or not. We're
going to get rid of this ridiculous policy because you're our
customer and you mean more of us to that two bucks.
Fritz: 01:09:43 OK, you get this backlash and that's really what happened with
blockbuster and they tried to go a block. They tried to develop a
service called blockbuster online and it failed and failed
miserably. Why? Well, because they were too far behind the
curve and to come back to what Jim was talking about, they
didn't have a process clearly defined. They didn't have a process
clearly defined to make the transition to that business model
and as a result they got caught out the rain and they got killed
by Netflix because what happened? Netflix that kept updating
their process. OK.
Brian and Fritz: 01:10:36 There's still a tower records in La. It's popular, but they're still.
You know what's interesting too is like virgin records are still
doing all right. You know what I mean? Like some companies
have been able to make the transition like Walmart still doing
grant. Like you know what I'm. Even though Amazon has sort of
taken off in a, at least the minds of most people. There's also a
big difference in customer base I think for those two. But here's
what, here's what I'll say to um, you know, I think that I actually
think that at some point, maybe not right away, but at some
point someone's going to open a retro video store and it's going
to be popular because there was a certain social element. Now
you're probably, you're probably a little too young to get a
certain social element that went along with going to the local
video store. Now I agree that. So that's in some sense that
there's a real possibility that cars are still doing OK. You know
what I mean, like stolen Iraq, right? And I think figuring out the
proper balance of digitalization with human interaction. Umm,
and then sometimes you see those pop-up stores, like you see
the pop-up stores and that's essentially business models are,
are a pop-up galleries. They don't want to see it online. But at
the same time I was actually to see this work in person.
Fritz and Brian: 01:12:10 I'm sharing my paintings, I'm looking at the sculptures and this
other artist is doing. They're absolutely amazing. And yeah, I
want to see that in person because you get in your hands and
you have an opportunity to really look at it and I think that's still
a human element that will always exist and I think that the pop

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ups pop up stores and kiosks and things like that really played to
that desire or impulse desires that people have. The novelty of
that. It's very limited and it's only here for this moment, right?
You gotta get it while you can kind of thing. And then the
benefit to having something tat we can actually put your hands
on and see, you know. Well I think that's it, man. I think it was a
good show. This is a minimal, minimal technical difficulties. We
did a great job stuff.
Fritz and Brian: 01:13:05 Um, we have some, somebody who's coming up where, you
know, in the next upcoming, let's say within the next month, I'll
feel comfortable with say within a month, within a month it
looks like we'll be in a new studio a and that's going to be very
exciting. New Studio, new equipment, a whole new look. A
should be a lot of fun. Should be good, so if you're watching on
youtube, and I should have mentioned this earlier in the show, I
can't believe I wasn't doing our plugs the way we needed to, but
make sure you click subscribe and you skipped. Subscribe to the
Youtube Channel, subscribe to the podcast. Also check us out
online on social media. Make sure you're following us on
twitter. Smash that like button right there, right there. Just
smash it. There you go. Ah. Anyway, so ah, that's going to do it
for this week and everybody have a great weekend. Have a
great week. We'll see you next Friday in the lion's den.
Source: Watch full episode at Brian Coester Youtube Channel