Celebrating 28 Years

Dean Brown, owner and CEO of MCM started the company on April 1st, 1994 after leaving a money center bank as senior vice president of secondary marketing. The genesis of this action took place 12 years earlier in 1982 when Dean was a sophomore at Claremont McKenna College trying to decide what his major was going to be. Dean had taken many of the initial courses in literature, history, psychology, economics, calculus and computer science, and was pondering his major when his uncle called to let Dean know that he would need to get a job because the family’s development company was struggling given the interest rate environment.

Rates had increased from just below 11% to over 16% for 30 year fixed rate conforming loans. Dean had worked at the residential development company during high school and during summers, and knew that the homes were well built and previously had sold fast. Since Dean had taken econ 101 and macroeconomics and currently was taking microeconomics, he asked his uncle why the company had not hedged the money needed for customers to purchase their homes under construction. His uncle, the CFO of the company, stated that no lenders were offering commitments that would lock in the loans during the time it took to build the houses. Therefore, those customers who could afford the houses at the time they began construction, could no longer afford them since rates had skyrocketed.

Since Dean was dependent on the company for a source of funds for college, he began looking for a summer job that would help him raise enough money to continue at school. He painted houses, worked in the school’s gym and library, and did other odd jobs for spending money. The situation that his family’s development company found itself in was a wake-up call for Dean and it stuck with him. He continued to research the problem the next semester and thought hard about how a development company could hedge interest rates for its customers.

Dean posed the question to his professors and began developing a strategy using the newly formed market trading US treasury bonds options on the Chicago Board of Trade (CBOT). After thinking it through, interviewing several mortgage bankers and banks about the problem, and doing research about the new market for CBOT options, he decided to write his senior thesis on the subject. Dean published his thesis, “Treasury Bond Options as a Hedge against Forward Mortgage Commitments,” during the spring semester of his senior year. His thesis reader/professor had many industry contacts and sat on the board of a mortgage company, and encouraged Dean to pursue a banking career. Dean was recruited on campus by Security Pacific bank and joined them in the Management Services Department of the Asset and Liability Group shortly after graduating that year in 1984.. Dean’s responsibilities included reprogramming the bank’s net interest income and funding model on a PC platform, and providing hedging services to the bank’s host of financial subsidiaries that were being funded by the bank’s commercial paper funding operation. Basically, Dean’s assignments were to help these companies manage their gap by measuring the weighted average life of loans commitments versus the commercial paper funding sourced time periods available in the market. He used futures and options contracts to extend the effective life of their funding sources and found himself the hedging expert helping the mortgage division with hedging mortgage pipeline risk using mortgage-backed securities (MBS) with to be announced (TBA) forward sales and CBOT option contracts on a managed basis methodology. After working with the bank for several years, Dean completed his MBA in Finance and was recruited for a secondary marketing manager job with the mortgage company where his former professor sat on the board.

Dean was terrified by what he saw at his first day on the job at the mortgage banking company. His new boss had two legal-sized pads of paper on his desk – one for locks given to borrowers and the other containing information on loans that had closed, with closed loans sold crossed off the list. His desk also contained sticky notes with information on trades executed to hedge the pipeline of loans both locked and closed. This was the extent of the tracking system and the position reports. Not one PC was in the building and Dean knew he needed to fix that fast. He joked with his new boss that the cleaning service could wipe out the company just by cleaning off his boss’s desk. His boss halfheartedly laughed about it and said that he didn’t allow anyone in his office – not even the cleaning lady.

Mortgage Capital Management was founded to help mortgage bankers become more profitable through the use of the best pipeline risk management tools and strategies in the mortgage industry. Our proven pipeline risk management services, secondary marketing consulting, and hedging/trading services help clients remain profitable despite volatile markets and changing interest rates. By combining proprietary, state-of-the-art technology with personalized client service that includes counsel from senior advisors, we are able to mitigate client risk, stabilize their earnings, and improve operational efficiencies.

copyright 2014 Mortgage Capital Management, Inc.