Rich Weidel - CEO at Princeton Mortgage

Welcome to another CEOism Pod. We have Rich Weidel with us today. He's CEO at Princeton Mortgage in Princeton, New Jersey. Interesting background. I think you are an ex-banker and you run your business with your wife, or from the last time I checked, right?

So after having 4 kids, she took off some work and then she's going to come back to work. So she's been here for a couple of years but is stepping back out now, actually.

Oh, um, still impressive, right? I couldn't run like my business one day with my wife, so Pretty interesting achievement. You have a family of 4 right now or something like that. So seems to be living the life, Rich. Quick intro about yourself and what you've been up to.

Yeah, quick, quick intro. So start off doing investment banking only because at the time it was 2009 when I graduated, I didn't know what to do. And I was like, what's the hardest job to get? I kind of joke if I'd been on the West Coast, I would have gone into tech, but coming from the East Coast, it was banking. Realized really quickly that it's not what I wanted to do once I got there, that it was the people we were lending the money to were the ones that were really interesting to me. And I'm very thankful I learned that lesson early on, that it was like, hey, there's no right path. It's like, just what do you want to do that's exciting? And so left Goldman and took a job in Florida for a couple of years and then learned a big lesson on if you want entrepreneurial returns, you need to take entrepreneurial risk. And so then I went off on my own when I was like 24, 25.

Nice. Uh, what kind of risks have you, have you taken? Because, uh, mortgage, uh, agencies normally, you know, it's like in between, and the risk factor, I would say. I worked with them for a long time. I worked with real estate agencies as well about 10 years ago. But I guess yours got pretty successful. So what kind of risks have you taken? And tell me about your victories and your failures along the way.

Yeah, I mean, I think the risk I'd say for anybody who's thinking about founding is that the lesson for me when I was working in Florida was working for a real estate developer that had a billion-dollar real estate portfolio and sort of 90% personal recourse debt and was making a ton of money. And I had the opportunity to sort of invest into that company I was going to get LP returns, not the GP returns. So the structure was a general partnership and a limited partnership. And the LPs got like a 15% return and the GP made like 50%. And so I got presented for the opportunity to invest. I was like, I'm doing all the work. I want to be on the GP side. The guy I was working for, he's like, no, you don't get that. You haven't spent 20 years having to make payroll. You don't sign the personal guarantees. You haven't faced bankruptcy. If you want all that, you got to go take all that risk on. And for like a couple of days, I was bitter because I thought I was going to get GP returns, but I was only going to get the LP. And then I had to kind of look in the mirror and say, I'm trying to short circuit this. I'm trying to be— I want to earn those big dollars without having to take the big risk on. And so I had like $100 grand saved up at the time, went off on my own and said, I'm going to go build a real estate portfolio. And so it took me about 9 months. Of working every single day to get some traction and then started buying shopping centers, raise money, fix, flip, develop them. Um, and then I sold them as well and I had the opportunity. My dad was a real estate broker, had opened up Princeton Mortgage as a small mom-and-pop, and he called me one day and said, hey, kind of ran its course, it was small, we're going to shut it down or try to sell it. And I said, I think I want to jump in. And there was like 3 people here, so I, um We really went for it. We were the Inc. 502nd fastest-growing company in all of America in 2021. Then the market turned and we scaled way back down and started losing tons of money. So it went from like, "Hey, we're going to the moon," to, "Oh my gosh, how are we going to navigate this and survive it?" I remember getting a specific— this was like, I tell anybody that now when I run into people that haven't been through real hardship, It's like, that's when you become an operator. That's when you define who you are. And so I'm sure there will be more really difficult times in my career. Things are going well now. I don't know if I want to go through that again, but it's really what did turn me into a real operator. Like, it's easy when things are going well. It's really hard when you're figuring out, like, conventional wisdom has failed. There's no book to save me. This becomes a character question of, am I willing to rise to the challenge and rely on myself to make the hard decisions that I don't want to make and tear down the things that I just spent years and years building and retool it, um, based on what's going on. I think ultimately, as a founder or CEO, our job is to navigate market cycles. There was a period of time where I thought that I was stronger than market cycles, like I could just outwork them, outperform them, I was better. Now gravity finally catches up to all of us.

I can relate a lot to that. I'd say that, um, it's a lot of crisis, uh, you actually get tougher, the next one becomes easier, and you acquire more tools to deal with them. A lot of it is emotional, right? Like, uh, and your ability to, uh, to manage your cortisol, right? Like, I think that's the main, uh, component. And when you've seen so much, when you— I don't know if you see like a stressful client or an employee just, uh, acting out, you're like, oh, I saw that story before, I recognize that pattern, you know, and I, I won't fall in the trap of letting all my attention dictate like my next actions, right? So I think it becomes easier. If that wouldn't be true, then Elon would be dead like 20 years ago, right?

I mean, his capacity to be exposed, to feel naked, to be contradicted is incredible. I mean, it's really like—

Second to none. And then my brain's like, is it a genetic thing? Is it like his genes or something? But I think there's a lot of adaptation and I think that's powerful. It's the same reasons we go to the gym, right? To break down muscle fiber and then to rebuild on it again. You started this one sort of on the back of 2008, right? You've seen like the— what mortgage did to the economy. Like, how did that affect it?

Yeah, I walked onto the mortgage floor in 2009. I walked in the mortgage floor at Goldman in 2009. But I think to circle back to what you're saying, you know, it's like Every time we're faced with something that scares us, if we pull back from it, we become more cowardly. If we lean into it, we become more courageous. Like, it's that simple. There was a period, like, you know, I can remember I was going through a really hard time and I was sitting with a friend. His dad had built a huge business and we were kind of complaining about things. He was like, "Kids, listen, there's only— there's two questions at any time you face a problem." Is it going to kill you or somebody you love, or is it going to bankrupt you? And if the answer is nobody's dying and you're not going bankrupt, just deal with it. It's just another problem that you have to deal with that you're going to figure out. And like that, I still go back to that often when I have like that cortisol spike, you know, something like, of course, yeah, okay, cool. We will deal with this. Not going to kill us, not going to put us out of business. Keep moving. And then obviously, how do we learn from it? Prevent that from repeating.

And then bankruptcy, right? Like I believe, what was the tequila guy, like the guy that had the hair business, hair— shampoo business and now owns Patron. I think that guy got bankrupt like 5 fucking times and he lived in his car, right? So I think you really need to be mental also to be in that game, or at least not normal, right? Like to the conventional societal expectations. So yeah, bankruptcy won't kill you. I haven't been bankrupt yet, but Elon risked bankruptcy like multiple, multiple couple times, and it's like burning the boats, right? Like, once you don't have any option, what I love about this is that you have one focus, you know? It's like, that's your only way to do it, and you're not distracted by all these other things, and you invest all your energy in fixing bottlenecks. And that's, I think, what the best CEOs do, right? They focus on fixing one bottleneck at a time, and then once it's solved, they go to the next one, then to the next one, and then eventually, if they're smart enough, a flywheel happens.

Yeah, I mean, one of the things that I'm personally concerned about is that, you know, '22, '23, and '24 was an extremely difficult time in the mortgage industry. I mean, companies that were worth $16 billion, their valuation went down to $500 and $600 million. So just everybody's losing money. I also learned it's very difficult in an industry where the average is unprofitable to be better than breakeven. Like, it just can't. It's very difficult. And so in those moments, though, you're right, it's clarifying. You've got market-forced courage to make hard decisions. Things are going very well for us now at Princeton. I worry about like, how do I manufacture if I need to? And this is really character development, sort of that courage and urgency that we've been operating with now that things are going well and we don't just get comfortable and start resting on our laurels. And that's kind of, all right, so how do you, how do you systematize the things that we did intuitively when we had to, to keep the innovation up and keep pushing forward, right?

And it went to shit in 2023 because of COVID because people struggled paying the money.

So essentially during COVID when mortgage rates went down to 2% and 3%, we refinanced the entire country. And then what happened was the lock-in effect. So obviously refinances went down, but then everybody stopped moving, so purchase transactions went way down. The industry lost— it went from like $4 trillion— or sorry, like $4 trillion in volume to like $1.7 trillion in mortgage volume, and margins compressed about 40%. So like within a 6-month period when interest rates went up, when there was inflation, it ripped like 60 to 70% of the revenues out of the mortgage industry overnight. Just gone. Just like not there. And so you're talking about— holy shit, how do you suddenly start— I mean, across the industry, gross revenues went down like more than 50%. That's a tough thing to adapt to. And everybody gets cutthroat. Plus everybody made— as a mortgage industry, we made like 10 years of profit in 2 years, so balance sheets are swollen. When everybody's balance sheet is swollen, you feel cocky, I'm good, we can weather the storm, we don't need to adapt. And so, you had a lot of those companies that had $100 million in cash that within 18 months were out of business and bankrupt because they didn't make the changes they need to, and the bleeding happened so fast.

And wouldn't we expect recuperation? Like a bunch of industries that has gone down in COVID, they all went up, like events or people coming back to office. Like, aren't you seeing that right now?

Well, it's really just interest rate driven. So, so there's pent-up demand of people purchasing, but so most— we're the biggest affordability crisis sort of in housing since the 1970s and the oil embargoes during the Carter era. So it's, um, but what really happened for the industry is that in 2005, '06, and '07, the cost to produce a loan was about $5,000 to $6,000. Today it's $12,500. And so there's all of this technology, all these— I mean, there's public mortgage companies that are carrying like $2.5 billion of accumulated losses. There are tech companies that came into the space that raised $1 billion that you could rebuild for $150 million today. So the big question for all of us, particularly in mortgage, is now a different time where we actually can transform the way that we do the work or not? And so there's going to be a— and there's a period of time that eventually, whether that's 3 years or 5 years, there's going to be a convergence back to like, hey, this is how we do business. But there's a period of time right now where you can front run and get much better operational performance compared to your peer set. If you're able to have lower costs in your operating, you can offer better rates to the consumer and then go pick up market share that way during this period of kind of volatility.

You foresee an era in which, uh, robots can build houses for, uh, $30,000?

I've not thought about that. I don't know.

I mean, I've thought about that. I want to launch that. I think it's ridiculous that— I think prices of houses are gigantically inflated because of materials, of course, but because those materials, it's land, it's regulation, like the labor is—

I mean, you would maybe know that, or what's labor cost in building a home, 30% of it?

Yeah, or more. In my native Canada, it's crazy, these guys like $50 an hour each, and there's like 4 or 5 or 6 of them working on your house.

So yeah, it's a huge issue, but I mean, it's really, it's really an The home prices are driven mostly by inflation, printing of money, and then the regulatory difficulty of actually getting a house built.

And that system itself, as an ex-banker, is it efficient? How could you picture, engineer a better system than printing money and inflation rates and so forth? Does that scale? Is that serving the people?

No, I don't think inflation— inflation is just a tax by another name.

Okay, and, uh, who engineers that? Just humans, uh, laws of economics, or, uh, government?

The central bank.

Yeah, I, I'm not— I haven't dug like that deep into that topic, and it's, it's fascinating to me.

But so I think, I think the scary part for all of us is that if you look back on the history of it, when comp— when countries get as indebted as the United States has There's only two options out, right? Or three— decrease spending or increase taxes or inflation. They very rarely have the discipline to decrease taxes. They don't have the discipline to increase taxes. So what do they do is they have higher inflation. And so I think unfortunately, until somehow we get a bond crisis and the government's forced to bring our spending into line, we're going to continue to have periods of inflated inflation, which then drives the higher interest rates. So it's—

so you're saying it's a very bad business, like the government's a bad business in itself. Couldn't you picture like the right CEO for the economy that would build something that would yield ROI and would actually put money in the coffers? Have there ever been historical examples of that?

You're— I'm not a historian of the United States government and what the best policy should be.

So let's say you build bridges, right? And you have roads, you take tolls, right? You're an enterprise at this time, at this stage, and you can have investors. And I think that's how government sells their bonds, right? Um, they promise a future return. I think that would be a better, uh, version of it. Um, now talking about the people, right? Like, um, I think there's a housing problem. A lot of people are like, uh, mentioning it in headlines. Do you feel like owning a house is a basic human right?

No, I don't think it's a basic human right.

So people, uh, shouldn't complain about like not having housing and they should just find other solutions to own something and work harder.

Should people be able to afford housing? Yes, I think that's an ideal situation. Yes, society only works when we don't have blood in the streets, that the average income in the country can afford the average-priced home. Right now, the problem that we have in America and Canada and many Western countries is that the average income person cannot earn the average priced home. We know that those two things will come in line eventually somehow. The question is, how do we get there? Is it prices dropping? Is it interest rates coming down? Is it wages increasing?

What's that? It's robots. Robots building houses.

Robots, political revolt, socialism, communism, handouts, all that type of stuff.

So I agree that—

but to say it's like abuse, a basic human right, um, I don't, I don't think that that's, um, I don't know how you would even say that, right? Like, we don't have a God-given right to a home.

Well, I mean, people think there's God-given the right for health and that government should help them, but I feel that people should own their own health. For example, uh, owning a house, yeah, I think it's, uh, it's not a right. It's like you need to work your ass off, right? It's, uh, and the economy sort of balances out the only dangers that if you're poor, uh, and you work your full life and you give your money to the person that rents you and you're kept in that shitty environment and can never grow, that's a bit concerning, right?

So, but yeah, um, focusing on your business, right, and Princeton Mortgage, I think it's, I think it's really I think it's good for society to have people own. Hey, I don't know what happened. I'm back.

Are you back? Oh, you're back here, huh? Yeah, let's go. What were you saying?

So, so I, so, so I think you're just pushing it. I'm not a home builder, I'm not a developer, and I don't transact in real estate. We lend money to people who want to buy homes. So like, you're getting— I just, I want to I want to be careful. This is not my area of subject matter expertise. We're just riffing on this stuff. Yes, I think societally, it's not a good thing. I think that people should be able to afford— the average person should be— the ideal society is we structure things economically where the average person from an income standpoint can afford the average home. When that's out of whack, it's really problematic for society. Very clearly to me, we do not want a feudalist system where private equity and hedge funds own most of the single-family homes and rent them to people, because then we're just creating a society of overlords and nobody actually owns the assets. And so I think if you want— which I want— a society of free thinkers and independent people, owning a piece of dirt in your home, um, enables you to really have freedom in your life, right?

And the people you lend to, who's their ICP? Who's their profile? Uh, how much have you landed so far? Do you have stats on that?

Yeah, we do thousands of loans a year. And so we lend in all— so the, the, the U.S. housing finance market is essentially 90%. It's funny, you— we've got a socialized housing system, and so in some ways 90% of the loans are guaranteed by the U.S. government. And so it's a very structured finance product, and there's not a lot of discretion that mortgage lenders like I have. We are— because it's all getting securitized, so there's the securitization rules and what fits in the box, and then they get this delegated authority. I lend my money out, you get a piece of paper that's an IOU. I take that piece of paper and I try to sell it in 15 days for a profit, right? So I'm the originator that's out there lending my money, getting a piece of paper back, selling the paper. And typically, like, it's very, it's very thin margin. So, um, on a gross revenue perspective, we're running at about 3%. So if I give you a $100,000 loan, I'm trying to sell that loan for $103,000.

Interesting. Uh, and how much of these do you do per day? 1 to 5 a day, or what's your volume?

Um, oh, we're, we're doing tens of millions a month in loans. Yeah. Like, like up to $100 million a month.

Yeah. So $100-ish, uh, of these, um, $100 million.

Yeah. About $100 million a month right now.

Yes. Um, so how do you get your clients? Like, is it Facebook ads, Insta ads? What's your GTM funnel here?

No, the funnel's still very traditional in housing, that the, like, 80% of people work with a real estate agent, 90% of people work with a real estate agent, and then about 70 to 80% of people find their lender from a referral from their real estate agent. So it's very relationship and referral based. There's a lot of laws called RESPA that you can't pay— a mortgage lender cannot pay a real estate agent for that referral. So we have a very traditional sales force of people in the communities, the loan originators who are out there both generating their own business through relationships and building real relationships with the real estate agents to get the referrals, right?

And you gave an example of $100K, right? But the average would be like $500K.

Is that what you loan in average, or, uh, the average across country is about $375,000 to $400,000. So you're talking about the average revenue to a mortgage company, gross revenue, top line, is about $12,500 bucks alone. And we have all of our costs and everything out of that.

And you only focus on one specific geography?

No, we're nationwide.

Okay. What's your plans to scale? You said like very traditional. How do you go from $100 million to $1 billion a month?

Yeah, that's the big question. And I think the answer is that it's an operational discipline. Anytime you're in a commoditized market where the market more or less sets the rate, there's very little variance in the rate. I lend money and the rate is the price that you pay for that money. And so what you're talking about is you have to have a cost advantage in organizations like in industries that are commoditized like that. So the opportunity is if I can give— if I have lower costs, I have better rates to you and I can still have the same profit margin. And so very much our philosophy is that the biggest driver of cost is productivity and the biggest driver of productivity is the quality that you have throughout your manufacturing process. And so the industry is still very antiquated in that it's lots of people doing manual data-intensive work, staring, comparing, things like that. And so now with AI, especially with the cost of AI going down or creating software development costs going down so far, that we're innovating in ways that were not even possible 3 or 4 years ago. And that's where you're starting to see certain lenders like Princeton really pull ahead from a cost perspective, which gives us a lot more flexibility to provide more value to the borrowers.

What does the team look like at this stage? How big is it?

About 150 people.

Nice. How do you recruit the best talent?

So we've switched, and it's been great, to about 2 years ago, Substack newsletters, LinkedIn, social media, really putting ourselves out there and being exposed. And so we're using an attraction model, and it's been so much better. I mean, it's like, you don't know, but we used to have a lot of recruiters. The problem with recruiters is they just want to hire anybody so they can get paid, right? So when you're recruiting, you're selling. When you're attracting, you're figuring out if it makes sense for both piece—

people.

And so now that we're attracting and we're growing very quickly now, again, I mean, revenue, like 80% kind of revenue growth year over year, um, when people find us now, it's because they like what we're saying, they agree with what we're thinking, and they want to work with us. That's very different than we reach out to somebody and sell and convince them that they should make a move versus them deciding on their own and coming. The like attracts like. So it's been one of those things I kick myself in the butt for having not started 10 years ago, but thank gosh we started 2 years ago, and it's been a wonderful experience. I had a buddy that does a huge job on social media, like 50 million views a month, and he was encouraging me to do it. He was like, Rich, it'll change your life. I was like, oh, come on. Like, that's ridiculous. It changes your life if you do it and you do it well. But it's a skill set like anything. It's not something you just can randomly do in your free time.

And is that the number one thing you do as a CEO? What's your top 3 priorities?

Uh, talent, operational discipline, and revenue generation.

There you go. Well, Rich, thanks for being on. Uh, where can people find out more about you?

Uh, LinkedIn's good. Uh, Rich Weidel on LinkedIn. I have a Substack called Originator Unleashed, and our website is princeofmortgage.com. So I'm an easy person to find.

That was Rich and