Leaving Your Cards on the Table | Steve Pollack, Former CEO of Anchor Loans

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In this inaugural episode of Lender Lounge with Kevin Kim, Kevin interviews Dr. Steve Pollack, Co-Founder of Anchor Loans, the nation’s largest fix & flip lender. Learn more about Steve, his story as an entrepreneur and professional poker player, and the history of Anchor Loans.

In 1998 Dr. Stephen Pollack co-founded Anchor Loans in a spare bedroom–to provide quick bridge financing to real estate investors in Southern California while providing high-yield trust deed investment opportunities to qualified investors.

Under Pollack’s leadership, first as President, and later as CEO, Anchor expanded operations into 48 states (and D.C.) being profitable every year, including the 2008-9 real estate downturn. Pollack preemptively scaled back Anchor’s lending before the downturn, returned capital to its investors, and remarkably did not downsize its staff. He also helped establish Anchor’s in-house construction department during the crisis, a strategy which both facilitated the profitable resolution of REOs and built Anchor’s capacity to provide borrowers with expert construction feedback and holdback oversight.

In 2010, intending to grow Anchor into a nationwide industry leader, Pollack spearheaded the allocation of resources to assemble a team of real estate and IT experts for the development of a custom technology platform based on artificial intelligence and neural network technology. Anchor’s proprietary fintech is now integral to all aspects of the Company’s business and sets Anchor apart from competitors in its ability to fund loans in as few as 3-5 business days.

Dr. Pollack’s goal to grow Anchor Loans into the nation’s #1 lender to fix-and-flip investors was realized in 2016 when Anchor became the first in the industry to fund over $1 billion in a calendar year. Anchor has remained an industry leader with over $1 billion funded every year since. Under Pollack’s leadership, Anchor Loans has funded over $8.5 billion in loans to real estate investors.

A member of the board of directors of the California Mortgage Association, and its past president, Dr. Pollack is a licensed real estate broker with over 30 years of experience and extensive knowledge of loan servicing procedures and information systems. Since retiring from his position as CEO of Anchor Loans in October, 2020, Dr. Pollack continues to serve on Anchor’s board of directors and remains a co-owner and investor in the Company. In his retirement, he plans to continue his philanthropic work with the charities he supports and spend more time with his family. Steve is a voracious reader with an unquenchable thirst for knowledge and he is a longtime student of martial arts, with a black belt in Tang Soo Do. In his spare time he is learning to speak, read and write in Japanese and he looks forward to traveling the world (as Covid permits) with his wife Lora.

Episode Transcript

Kevin Kim:
All right, guys, welcome to the inaugural, very first recording of our podcast. With me is our very special guest, Steve Pollack with Anchor Loans. Thank you for joining us, Steve.

Steve Pollack:
Absolutely.

Kevin Kim:
Our listeners are very, very excited to listen to this podcast because, of course, Anchor Loans is one of the premier industry leaders in the residential space. I just want to start this podcast off very simply. We want to know all about Steve Pollack. We want to know all about Anchor Loans. We have a limited amount of time, so we’re going to try to get into it as fast as possible. First things first, Steve, you’re not originally from the world of finance. Right?

Steve Pollack:
No.

Kevin Kim:
You’re a doctor. Right?

Steve Pollack:
Yes.

Kevin Kim:
Yeah. Tell us more-

Steve Pollack:
I’m a doctor.

Kevin Kim:
You’re a doctor of-

Steve Pollack:
I’m a doctor of optometry.

Kevin Kim:
Optometry.

Steve Pollack:
Correct.

Kevin Kim:
Okay.

Steve Pollack:
Yeah.

Kevin Kim:
You were an optometrist in the 90s, in the 80s?

Steve Pollack:
I graduated from optometry school and got my degree in June of 1980. I opened my own practice in September of 1980, and I practiced through the entire 80s. I, in essence, sold it to my partner December 31st, 1989.

Kevin Kim:
And then you just got into the world of private lending?

Steve Pollack:
Well, not right away. While I was practicing, I had been buying rental properties and accumulating a portfolio of rental properties.

Kevin Kim:
You were investing. All right.

Steve Pollack:
I was investing. And I also had bought some properties that I had fixed and then resold as a side hustle, if you will. And I didn’t have a firm plan for when I was going to exit optometry. I just knew I didn’t want to do it anymore. So I got into real estate. I started buying properties, fixing them selling them, fixing them, renting them.

Kevin Kim:
This is all while you have a practice.

Steve Pollack:
No, after I left.

Kevin Kim:
After you left.

Steve Pollack:
After I left in 1989. Basically-

Kevin Kim:
So you went full-time in practice.

Steve Pollack:
Full-time in-

Kevin Kim:
Investing.

Steve Pollack:
… real estate investing in 1990.

Kevin Kim:
Fantastic.

Steve Pollack:
And did very well until-

Kevin Kim:
Where were you investing back then?

Steve Pollack:
My practice was in Stockton, California, Northern California.

Kevin Kim:
Very nice.

Steve Pollack:
And I was buying in the valley, in the San Joaquin Valley, Stockton, Tracy, Manteca, basically with Stockton as a hub, that area, around that area.

Kevin Kim:
And you’re originally from the Bay area?

Steve Pollack:
I’m originally from New York.

Kevin Kim:
You’re originally from New York. So New York transplant to the Bay area.

Steve Pollack:
There’s a story behind that too. But actually, New York transplant, then four years at UCLA.

Kevin Kim:
UCLA? Okay.

Steve Pollack:
And then four years at UC Berkeley.

Kevin Kim:
UC Berkeley! Oh, you’re an alum. I went to Berkeley as well. All right. This is not Anchor Loans yet. You’re just investing.

Steve Pollack:
No. That’s correct.

Kevin Kim:
You’re just investing in real estate. You’re building, rehabbing in the 90s. In the back of your mind, is Anchor on the horizon, or is this just-

Steve Pollack:
Nope.

Kevin Kim:
… you’re just doing this full-time?

Steve Pollack:
Anchor is not on the horizon. I don’t even know what it means to be a lender at that point in time other than I had a loan on my house. Didn’t know what it means to be a lender, so no.

Kevin Kim:
Right, right. Right. Okay.

Steve Pollack:
No, there was actually another career in between that.

Kevin Kim:
So what was that? What was that?

Steve Pollack:
The career in between … well, what happened was, in the early 90s, we had a downturn.

Kevin Kim:
Right.

Steve Pollack:
Saddam Hussein, for those of you young people sitting around the table here, Saddam Hussein invaded Kuwait, and the economy went in the toilet.

Kevin Kim:
Yeah, exactly.

Steve Pollack:
Doing what I was doing became challenging, and so being a very good game player, which I always have been a good game player, I actually gravitated to and became a professional poker player for seven years.

Kevin Kim:
Wait, wait, wait. So, optometrist-

Steve Pollack:
Yes, that’s right.

Kevin Kim:
Investing in real estate-

Steve Pollack:
That’s right. That’s my number two.

Kevin Kim:
… and all of a sudden, you’re a pro poker player.

Steve Pollack:
A professional poker player.

Kevin Kim:
And you’re playing in the Bay area?

Steve Pollack:
I was playing in the Bay area, a little bit in Southern California, and I’d go to Las Vegas for four to six weeks out of the year and play in tournaments, or whatever.

Kevin Kim:
Okay, and this is in the mid-90s?

Steve Pollack:
This is the mid-90s from ’92 through ’98.

Kevin Kim:
So you’re playing pre-poker boom during the Johnny Chan, Phil Hellmuth era?

Steve Pollack:
Yep, that’s right.

Kevin Kim:
Oh, man. Very cool.

Steve Pollack:
You know poker a little bit, so-

Kevin Kim:
A little bit, a little bit.

Steve Pollack:
One of the three eventual founders of Anchor, which was in 1998, was Dan Harrington, who-

Kevin Kim:
Wait, wait, wait, wait, wait. Dan Harrington?

Steve Pollack:
Dan Harrington.

Kevin Kim:
The hat, the green hat with the socks?

Steve Pollack:
That’s right.

Kevin Kim:
Oh, my goodness.

Steve Pollack:
He was the second player ever to win a million dollars in 1995 when he won the World Championship of Poker.

Kevin Kim:
What? I had no idea.

Steve Pollack:
Yeah.

Kevin Kim:
Is Dan still part of the business, or is he out?

Steve Pollack:
No, he retired. And actually, there were three of us that formed Anchor, and we’ll get there in 1998. Two of them have been exited out of the company and sold their shares, whatever. I’m the only founder left.

Kevin Kim:
Okay. So you’re playing professional poker. I’m guessing you’re playing the local card rooms, the local casinos.

Steve Pollack:
Yep.

Kevin Kim:
Ever visit the Oaks Card Room in Oakland?

Steve Pollack:
Yep. The Oaks is in-

Kevin Kim:
Emeryville?

Steve Pollack:
In Emeryville, correct.

Kevin Kim:
Yeah, I used to play there in college.

Steve Pollack:
Emeryville was a little seedy.

Kevin Kim:
Very seedy.

Steve Pollack:
It’s been built up since then, but nah, it was a little seedy. Yeah. San Pablo, you know-

Kevin Kim:
So you’re investing-

Steve Pollack:
… and Artichoke Joe’s.

Kevin Kim:
… while you’re playing poker professionally. Now let me ask you this. This is pre-poker boom, so there weren’t a lot of tournaments back then.

Steve Pollack:
No, I was playing cash games mostly.

Kevin Kim:
You were just sitting there at-

Steve Pollack:
You go into a card room. You choose a game. You buy-in for X dollars. You get to quit in five minutes or five hours, whatever you want.

Kevin Kim:
Right. So you were just grinding.

Steve Pollack:
Yep, yep.

Kevin Kim:
All right. What was your game of choice back then?

Steve Pollack:
My game of choice is Hold’em, Limit Hold’em-

Kevin Kim:
Limit Hold’em?

Steve Pollack:
Yeah. There was some No Limit Hold’em being played-

Steve Pollack:
[crosstalk 00:05:14]

Kevin Kim:
And it wasn’t a thing then. Right?

Steve Pollack:
No. Artichoke Joe’s is across the Bay in Burlingame, had No Limit Hold’em, and I’d play there for quite a while. But it wasn’t a thing. It wasn’t as popular, and the general public was scared of it. There was way more limit games.

Kevin Kim:
Very good. Yeah, I used to play the 1020 over at The Oaks a lot. Okay, very cool. Okay, so you’re playing pro-

Steve Pollack:
I know the owner very well, John.

Kevin Kim:
You do?

Steve Pollack:
I know John. Louie was the pit boss there for a long time.

Kevin Kim:
Yeah, yeah. Yeah. That’s cool.

Steve Pollack:
You know Louie’s son, right?

Kevin Kim:
Yeah. Well, we won a couple-

Steve Pollack:
As you’ll know, Louie’s son was MC Hammer.

Kevin Kim:
We played a lot of poker there. We won a few jackpots. And then they make you sign some forms. You know? We get to meet the executives there once in a while. Very cool. Okay, so we’re playing poker professionally.

Steve Pollack:
Yeah.

Kevin Kim:
You’re also investing at the same time. Now, this the 90s.

Steve Pollack:
That’s when I started to become familiar with being a lender because then I started investing in trustees.

Kevin Kim:
So trustee investing was a thing back in the 90s.

Steve Pollack:
Yes, yes.

Kevin Kim:
Okay, and this is pre-[dot frame 00:06:15], pre-private lending era?

Steve Pollack:
Yes.

Kevin Kim:
So tell me more about those, the product back then because there was no consumer business purpose differentiation back there. Was it?

Steve Pollack:
Most of the properties at that time I was investing in were in Las Vegas. There was a particular borrower that was buying distressed houses and fixing and selling them. What we used to call rehab lending, right?

Kevin Kim:
Yeah, yeah.

Steve Pollack:
And as the investor, I was earning 14% coupon rate, which was nice.

Kevin Kim:
Which is very nice.

Steve Pollack:
Yes.

Kevin Kim:
You don’t see that much today.

Steve Pollack:
No. No, we don’t. And then I did a number of those, in and out, in and out, in and out, invest more money, and so forth and so on. And then-

Kevin Kim:
And this is all your money right now?

Steve Pollack:
Yeah.

Kevin Kim:
Poker winnings.

Steve Pollack:
Uh-huh (affirmative).

Kevin Kim:
Very nice.

Steve Pollack:
My liquidity, in essence.

Kevin Kim:
Liquidity, right. So you’re investing in trustees. I’m guessing your friends are also investing with you-

Steve Pollack:
Correct.

Kevin Kim:
… at the same time.

Steve Pollack:
Yep.

Kevin Kim:
Is Dan investing with you at the same time?

Steve Pollack:
Yep, that’s right.

Kevin Kim:
Okay, so Dan is also a Bay area guy as well?

Steve Pollack:
No, Dan is actually from Boston originally.

Kevin Kim:
Yeah, because of the socks. Yeah.

Steve Pollack:
He’s originally from Boston. He’s actually a bankruptcy attorney.

Kevin Kim:
He’s a bankruptcy attorney?

Steve Pollack:
In his previous life, that’s right.

Kevin Kim:
I had no idea.

Steve Pollack:
Yep.

Kevin Kim:
Oh, my goodness.

Steve Pollack:
Yep.

Kevin Kim:
Oh, my goodness. You learn so many things.

Steve Pollack:
Bankruptcy attorney, he is a nationally ranked chess player. He is world-

Kevin Kim:
I knew about the chess, yeah. Yeah, yeah.

Steve Pollack:
… world-ranked backgammon player.

Kevin Kim:
Yes. They talk about that on TV shows. Yeah, yeah. So you’re investing with Dan in trustees in Las Vegas. You’re doing some lending, and it’s picking up, I’m guessing. And so is this starting the formation of Anchor Loans?

Steve Pollack:
Right. What happened was Dan and my other partner Jeff Lipton and myself came together to form this particular company, Anchor, because we realized that we didn’t have the control over our own investments that we should have as the lenders. Right? We were relying on third-party brokers to vet, underwrite, etc. Also, the third-party brokers were getting more economics than we were getting, and we felt like there’s a big opportunity here to take our own money and do it.

Kevin Kim:
What was the economics like back then? Right now, brokers typically, if they are brokering a hard money loan, they’ll maybe take a point, maybe two if they’re lucky.

Steve Pollack:
Yeah. So back then, it was 14% interest and four points.

Kevin Kim:
Four points?

Steve Pollack:
Yeah.

Kevin Kim:
They’re taking away four points. Are they taking any spread on the loan?

Steve Pollack:
No.

Kevin Kim:
The four points?

Steve Pollack:
Yeah.

Kevin Kim:
So you guys decide, “Okay, we’re going to control our own destiny. We’re going to control the economics.” Now when you guys start Anchor Loans, is it you guys just jump right in and start raising money? Or is it, “We’re just going to create a business and fund it with-”

Steve Pollack:
We started with our friends and family money. We started out with $8 million. Okay?

Kevin Kim:
Pretty good.

Steve Pollack:
Some other nationally known poker players came in with us that you would know their names, but I can’t divulge them.

Kevin Kim:
Of course.

Steve Pollack:
At least not on the podcast. And we actually moved away from Las Vegas and started investing here in California. Got a DRE broker’s license, so it was the DRE back the before it evolved and evolved. We actually had a program that was a too-good-to-be-true opportunity. It was a situation in which HUD had accumulated thousands of REOs from the downturn of the early and mid-90s. And they were trying to gentrify certain neighborhoods, and they would sell their REO home to a qualified nonprofit. Had to qualify through the HUD and blah, blah, blah, at 50% of appraised value of the property.

Kevin Kim:
50%!

Steve Pollack:
Provided the nonprofit would sell it to a homeowner that was at least 110% income of the average of the neighborhood, so in other words, trying to gentrify and bring up the neighborhood.

Kevin Kim:
[crosstalk 00:09:50] yeah, yeah. Yeah.

Steve Pollack:
And not sell it for more than 10% above their total cost, hard and soft costs. Let me give you an example. Houses appraised for $100,000, a typical house. We did a lot of lending in Compton, in Linwood, in East L.A., and Long Beach, low-end housing. Houses appraised for $100,000, HUD sells it to the nonprofit for 50. Its fix-up costs are 30. His total closing costs, hard, soft, whatnot, let’s just say it’s not going to be this much, but let’s just say it’s 20. When you add those all up, you’re at $100,000 in costs.

Steve Pollack:
But now your property, which was worth 100 before it was fixed up, is now worth 10. But since they only have $100,000 in total costs, they could only sell it for a maximum of 110. So the nonprofits actually had waiting lists of people waiting to buy the property. They didn’t care where it was because they’re buying property with tens of thousands of equity that’s-

Steve Pollack:
[crosstalk 00:10:49]

Kevin Kim:
Right, at a discount.

Steve Pollack:
Yeah. So I’ll tell you what the smart nonprofits did. What the smart nonprofits did, they would come to us and say, “Could you charge us higher interest rate and more points so we could make a higher spread?”

Kevin Kim:
Thank you very much. That’s-

Kevin Kim:
[crosstalk 00:11:03]

Steve Pollack:
That lasted a couple of years, but we saw the handwriting on the wall because what happened was somebody in Washington got smart and realized, “Wait a second. There’s a lot of money being left on the table here that somebody else could gather as opposed to the free market.” They shut that program down after two years.

Steve Pollack:
But while we started Anchor primarily lending to nonprofits with this particular program, we knew that was going to happen eventually. And we began, almost from day one, starting to build out a business model to transition to lending to for-profits, same situation, rehab lending.

Kevin Kim:
Mm-hmm (affirmative), right, rehab lending. And this is 1998.

Steve Pollack:
Eight.

Kevin Kim:
1998. So post-Gulf War recession. We’re heading into the early 2000s, the millennium. Anchor Loans, do you have a fund at the time?

Steve Pollack:
No. Oh, yes. I’m sorry. We started our first fund in 1998.

Kevin Kim:
In 1998, okay. And it was just California Fund, or was it a Reg D?

Steve Pollack:
It was a Reg D fund. It was actually for our non-California investors that were accredited because they didn’t want to sign all the paperwork and having to do it. They were basically our friends. They trusted us. They didn’t want to have to kick the tires and underwrite the loan. They knew that it was fine, and they liked that concept. So we had a fund which still exists from 1998.

Kevin Kim:
Your fund still exists?

Steve Pollack:
Yeah.

Kevin Kim:
Reg D funds, okay. So you created a small fund, and you seeded it with $8 million. And for our listeners, I mean, Anchor Loans today is probably one of the biggest or the biggest fix and flip lender in the United States. You guys hit what, 7.8 billion in originations or something like that?

Steve Pollack:
Like today? Yes.

Steve Pollack:
[crosstalk 00:12:31] coming up on eight billion, I guess.

Kevin Kim:
Eight billion dollars in originations! It’s unprecedented. But none of my clients who are in fix and flip lending have the same … you guys came from ’98 until today. There was a lot of things happening in the early 2000s and, of course, in 2008. I’m guessing you guys were scaling massively up until the 2006 era, 2007.

Steve Pollack:
We scaled up until 2005. 2005, we were not significantly affected by the dotcom bubble of 2001, which happened. It affected us somewhat, but no losses. We were fine. And 2005 was our pre-downturn high water mark for annual origination.

Kevin Kim:
This was a milestone.

Steve Pollack:
This was $172 million in a-

Kevin Kim:
Hold on. You guys went from … wait, wait. You started with eight million in ’98, and in 2005, you said?

Steve Pollack:
Yeah.

Kevin Kim:
In 2005, you hit 100 and what?

Steve Pollack:
72 million.

Kevin Kim:
172 million. That is unprecedented of itself. Clients can’t scale like that today. And this is all rehab lending?

Steve Pollack:
All rehab lending, that’s all we did.

Kevin Kim:
In Nevada and California?

Steve Pollack:
At that time, it was only California.

Kevin Kim:
Only California.

Steve Pollack:
Yeah.

Kevin Kim:
Were you the only ones on the scene doing this, or were there other competitors?

Steve Pollack:
No, there were other players. There were other players, yes. We were not even the biggest.

Kevin Kim:
Who was the biggest back then?

Steve Pollack:
Aztec Financial and Wilshire Financial are probably two of the biggest. You don’t even know their names. Right?

Kevin Kim:
I know Aztec. I know Aztec. Wilshire Financial, there’s a few different Wilshires out there, so-

Steve Pollack:
No, they went BK. They’re out of business.

Kevin Kim:
They went BK?

Steve Pollack:
Yeah.

Kevin Kim:
That’s the line of questioning I want to ask about. You hit a high water mark in 2005, but you’re hinting to something. Something changed.

Steve Pollack:
That’s right.

Kevin Kim:
But in 2005 and 2006, the market was just swelling, and values were great.

Steve Pollack:
That’s right. That’s the problem, though. That was the problem. What happened was, at the end of 2005, myself and my partners sat down and realized that this, 2005, was the third straight year of 15% appreciation in the southland. It’s never happened before. Yeah get-

Kevin Kim:
15% on the values, all of the loans you’re doing.

Steve Pollack:
Year over year over year, not just ours, I’m talking about-

Kevin Kim:
Everything.

Steve Pollack:
… across the board in Southern California. Home prices had gone up from two to three by 15%, three to four by 15%, from four to five by 15%.

Kevin Kim:
Wow!

Steve Pollack:
And appreciation is normally 2% to 5%. This is 15% three years in a row. I’m not going to tell you I was smart enough to predict the subprime crisis. However, it was squirrely, and we knew something was wrong. So what we did … anticipating your question … what we did was we thought that something was going to happen in the real estate market. We became concerned. We tightened our underwriting guidelines in 2006. In spite of an increased amount of potential business coming to us as applications, etc., we actually did 15% less loans in 2006 than in ’05.

Kevin Kim:
So you reduced production in percent. Even the values are record highs.

Steve Pollack:
Yeah, that’s right. That’s what happened. We gave investors some of their money back, saying, “We’re being more cautious.”

Kevin Kim:
Right. So the fund is at about 170 million, you said.

Steve Pollack:
No, because we were also selling into … we were doing whole note sales. And actually, we were fractionalizing notes at that time as well. We were doing all of it.

Kevin Kim:
You were doing a little bit of everything on the capital market side for a lender back then. Okay, so-

Steve Pollack:
That’s right.

Kevin Kim:
You tighten your underwriting, you said.

Steve Pollack:
Yeah.

Kevin Kim:
Let’s talk about the underwriting back then. So right now, I mean, one of the comments I always make when I do any kind of panel is, “Underwriting and private lending is all of them now.” Right? We have people who will do 90% LTVs and people who will do 95% ARVL. What is going on? As a former banker, I was trained with 50%, 65% LTV. And you just do that. Well, back then in rehab lending, what was the standard of underwriting? What was the underwriting standard back then?

Steve Pollack:
The standard was 75% of after repaired value.

Kevin Kim:
After repaired value, so it hasn’t changed too much.

Steve Pollack:
It hasn’t changed too much. However, a key there is, what’s the value?

Kevin Kim:
Right.

Steve Pollack:
That’s the key because it’s impossible. An appraisal, yes, gets you a value, but you get an appraiser on the stand, and you say, “Can you swear that the property is going to sell for that number in a year?” Nobody is going to say yes to that. It’s all an opinion. So you could still be at 75 of value, but where your value after appraised value on a given property in 2004 might have been X, now in 2005, the same property might be 90% of X.

Kevin Kim:
Wow!

Steve Pollack:
Right? You just get a little bit more conservative because your value is generally a range. I think the property is worth 220 to 250. Okay, so let’s lend on 235. Right? When you tie in underwriting-

Steve Pollack:
[crosstalk 00:17:09] Well, I think it’s worth 220 to 250. Let’s lend on 220.

Kevin Kim:
You’re basically making a decision as to what you believe the after repair value is going to be, and that’s how you’re having the underwriting-

Steve Pollack:
That’s one way. The other way is, the borrowers that may have qualified for loans in 2005 and ’05, borderline, and now don’t qualify in 2006. Right? They don’t have enough experience. They don’t have enough cash reserves. Their FICO or credit is challenged. Now you don’t loan to them.

Kevin Kim:
So you’re pairing everything back. You’re tightening up your belt.

Steve Pollack:
Yep.

Kevin Kim:
2006, 2007, and then-

Steve Pollack:
No, nothing happens in 2006.

Kevin Kim:
Yeah. We thought something was coming.

Steve Pollack:
We did. Nothing happened. So what happened? In 2007, we tightened some more.

Kevin Kim:
More? Same methodology?

Steve Pollack:
Same thing. We did 35% loans in 2007 than we did in ’06.

Kevin Kim:
35% of your volume in 2006.

Steve Pollack:
No, we did 35% less. We did 65% of our volume.

Kevin Kim:
Oh, wow. Okay.

Steve Pollack:
We did 65. Whatever we did in ’05, in ’06, we did 85% of ’05. And then whatever we did in ’06, we did 65% of what we did in ’06 in ’07.

Kevin Kim:
And were your competitors just scratching their … what’s going on? What are you guys doing?

Steve Pollack:
It wasn’t quite as open as it is today. I mean, obviously, you didn’t have social media. You didn’t have quite as much networking. And certainly, you didn’t have as many conferences such as this to get together and so forth. I don’t know if they even were aware of what we were doing, but we saw what they were doing. We saw them ramping up, which is why some of the competitors I just mentioned a moment ago were challenged because they saw the increased opportunity, and they saw the extra business coming to them. And they thought it was wise for them to jump on it and take advantage. We thought the opposite. We’re the ones left standing, and they’re not.

Kevin Kim:
Right. We’re ramping up to 2008 now. At ’07, you reduced production. 2008 hits. The world basically ends. And-

Steve Pollack:
It seemed like it, yeah.

Kevin Kim:
Yeah, it seemed like it. I was in law school at the time. It was bad.

Steve Pollack:
It was. We only did $40 million in originations in 2008.

Kevin Kim:
Oh, my goodness. Comparatively speaking, that is a drop in the bucket. Your company is still around. You’re still here.

Steve Pollack:
The company is still around. We heavily, heavily, heavily, massively put all of our energy into asset managing.

Kevin Kim:
So you’re really just making sure your assets don’t fall apart.

Steve Pollack:
Right. And from the period of time between 2008, January of 2008, and June of 2009, that 18 month period in which everybody was concerned. Is the economy going to collapse? Is the world going to end, blah, blah? And other equity funds, real estate based equity funds, were losing 30, 40, 50%.

Kevin Kim:
They’re hemorrhaging.

Steve Pollack:
Yeah. We broke even.

Kevin Kim:
You broke even in 2009?

Steve Pollack:
Yeah.

Kevin Kim:
That tells me … I mean, what was your default right then? It was probably-

Steve Pollack:
It was high. Relatively speaking, up until 2008, before the downturn happened, we had a total of 11 defaults.

Kevin Kim:
Total?

Steve Pollack:
A total of 11, and we lost money on zero of them.

Kevin Kim:
That is a $170 million portfolio. Right? In originations?

Steve Pollack:
I think at that point in time … Well, no. That was originations. Obviously, they were turning every seven to nine months.

Kevin Kim:
Yeah, that’s true.

Steve Pollack:
So they don’t stay around. So our portfolio, at the time we originated 170, our portfolio at the end of the year might have been 130, something like that.

Kevin Kim:
A $130 million portfolio?

Steve Pollack:
Yeah, but that tapered down.

Kevin Kim:
Eleven take-backs.

Steve Pollack:
Yeah.

Kevin Kim:
So 2008 hits, 2009 hits, how does that change?

Steve Pollack:
About 175 total.

Kevin Kim:
Okay. That’s not as bad as it seems, though, comparatively speaking.

Steve Pollack:
No. If you look at it from a life to date over 22 years, we have originated, like I say, almost $8 billion worth of loans. And we have taken losses of those $8 billion on all of our defaults in 22 years, somewhere in the range of $2 million.

Kevin Kim:
Wow. And do you credit that to underwriting? Do you credit that to good borrowers? It’s a combination? What do you credit that to?

Steve Pollack:
Well, underwriting, it’s the good borrowers. Right? Okay?

Kevin Kim:
Exactly. Yeah, it’s true.

Steve Pollack:
I credit it to discipline, and that’s one of the keys when people ask me, “Well, how do you be successful as a lender?” And it’s all about discipline. Because what’s happening, and maybe we’ll get to that later in the podcast, what’s happening in the market as you see now, is people are chasing borrowers. Right? Okay, 90-100, 95-100, 100-100. Right?

Steve Pollack:
And if you set certain underwriting guidelines, if you have a certain amount of risk tolerance, then you need to stick to it. Okay? If you put yourself in a position where I got to do this loan because I don’t have enough to make payroll or keep the lights turned on, or whatever, you have a problem. Then you went into the wrong business. But you need to be disciplined. You stay disciplined, and you turn away loans that you shouldn’t be doing. If you wouldn’t have done this loan three years ago, why are you doing it now?

Kevin Kim:
Right. Right, right, right. It’s easier than saying no.

Steve Pollack:
That’s how you survive.

Kevin Kim:
Be ready to say no.

Steve Pollack:
Yeah, of course.

Kevin Kim:
In 2009, you are breaking even. So you are actually surviving and, in my opinion, thriving, comparatively speaking. Most folks are hemorrhaging, filing bankruptcy. Geraci was founded in ’07. I remember looking at the old files. Back then, it was all workouts and basically trying to save 20, 30 cents on the dollar for most of our clients, and we were in bankruptcy court constantly.

Kevin Kim:
2009, you finished 2009, entered 2010, and I remember a glut of inventory being available. And is this the boom year for Anchor?

Steve Pollack:
Well, it’s the start of it. It’s not the boom year, but it’s the start of it. It’s where we-

Kevin Kim:
Because you survived.

Steve Pollack:
Yeah, we went from … I don’t have the numbers in front of me. Off the top of my head, I think we increased our production by 100 in ’10 versus ’09. Right? From the 40 million we did in 2008, by 2013, we were 300 million.

Kevin Kim:
Wow. That’s fantastic. Now at the time, I mean, you must have been one of the only lenders on the scene then. Right?

Steve Pollack:
There were some others.

Kevin Kim:
They made it through?

Steve Pollack:
There were some others that survived, and there was a whole bunch of new players that came into the market. But as a whole, it was hard for those new players to be capitalized because the institutional money didn’t understand our business.

Kevin Kim:
They wouldn’t touch it.

Steve Pollack:
They wouldn’t even touch lending to a homeowner that was buying.

Kevin Kim:
Right. You couldn’t get a loan back then.

Steve Pollack:
Right?

Kevin Kim:
Yeah, yeah.

Steve Pollack:
So it was very difficult to be capitalized. We were always capital constrained, the entire history of our company, up until 2015, in which we conducted a equity transaction and were able to access the capital markets the way we should. And that’s how we were able to really explode.

Kevin Kim:
Until then, you’re still operating with the same funds, some trusted investors, that kind of thing?

Steve Pollack:
We had transitioned, so we had formed another fund since that time, our second fund. We had transitioned away from fractionalizing loans. We didn’t do that anymore. We only did whole note sales. And eventually, we got away from selling whole notes at all. So right now, we pretty much only two buckets of capital, our funds, which comprise about 25% of our capital, and then our balance sheet, which is supported by senior debt and MEZ capital from our partner.

Kevin Kim:
Okay. I want to take a … We talked about the origination, the capacity, how you guys grew, but I want to talk about the company itself. I mean, when you first started, it was just you and your two other partners. Right? You had no employees.

Steve Pollack:
Yeah, it was really just me and one partner because Dan didn’t do a whole lot.

Kevin Kim:
So I’m guessing you’re just doing everything.

Steve Pollack:
Pretty much, yeah. My other partner was the deal guy, so he found the deals. He underwrote then and structured the loans. Okay?

Kevin Kim:
And you did everything else.

Steve Pollack:
And I did everything else, everything else, loan doc production.

Kevin Kim:
Finding the investments, loan docs, tie-

Steve Pollack:
Dealing with investors.

Kevin Kim:
Wow!

Steve Pollack:
Producing statements, signing checks, paying bills. I mean, I was-

Kevin Kim:
Cleaning bottles, unclogging toilets.

Steve Pollack:
That’s right. I did everything, which is great because I learned it.

Kevin Kim:
Yeah. And so you learned by trial by fire throughout the experience. But when did you guys start bringing on, I guess … When did you guys start creating an actual executive team, board team, a lot of employees? When did that start happening for you guys?

Steve Pollack:
1999, about a year, a year and a half after we started. We moved to an office. The first office we were actually in was my partner’s spare bedroom. I mean, literally the size of this much of the table.

Kevin Kim:
Wow.

Steve Pollack:
And he’d sit there-

Kevin Kim:
Just two desks.

Steve Pollack:
… with his desk, and I’d sit there. He’d be on the phone, and I couldn’t talk because he yells. And that was for the first year, year and a half. And then we moved to an office in Santa Monica, right on the beach, and we were there for nine years. And then we moved to Calabasas in 2007, and we’ve been there ever since.

Kevin Kim:
You had an office in Cerritos, though, for a little while, didn’t you?

Steve Pollack:
We had an office in Cerritos. It started out as a way station, if you will, a small, little 1,000-square foot office for our inspectors and our originators who are in the field to stop and download and upload reports to our network, etc. And then it grew from there.

Kevin Kim:
Because I remember growing … I grew up in Cerritos, and I remember your company was the only lending company that I had ever seen before when I was in high school and college. Thinking, “Who are these guys?” I was a banker after college, and I’m like, “What is Anchor Loans?” Because they’re right there in the shopping center right there. Yeah.

Kevin Kim:
You remain a CEO throughout the entire life cycle of the company?

Steve Pollack:
No, I started out as a vice president when there was just two of us, and he was the president. Right? And I became the … I was the president post-downturn, and I officially became the CEO in 2015.

Kevin Kim:
Okay. And so let’s talk about the companies composition up until, let’s say, 2015. Tell me about the milestones. What are the big milestones when you start adding certain players? How did you start growing from an employee perspective?

Steve Pollack:
Yeah, so we moved to Santa Monica. We hired a few people. We had about four or five people when we-

Kevin Kim:
Back office or front office?

Steve Pollack:
Yeah, both.

Kevin Kim:
Front office? Okay.

Steve Pollack:
Yeah, both. People that we used to call escrow officers back then would be our processors. You can’t call them escrow anymore. You used to be able to do that with your BRE license. And then we grew from there. We ended up with about 30 people by the mid-2000s in Santa Monica.

Kevin Kim:
You had 30 employees in Santa Monica.

Steve Pollack:
30 employees, yeah.

Kevin Kim:
Now, at this time, you guys had a whole army of employees, and contractors, and tech people now, 30 employees, back office and front office. How did your executive team look at the time?

Steve Pollack:
The executive team was small. It was still just the partners.

Kevin Kim:
Okay.

Steve Pollack:
We didn’t have any other C-suite employees. We had some managers but no directors or C-suite employees like we have now.

Kevin Kim:
And when did that change? Was it in ’15 that you started adding more C-suite employees, or was it executives?

Steve Pollack:
No, we started before that. We started in the post-downturn to start to become a little bit more structured, if you will. When you grow a company, there’s a couple of key points, inflection points, if you will. Right? So you start with a few people, half a dozen people, or so forth, and it’s still just like a family. Right?

Kevin Kim:
A family business. Everyone does a little bit of everything.

Steve Pollack:
Yeah. And when you hit about 30 people, you know everybody, and you still don’t have a whole lot of cross-training. You still don’t have a whole lot of backup for certain positions. You only have one person doing a particular job. But when you hit about 30, then you start to get two people doing the same job, three people doing the same job. You start to grow from there. So from 30 to 125 is a tough time because now you’re growing out of a mindset that you used to be in that you’ve been in since the beginning. Right? So now you’ve got to start delegating more. You have to manage more and do less. Right? And so that’s when we start to layer on additional managers and directors and so forth.

Kevin Kim:
And executives.

Steve Pollack:
And executives.

Kevin Kim:
Let me ask you, you’re hiring heavily then, I’m guessing, post-2009, 2010. Right?

Steve Pollack:
Yeah, measured. We didn’t over-hire anticipating the growth. We hired as part of our growth.

Kevin Kim:
Okay. And this is the segue into the next growth cycle for Anchor. So 2010, ’11, ’12 boom years for the company. But you said you were capital constrained.

Steve Pollack:
Yeah.

Kevin Kim:
You’re still managing the two funds, and you decide to go and pursue capital markets now. Tell me a little bit about that. How did that look like? Did you go to Wall Street? Did you go to PE firms? Did you go to venture capital? What did you do?

Steve Pollack:
In 2013, we hired an investment banker to try to find us debt, purely debt.

Kevin Kim:
Okay.

Steve Pollack:
And it was a national firm, set up meetings with national players, big and small national players, explained our business model, explained the risk that was involved, gave them historicals. The problem was, everybody was scared. Right? I actually was sitting across … I still remember this, one of our 16 or so meetings we had in the space of two days when you get a little punchdrunk or whatever.

Kevin Kim:
Wow!

Steve Pollack:
And each meeting is like an hour and a half. They just go back to back to back to back.

Kevin Kim:
It’s the same story over and over and over again.

Steve Pollack:
Right? A 12 hours long day or whatever. I still remember I’m sitting across the table, and I’m telling them, “Here’s our historicals.” And I’m showing that the foreclosures are essentially nothing, 17, virtually no losses. And a guy flips open the page, and he says to me, “Oh, this looks great. Now tell me what the real story is because this can’t be true.”

Kevin Kim:
Oh, gosh. Right. Because they were still just so beaten up in the last cycle, and they’re just so-

Steve Pollack:
Right. How can someone break even in the downturn? We all lost 50%? How do you know what you’re doing? Right?

Kevin Kim:
Right.

Steve Pollack:
It was tough. We ended up building a relationship with one private equity firm that we arranged a flow agreement for. It wasn’t debt, but they were buying from us. Somewhat problematic at that point in time because, due to changes in regulations, they weren’t qualified as a institutional investor per what was then the Department of Corporations. So we had to use our DRE license, and it was tough.

Kevin Kim:
You’re basically just brokering whole loans then constantly.

Steve Pollack:
It was tough. We did that for about a year, and then we realized it’s just not going to ramp us as quickly as we need. And we’re not getting the eligibility box of what we can sell in their-

Kevin Kim:
So it was a tight box.

Steve Pollack:
It was too tight.

Kevin Kim:
The buyer was a very tight box.

Steve Pollack:
We went back with a different investment banker for a different process. We went back looking for an equity partner to sell off a minority share of our company.

Kevin Kim:
Is this the GP for your funds? This is the actual operating company?

Steve Pollack:
Yep.

Kevin Kim:
Okay.

Steve Pollack:
Yep. In exchange for, obviously, some cash because we want to take some chips off the table, as well as access to institutional capital. In order for us to access institutional capital, we needed the MEZ financing that would come in behind whatever the collateral advance might be, 70%, 75%, 80%, whatever they’re advancing against our UPB. And that’s how we ended up in April of 2015 after about a 10-month process, choosing Walford Capital Partners, who ended up buying 40% of Anchor. Our thinking at the time, which 100% turned out to be true was, 60% of a much larger entity is way better than 100% of a much smaller entity.

Kevin Kim:
Absolutely, absolutely.

Steve Pollack:
And that’s with a lot of-

Steve Pollack:
[crosstalk 00:32:11]

Kevin Kim:
And you still maintain a lot of corporate control.

Steve Pollack:
We maintained all corporate control at that point in time.

Kevin Kim:
Exactly.

Steve Pollack:
They had some oversight, obviously, because they were supplying us with hundreds of millions of dollars a day. But we chose them not because they had the best economic deal, which they didn’t. We chose them because we thought they would provide us the debt and the partnership in a way that would allow us to continue to operate in the way we were operating before.

Kevin Kim:
But that’s amazing to me. I mean, the institutions didn’t really enter this market until probably three years ago. This institution had a little foresight. They saw an opportunity.

Steve Pollack:
They saw an opportunity. There was a number of other players in the market that came and made some real offers.

Kevin Kim:
Okay. Once you onboard this institutional partner, and now you’ve … so that 60% has grown significantly, and you’re no longer capital constrained.

Steve Pollack:
We’re no longer capital constrained. Right? We layered on a $200-million debt facility. Within two or three months after closing that transaction, we originate over $750 million of loans in 2000-

Kevin Kim:
So now you’re-

Kevin Kim:
[crosstalk 00:33:20] the billion-dollar mark.

Steve Pollack:
… in 2015. 2016 was our first year over a billion dollars.

Kevin Kim:
So ’16 is the billion-dollar mark.

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
Okay. Now, from the point you lose that capital constraint, that handcuff, if you will, does the underwriting change? Because a lot of folks out there, they loosened their box a little bit because they have to go out and fill that mandate.

Steve Pollack:
No, underwriting didn’t change in the sense of what we were doing on a loan by loan basis. It changed, though, in a sense of where our geographic footprint was.

Kevin Kim:
Okay.

Steve Pollack:
We did start to expand even a little bit more aggressively outside of the California license.

Kevin Kim:
And we didn’t cover that. So until then, where were you lending?

Steve Pollack:
Up until 2015, we were pretty much just West Coast. We were California, Nevada, Arizona, a little bit in New Mexico, a little bit in Texas, but mostly California and a few neighbors.

Kevin Kim:
Trustee states down here some closer, yeah.

Steve Pollack:
Yeah.

Kevin Kim:
And so, once you lose those set of handcuffs, you’re free now capital-wise. You’re pursuing a national play.

Steve Pollack:
Yes. What we did is layer on between five and 10 states per year for the next three to four years to where we are right now.

Kevin Kim:
So incrementally. You’re not going-

Steve Pollack:
We’re in 46 states right now. There’s four states we’re not in, and it took us three years or so to get to that point.

Kevin Kim:
So now I have to ask. You’re one of the only lenders that I know that actually truly does lend nationally. Are there some states that are surprising, not what you expected, new markets that were not what you expected when you entered?

Steve Pollack:
Yes. Yes and no. We spent a fair amount of time researching all the little quirks of the states. You know? Most of which you’re probably aware of. For example, the one-year right of redemption in Alabama, right? That’s obviously-

Kevin Kim:
Tennessee’s strange usury rule.

Steve Pollack:
Tennessee’s strange usury rule, which we got wrong. [MEMA 00:35:14] actually helped us and corrected us on that one so we could actually charge better. One of the biggest surprises to me is the foreclosure bidding process in Michigan.

Kevin Kim:
Oh, yeah. Yeah. I heard about that.

Steve Pollack:
In which the right of redemption is whatever you last bidded. And so if you underbid your actual debt owed, then they can come back and redeem for full price on whatever your bid was. We learned that the hard way.

Kevin Kim:
That just changes the story for any-

Steve Pollack:
So you have to readjust underwriting on a state-by-state basis in many cases. For example, we’re hardly lending in New York at all.

Kevin Kim:
Why?

Steve Pollack:
Because New York has a law in which mechanics leans have super priority over any lean in place, so in order for us to be able to lend in New York, we would have to bifurcate the loan, which is the standard out there in terms of doing a first loan with the acquisition piece and a second loan with your rehab piece.

Kevin Kim:
Bifurcation, yeah.

Steve Pollack:
And then, if you get a mechanics lean, it’ll jump in front of the second piece or whatnot. We don’t have the capital stack for that. Plus, I have a strong preference for not doing junior leans, and they’re way more risky. And so, as long as there’s enough business to be done in the other 45 states that we’re operating in, why struggle with that? No. At some point in time, maybe we will jump in a little bit more heavily into New York, but we’re not.

Kevin Kim:
But this is fascinating because, to me, we used to get a lot of our clients, and they’ll find an institutional partner, or find some kind of large credit facility, but they all of a sudden, now changed their mandate. Their mandate has now changed. They are really just chasing deals. You’re staying disciplined, though, the whole process. You’re not even …

Kevin Kim:
A lot of clients are just … “Okay, we need as much deals as possible. Let’s go.” You’re doing it state by state by state. Now-

Steve Pollack:
And we approach … not to cut you off.

Kevin Kim:
No, go ahead.

Steve Pollack:
But I am cutting you off.

Kevin Kim:
Yeah.

Steve Pollack:
And we approach that relationship differently. I’ve seen other lenders in the space get an institutional credit facility. And like you say, now they’ve got to adjust their box. What we do is when we get the term sheet from the credit facility, we then backtest and see what percentage of our loans will fit into the box. And if it’s not sufficient, we don’t want the credit facility. So we got to make sure that at least 80% of the loans that we’re originating on a regular basis will fit into this particular credit facility. Then we won’t have to change anything. Right?

Kevin Kim:
Right. Right, right, right. Now another question I have in that similar vein is, a lot of my clients who scale like that, all of a sudden, now are doing other types of loans. From 1998 until today, you have not changed the type of loan that you’re doing.

Steve Pollack:
Not the core of our loans. We do a few other loans. We do some ground-up construction on [infila 00:37:49], one and off.

Kevin Kim:
Right. Still residential?

Steve Pollack:
Still residential.

Kevin Kim:
You never dabbled into the commercial space, or seconds, or-

Steve Pollack:
Not in any sort of meaningful way. What we’ll do is, where we have a relationship with a client, and because this is their business, most of our clients that do any sort of reasonable volume are sending most of their business to Anchor. It’s just easier for them. Right? So they’re repeat clients. And as you’re probably aware, they’re real estate guys. They don’t think of themselves like, “I’m just a one to four guy,” or, “I’m just a single-family home.” They’re real estate guys. They happen to find a good deal-

Kevin Kim:
They’re going to do it.

Steve Pollack:
They’re going to do it. Right? So they come to us and say, “I’ve got this seven-unit building I’m going to buy. I think I’m buying it for 75 cents on the dollar,” or whatever. Well, we’ll finance that on a relationship basis because we don’t want them going somewhere else and maybe getting better service or who knows whatever.

Kevin Kim:
Of course. You want to maintain the sticky relationships.

Steve Pollack:
Right. So we do that for that, and we’ve never had any issues with it. But we’re not out there in the market seeking those opportunities.

Kevin Kim:
And I mean, I have to say, that takes an immense amount of discipline because with the amount of … to fill that capital bucket, to fill that capital need, to get out there and actually deploy all of that money onto the street, it’s hard to say no. Isn’t it?

Steve Pollack:
No.

Kevin Kim:
No?

Steve Pollack:
No.

Kevin Kim:
All right.

Steve Pollack:
Just be disciplined.

Kevin Kim:
I like it.

Steve Pollack:
Just be disciplined. Maybe you wouldn’t be surprised, but I mean, we have a process. We have a loan matrix that is built into our underwriting standards. If the loan fits in the box of the loan matrix, nothing further needs to be done, no credit committee final approval. If the borrower and the loan fit into the matrix, we’re good to go.

Steve Pollack:
To the extent it doesn’t, then it has to be forwarded to the credit committee, and the credit committee needs to make its decisions based upon mitigating factors. A lot of those get turned down, a lot.

Kevin Kim:
Well, that loan matrix process you just described, though, is very interesting. Neal and I always talk about making it easier to buy, making it easier for your borrowers to transact with you. It sounds like you’ve created an immensely simple process for your repeat borrowers to come to you with a deal and know for a fact it’ll get funded.

Steve Pollack:
That’s correct, yeah.

Kevin Kim:
[crosstalk 00:40:04]

Steve Pollack:
One of the key drivers for the development of any process in Anchor is to reduce the friction that borrowers experience as much as possible.

Kevin Kim:
Buy with one click.

Steve Pollack:
If we could.

Kevin Kim:
Yeah, if we could. Right?

Steve Pollack:
Yeah.

Kevin Kim:
That’s amazing. Now, for a company to scale to the size of Anchor, there has to be an immense load on labor, but also on technology. I want to touch on that real quick. Are you using a certain, I guess, I don’t know what we call it, project management software? Are you using some of the usual names that are out in the industry, or do you have something that’s proprietary?

Steve Pollack:
A combination of what you said. We use the Mortgage Office for our servicing software and for our fund management software. And we use Intacct as our accounting software. But we’ve also spent a fair amount of energy, and time, and treasure in building our proprietary technology that touches every single part of our business. It touches the processing part. It touches the underwriting. It touches valuations. It touches lead gen. It’s our CRM system. It does our construction management system. It’s all built into that, and we’ve developed APIs between our accounting system into this, between the mortgage office into this.

Kevin Kim:
You must have a massive tech team, then.

Steve Pollack:
We have 14 people on site, and-

Kevin Kim:
IT and software.

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
Okay, so you’re actually having guys code for you guys.

Steve Pollack:
Uh-huh (affirmative). And we have 25 offshore in Brazil.

Kevin Kim:
Offshore?

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
Okay. And the ones that are domestic, are they all in-house? Are they working in the office?

Steve Pollack:
Mm-hmm (affirmative), all house, yeah. I’m a big believer of nobody works from home.

Kevin Kim:
I wanted to ask you about that. This is interesting. Now I want to go into the culture of Anchor because I’m a big believer in firm company culture. Our law firm has scaled, doubled, and doubled in the past 10 years. We believe it has a lot to do with our culture. Anthony and I were talking about it, and he’s actually, “We’re actually not a good example. Steve’s company is actually a really good example.” I want to know more about the culture of Anchor. How has that changed over the years? What do you emphasize in your culture? What’s it like?

Steve Pollack:
We’re still evolving. I’m a big believer in that you spend almost more time at work than any other single place, including at home. Right? Because most of the time you’re at home, you’re, by hours account, you’re sleeping. Right?

Kevin Kim:
Yeah, pretty much.

Steve Pollack:
Work should not be a place where you get up in the morning and go, “Ah, I got to go to work.”

Kevin Kim:
Right.

Steve Pollack:
It shouldn’t be. But that also doesn’t mean catered lunches, and ping pong tables, and things that tech teams have done.

Kevin Kim:
Nap rooms.

Steve Pollack:
Yeah. Although we did get a request for a meditation room recently.

Kevin Kim:
We have a nap room, so I’m not going to say anything.

Steve Pollack:
Okay. I’ve got a nap couch in my office. The key, I believe, in the company, is to hire people that are best suited for particular positions so you set them up to succeed from the beginning.

Kevin Kim:
How do you do that? How do you evaluate that?

Steve Pollack:
Well, you use approved testing, if you will, and with certain-

Kevin Kim:
Like DISC and predictive index and that kind of stuff?

Steve Pollack:
Things like that, yes, similar. Not those in particular, although we’ve used those in the past. We’ve actually evolved away from that, but similar.

Kevin Kim:
What do you recommend?

Steve Pollack:
We use Culture Index and the Wonderlic Test

Kevin Kim:
Culture Index?

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
Okay. And the other?

Steve Pollack:
The Wonderlic.

Kevin Kim:
Wonderlic. Wait, Wonderlic. Isn’t that the NFL?

Steve Pollack:
They use one of the Wonderlic. Wonderlic is a intelligence testing test. It’s not necessarily an IQ. It doesn’t call itself an IQ test, but it is an intelligence testing test. And the test is different for the position you’re testing for.

Kevin Kim:
And so you’ll do these tests. Is there anything else that you’re using to indicate this person is best suited for this type of position?

Steve Pollack:
Well, part of the culture index process is to design what we call a C-job, which is … what it does is determine what profile would be best for a given position.

Kevin Kim:
Oh.

Steve Pollack:
For example, just on a very basic level, some positions, you want people to be very social. Some positions, you want them to have their heads down and be very attention to detail. Two completely different types of people.

Kevin Kim:
Right.

Steve Pollack:
Well, with Culture Index, you can assign a job, and then you can, based upon the profiling testing done by the Culture Index, it will tell you what percentage match it is for a given job or other jobs.

Kevin Kim:
Oh, that’s amazing.

Steve Pollack:
Right? And then, obviously, your interview process.

Kevin Kim:
Of course.

Steve Pollack:
Okay? Now, we hire very slowly, which is why we have a lot of open positions.

Kevin Kim:
How many open positions do you have?

Steve Pollack:
23.

Kevin Kim:
They’re hiring, guys.

Steve Pollack:
And you got to-

Steve Pollack:
[crosstalk 00:44:51]

Kevin Kim:
23 open positions. So tell me about the interview process. How does it differ from most companies?

Steve Pollack:
Well, I don’t know if it does differ from most companies, but from what we do the HR is involved. The individual manager or managers. It might be multiple managers will have to hire. If we’re hiring at a manager position or above, every single manager, director, C-suite employee in our company will interview that person.

Kevin Kim:
Every single one?

Steve Pollack:
Every single one.

Kevin Kim:
Is it a group interview, or is it a one-by-one?

Steve Pollack:
It’s a combination.

Kevin Kim:
It’s a combination.

Steve Pollack:
If they’re going to be hired for a particular department, for example, and that department mostly touches these other four, then these four individuals will interview individually, one-on-one, and then other people maybe in two groups of four or something like that.

Kevin Kim:
Wow. That’s got to be at least, what, five rounds of interviews at least?

Steve Pollack:
Something like that or more, yeah.

Kevin Kim:
Or more?

Steve Pollack:
Yeah. But it’s important to us because the last thing we ever want to do is to bring on a toxic person that doesn’t fit with our culture.

Kevin Kim:
Right.

Steve Pollack:
We interview more for fit for culture than for experience, knowledge, etc. That’s just a commodity.

Kevin Kim:
Hired for fit, hired for attitude, hired for culture.

Steve Pollack:
Yeah.

Kevin Kim:
We, at our firm, we’re very, very big about our culture. We have our core values and all of that. Does Anchor have core values?

Steve Pollack:
Yes.

Kevin Kim:
What are they?

Steve Pollack:
Oh, we just revised them. Own your promises.

Kevin Kim:
Own your promises.

Steve Pollack:
Be the person your dog thinks you are.

Kevin Kim:
Be the person your dog thinks you are. That’s dangerous. My dog hates me.

Steve Pollack:
You’re one of the few. I don’t know anybody’s dog that hates them. Trust the team.

Kevin Kim:
That’s great.

Steve Pollack:
If the ceiling is the moon, you’ll never get to Mars. Think big. Yeah. Our obsession is the borrower. Develop the best-

Kevin Kim:
Blank.

Steve Pollack:
Blank. You fill in the blank. Do everything with passion. Those are our core values.

Kevin Kim:
That’s amazing how similar they are to us. I mean, we try to make them simpler. I think it’s interesting because we have had this exercise of trying to explain what our values are because we have them in very, very short, like one word. Passionate, strive for excellence-

Steve Pollack:
That’s what we used to have. It’s just adjectives, right?

Steve Pollack:
[crosstalk 00:47:02] innovation.

Kevin Kim:
Yeah.

Steve Pollack:
Right? Accountability. But the problem is, with adjectives, that can be interpreted so many different ways.

Kevin Kim:
Exactly.

Steve Pollack:
Which is why we just re-envisioned them this way because-

Kevin Kim:
That’s great.

Steve Pollack:
… now when I say accountability, you may think, “What does that mean? Does that mean as a manager, you’re accountable to me? I’m only accountable to you?” Whatever. But own your promises. I’m being very specific what I mean by accountability.

Kevin Kim:
Exactly, exactly. That’s a very interesting way to do it. I like that. Is there a process for, I guess, rewarding folks for what we call living the values at your company?

Steve Pollack:
Yes. They get to keep their jobs.

Kevin Kim:
All right. I like that. You talk about hiring is slow, so I’m guessing Anchor also fires quickly then.

Steve Pollack:
We hire slow and fire quick, yes. Right.

Kevin Kim:
Fire quick.

Steve Pollack:
If we determine you’re not a fit. Now, people are not summarily fired. We have a process in which there will be conversations. People will understand what the issue is. We will try to manage them the best we can and put them on performance plans. Having said that, though, if that doesn’t work, then they’re not going to stay here.

Kevin Kim:
Of course. You’re not just going to walk into their office and say, “You’re gone.”

Steve Pollack:
No. That doesn’t happen. No.

Kevin Kim:
But you’re going to walk them through it. Okay.

Steve Pollack:
But if you’re a high performer and you’re toxic to the culture, you’re not around either.

Kevin Kim:
That’s great. That’s important. A lot of our folks, a lot of our clients, and a lot of our listeners are working on building their culture. Did you hire a consultant to get you guys through this? Was there a facilitator for this, or did you guys just, “Aha, we’re going to do this ourselves”?

Steve Pollack:
I don’t think we ever hired a given consultant. We’ve had a number of consultants over the course of the last 10 years or whatnot. I belonged to Vistage for about five or six years, which, if you’re familiar with that, gives you a lot of various management theories on how to do X or Y, bits and pieces here in there. I’m a voracious reader. I read about, I don’t know, 60, 70 books a year.

Kevin Kim:
Whoa! What are you reading right now?

Steve Pollack:
I’m reading Curious by Mario Livio.

Kevin Kim:
What’s that about?

Steve Pollack:
It’s about what is the evolutionary benefit of humans being curious. And why do we lose our curiosity as we evolve from a little kid who’s curious about everything to an adult who’s curious about … some are curious about nothing? And how curiosity plays into performance at the highest level.

Kevin Kim:
So it’s a business book. It’s a professional-

Steve Pollack:
Yeah, kind of.

Kevin Kim:
Very cool. Very cool. You’re gathering all of this information from all of the different, I guess Vistage, the books you’re reading, and you build this amazing culture at your company. The segue to this was the working from home thing. We have a policy at our office that allows folks to work from home. Personally, I am very anti working from home. I personally believe that collaboration happens face-to-face or performance happens better face-to-face. What is your guys’ thought process about working from home? Do you have any remote employees at all?

Steve Pollack:
We have remote loan originators because they’re in different geographical locations, whether in northern California, Chicago, Philadelphia, Houston, whatever. We also have remote inspectors, again, for the same reason, in the Southeast and the Midwest, and Northern California, and-

Kevin Kim:
And you’re not going to open offices in all of these states.

Steve Pollack:
No. We have an office in Nevada because we have to.

Kevin Kim:
Right, brick and mortar.

Steve Pollack:
That’s it.

Kevin Kim:
Yeah.

Steve Pollack:
We have one person who has been with the company for a long, long time, who’s our technical writer who does work from home. But she comes into the office periodically, so we do have one that violates the rule per se. But I think there’s three main reasons why working from home is not in the company or the employee’s best interest. The bed, the refrigerator, the TV.

Kevin Kim:
Amen. That’s why I can’t work from home. I’ll be in the kitchen making something. I’ll watch some TV. And my lunch break all of a sudden became a two-hour lunch break. I didn’t mean for it. We’re on the same page there, Steve.

Steve Pollack:
There’s arguments pro and con, and I don’t think that the management studies have clearly shown working from home is great, or working from home is not great. There are arguments. I just fall into the camp where I don’t think it’s the best for the culture or for the employee. Like you say, collaboration is best face-to-face. And you get your questions answered faster. You’re more efficient. I understand the drawbacks of the commute and what goes into that and so forth, having to get dressed up instead of walking in your pajamas all day long.

Kevin Kim:
So you mentioned to dress. Does Anchor have a dress code?

Steve Pollack:
No.

Kevin Kim:
Casual okay?

Steve Pollack:
Our dress code basically is, if you think that maybe you shouldn’t wear it, then don’t wear it.

Kevin Kim:
I like that. We should probably install something like that. We’re a casual law firm as well. We’ve broken away from the suit and tie era, California causal. But there are some folks that go a little bit too far.

Steve Pollack:
I wear jeans and a T-shirt every day.

Kevin Kim:
Fantastic, fantastic. I want to-

Steve Pollack:
You like that? You like that? Most people like it.

Kevin Kim:
Yeah, most people like it. If you’re comfortable-ish, right? Let me ask you this. I want to close out the interview with something more about you, Steve Pollack. You mentioned poker player. You’re a avid gamer. Is there anything else that the audience-

Steve Pollack:
Not video games, but other games.

Kevin Kim:
Other games. Is there anything interesting, a fun fact about Steve that we don’t know about, that the public at large doesn’t really know about that our listeners would be thrilled to hear?

Steve Pollack:
Amateur magician.

Kevin Kim:
Amateur magician! Okay. Are you a member of what’s it called?

Steve Pollack:
The Magic Castle.

Kevin Kim:
The Magic Castle in L.A.

Steve Pollack:
I am.

Kevin Kim:
We were just there for an event.

Steve Pollack:
Yeah, it’s great. Right?

Kevin Kim:
It’s an amazing place.

Steve Pollack:
It is.

Kevin Kim:
What kind of magic do you like to do?

Steve Pollack:
Close up magic.

Kevin Kim:
Close up magic. Cards?

Steve Pollack:
Mostly cards.

Kevin Kim:
Cards. Makes sense, a poker player.

Steve Pollack:
A little bit of sponge balls.

Kevin Kim:
Sponge ball?

Steve Pollack:
Sponge balls, yeah.

Kevin Kim:
Oh, the disappearing-

Steve Pollack:
The sponge ball disappears, got three, got two, got one.

Kevin Kim:
Yeah, yeah, yeah. Right. Right, right, right.

Steve Pollack:
I’m not big on coins, but mostly cards and sponge balls.

Kevin Kim:
A lot of hand dexterity required for a lot of those.

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
What are your thoughts on … What kind of cards do you guys use? Do they use standard cards that we use everywhere?

Steve Pollack:
Yeah, just standard cards.

Kevin Kim:
Just a Bicycle deck?

Steve Pollack:
A Bicycle deck.

Kevin Kim:
Not Kem cards, I’m guessing.

Steve Pollack:
No, not Kem cards. No, those are-

Kevin Kim:
Too slick, right?

Steve Pollack:
Those are too slick, and they’re usually a little smaller too.

Kevin Kim:
Okay. Well, that’s interesting. I did not know that. That’s very cool.

Steve Pollack:
A black belt in Tang Soo Do.

Kevin Kim:
Really cool! What degree?

Steve Pollack:
Black belt first degree.

Kevin Kim:
Black belt, all right. And you studied in California?

Steve Pollack:
Mm-hmm (affirmative).

Kevin Kim:
Very cool. Do you still train?

Steve Pollack:
I have not trained in two years now. I was training for my second degree, but I never … I got pulled away. Too busy with the business and family.

Kevin Kim:
Of course, of course. That’s cool. Fourth degree black belt, Tae Kwon Do.

Steve Pollack:
Oh, are you?

Kevin Kim:
Yeah.

Steve Pollack:
Ah, that’s-

Steve Pollack:
[crosstalk 00:53:59]

Kevin Kim:
I studied in Korea. I studied in California. Berkeley alum, Korean martial arts, very cool, very cool. All right. Well, Steve, I can’t thank you enough for taking the time today and just sitting and talking with us today. We really appreciate it and look forward to more conversations in the future. And hopefully, our audience will also listen in on the recorded panel you just did with my partner, [Nema 00:54:23], and Beth, and [Corves 00:54:24]. That was a really cool panel.

Kevin Kim:
Thank you very much for taking the time today. Listen in for more, guys. We’ll be coming back to you with probably another great interview, either at the law firm level or maybe with some of our clients. And hopefully, we will be out and doing more videos on-site as well. We really look forward to doing that. Thank you once again, Steve, from Anchor Loans, the biggest fix and flip lender in the country today, $8 billion in origination. It’s fantastic. Thank you very much.

Steve Pollack:
You’re welcome. Thank you. It was fun.

Kevin Kim:
All right.