Early in 2007, I had traveled to Tucson, Ariz., to interview the CEO of a high-flying mortgage company, First Magnus Financial Corp., which had completed more than $30 billion worth of originations in 2006.
"We expect to do $36 billion in 2007," the CEO boasted to me.
By the time my story went to press, the company was out of business. It blew up quite suddenly during the subprime mortgage crisis that hit the country that summer. Many independent mortgage companies followed First Magnus down.
One that didn’t was Mortgage Master Inc. of Walpole, Mass., which not only survived but has expanded its regional presence to the District of Columbia and 22 states in the Northeast and mid-Atlantic part of the country. This year, the company expects to do about $7 billion in loan volume.
I thought I would check in with Paul Anastos, president of Mortgage Master, to talk about survival and what he calls "the best home market in the last 10 years."
First a little background: The company was founded in 1988 by Leif Thomsen, in the basement of his Walpole home. In 2011, total loan production reached $5.3 billion making it one of the largest, nonbank lenders in the country.
Statistics of interest: Mortgage Master’s average loan amount is $320,000 with an average loan-to-value of 65 percent. The average loan officer at Mortgage Master closed more than $2 million per month in 2011 and 15 percent of its loan officers closed more than $50 million in volume.
In 2003, Anastos, a mergers and acquisitions specialist at accounting firm Ernst & Young, joined the company. Since then, Mortgage Master grew from two offices to 40 and from 145 employees to about 600.
My first question, of course, was how did Mortgage Master survive the Great Recession?
"During the boom years, lenders were doing a lot of exotic mortgage products," Anastos said. "And a lot of these products didn’t make sense to us. We didn’t get into these funky things — we just didn’t believe in them. At the time people thought we were crazy, but sound lending principles made good sense for the company and the consumer. We ended up thriving when a lot of companies around us were failing. We survived because we stayed conservative and disciplined."
I push back. "So, there were no subprime loans in your quiver of arrows?"
As it turned out, there wasn’t.
"We really have never done subprime," Anastos said matter-of-factly. "Less than 1 percent of our volume was ever subprime. I was uncomfortable when the industry was extending loans and offering exotic products. The negative amortization programs were so dangerous to the consumer, and few consumers understood them. We were fortunate enough that we didn’t do those."
One result is that Mortgage Master has never had to buy back a loan it originated, which is almost unheard of for an originator doing its kind of volume.
"Very few of our borrowers are in default or late on payments," Anastos said. "The number of foreclosures we do on our loans is minute."
I decided to change the subject. "I’ve heard you say that this is the best home purchase market in the past 10 years. Why?" Of course, I was thinking the boom years from 2001 through 2006 weren’t too bad.
"What defines the best? For me, it is willing buyers and willing sellers," he said. "We had a period of time where prices were too high. Homes were selling at high value but it was much more of a good market for people who were selling. I don’t think it created a good situation for buyers."
The balance in the market is better now, Anastos said. "Interest rates are at an historic low; there’s a bit of an economic recovery in the Northeast where we do business; sellers are more realistic about home prices; and this regional housing market wasn’t as hard hit as the rest of the country. As a result, we have seen an unbelievable amount of activity. Homes going for sale are only up for a short period of time and there are two or three bids on the property."
But isn’t this a kind of government-induced market due to low interest rates? I asked.
"What I like to see in the home market," Anastos said, "is home purchase activity more than anything else — even more than low interest rates. Low rates are an indicator of a weak economy. Over time, I wouldn’t mind if the rates moved higher, if that means they are higher because the economy is improving — a better reason for people to buy homes."
My thinking is, Mortgage Master was benefiting by being in the right place at the right time, i.e., the Northeast and not, for example, the Southeast.
Anastos agreed: "We are predominantly in the Northeast — New England, New York, New Jersey, Pennsylvania and a small amount of activity in the mid-Atlantic states. That’s our footprint, so it’s hard for me to speak of other markets. From what I know of Florida or Atlanta, I don’t think those markets are having as much success as we are. The recovery there is probably slower, just because those areas experienced so much growth before the Great Recession."
So, is Mortgage Master planning to expand regionally?
"I don’t believe you have to be a nationwide lender to be successful," he said. "You should stick to what you do well and maybe certain parts of the country aren’t the best footprints for our company. We try to stay in urban metros with good suburbs surrounding dense cities, places like Boston, District of Columbia, and New York with its surrounding suburbs in New Jersey and Connecticut. Those cities are different, but you see a lot of similarities in the demographics of the borrowers. We work those markets very well."
My last question was this: Has the mortgage lending environment changed for better or worse over the past four years?
On the whole, Anastos was very positive in his response.
"Getting rid of exotic programs and returning to common sense lending has been good; you have to be able to prove you are going to support the debt you are going to take on," he said. "Loan officer licensing was a huge positive for the industry; it raised the bar in terms of qualifications of the people who are writing mortgage loans. Some of the new regulations have been misguided. The original HARP (Home Affordable Refinance Program) wasn’t good, but the HARP II program is great."
Wow, a lender who has positive things to say about all the lending changes introduced by the Obama administration.
Anastos emphatically concluded, "Overall, the regulatory environment has changed in a positive way."