Forward on reverse: Reversing the credit crisis at World Alliance Financial; A conversation with CEO David Peskin, Part IAtare E. Agbamu, CRMSreverse mortgage, World Alliane Financial, KBC, NRMLA,
David Peskin knows how to seize a great business opportunity. He
maneuvered himself and his company from innovative reverse mortgage
lead-seller to a nimble, top-five wholesale reverse mortgage lender
in America within 18 months! In a grim credit market, where
seasoned reverse mortgage leaders such as Financial Freedom, Bank
of America and others are suspending jumbo reverse mortgage
lending*, Peskin's World Alliance Financial (WAF) is forging ahead,
making jumbo reverse loans and growing market share. In a sense,
WAF is running where other reverse mortgage giants fear to tread.
What is the source of this unusual strength in an abnormal credit
environment for all lenders? Who is KBC? What is it up to in U.S.
reverse mortgages? What is going on at WAF? To find out, I spoke to
David Peskin. Below is the first part of our conversation: *Note:
Major reverse mortgage lenders such as MetLife Bank, Generation
Mortgage Company and others have not suspended their jumbo
Source of strength Atare E. Agbamu: David, why are you
growing in a market that is challenging even your biggest
David Peskin:We have an interesting business model. We
have direct consumer access, as well as a large wholesale base. One
thing that allows us to perform in this marketplace is the
tremendous balance sheet behind us. It allows us to keep loans
while others are having liquidity issues because the secondary
market is on hold right now. There is no securitization market.
Investors are looking for high yield. While reverse mortgages are
very attractive assets, there are other assets in today's market
that are giving higher yields. We are in a very good position
because we have a very large balance sheet. We can hold on to loans
until the market turns around.
AEA: Your strength is a function of your alliance with
DP:Yes, we are a wholly-owned subsidiary of KBC-FP (or KBC
AEA: In the minds of some people, KBC is a mystery &
a European financial goliath. Please tell us a bit about KBC.
DP:We are actually owned by KBC-FP, which is the capital
markets group of KBC Bank. We are all part of the KBC Group. The
United States arm is called KBC Financial Products. KBC Bank is
about $50 billion in market capitalization and $500 billion in
assets. It is diversified. In Europe, it has several hundred
branches. It is very similar to a Chase (JP Morgan Chase) here in
AEA: What does the acronym KBC stand for?
DP:The KBC name came out of the 1998 union of three major
Belgian financial services companies: Two banks (Kredietbank and
CERA Bank) and an insurance company (ABB). KBC Group is a huge bank
and insurance holding company.
AEA: So, KBC wants to be a big player in the U S reverse
mortgage market, right?
DP: Yes, KBC Financial Products is very interested in
being a very big player in the reverse mortgage market in the
Pushing LIBOR AEA: You are pushing the LIBOR (London
Interbank Offer Rate) index over the CMT (Constant Maturity
Treasury) index, why?
DP: All institutions base their funds on LIBOR versus CMT.
The problem is that if you start producing loans based on CMTs,
unless you plan on selling them to Fannie Mae, you have to enter
into a swap in order to adjust your funds to where LIBOR is. It can
be very expensive. You are better off doing loans based on what the
street purchases loans on. Securitizations are done on LIBOR. There
is a set margin over LIBOR where you have no interest rate risk,
unless you are doing a fixed-rate. The world, as we know it,
functions on LIBOR, not CMT.
AEA: Aren't you putting WAF at some risk by favoring a
particular index over CMT? CMT is not going away. It is the index
the government and many agencies use in their borrowings.
DP: No. Again, the world runs on LIBOR. In my view, if
LIBOR were to go away, it would indicate a worldwide crisis. If you
look at what is important to a borrower, it isn't the index. It
should be the margin. If I took a $100,000 loan 10 years ago based
on either LIBOR or CMT, if I had the same margin, I will be right
around the same mortgage balance today. If I had a lower margin on
LIBOR and a higher margin on CMT, I'd be better off. We should be
focusing on the margin, not the index.
SNL University AEA: Lets talk about your SNL University.
What are you doing differently from what others have done
DP: Because of our vast experience in this market, we feel
that it is very important to help our partners have a better
understanding of how to be successful in this business quickly
versus spending a substantial amount of money trying to figure it
out on their own. Because of our background, [that includes]
everything from marketing to processing, to underwriting, to
closingeverything; we have the ability to go in and train you in
almost any area you want to know about the business. It is very
important that you learn so that you can start your business right.
We have staff dedicated to doing it.
AEA: We agree that education is vital in this business.
Making a commitment like that is very good.
DP: Absolutely! We have staff dedicated to that. We think
it is very important. Even training on the difference between LIBOR
and CMT, or fixed versus non-fixed, or understanding how to submit
a loan for processing or underwriting.
Inside WAF: Technology and ethics AEA: What is new at
World Alliance Financial?
DP: I think there are two things: Our commitment to our
products (our jumbo product is not going away; we are going to
continue to offer it) and our investment in our infrastructure. We
are spending millions of dollars building an entirely new
infrastructure that is going to make the broker process 10 times
more efficient than it is today. You could take your application
through our system and submit it electronically from lead to
closing, without having to re-enter information or send us your
whole package. You can manage your entire lead and loan portfolios
AEA: I understand you have a system of inside and
outside account executives. What value does it bring to your
relationship with your broker and lender partners?
DP: We found it extremely important that the outside
people who are out and about, meeting with customers and training
customers face-to-face, not feel that they are on their own. So we
linked them with an internal relationship manager who is
responsible for handling the outside person's business. Let's say,
I am in New Jersey, driving around [and] meeting with customers.
What if one of my customers calls and has issues while I am in the
middle of a meeting? They should be able to get in touch with
someone on the inside who is like their pipeline manager. They are
different roles. The inside person is going to handle the pipeline
and the issues that come up while the outside person is out on the
street doing the training and building customer relationships. They
work as a team. Each person on the inside has the capacity of a
hundred files. When they reach capacity, we dedicate someone else
to that outside person.
AEA: You are expanding your broker network through
correspondents and the HECM advisor program. What are you doing to
hold your brokers to higher ethical standards in the business?
DP: We are adopting the NRMLA (National Reverse Mortgage
Lenders Association) Code of Ethics. In fact, we are holding
everyone on our network accountable, whether through the HECM
advisor program or the traditional Mortgage Brokers or
bankersanyone who sends us loans. We are not going to allow them to
sell any other type of third-party product other than reverse
mortgages to their customers and receive compensation. So, they
can't sell annuities or any other products that they would use a
reverse mortgage to pay for.
Atare E. Agbamu, CRMS, formed ThinkReverse LLC, to help
originators address demographic change via reverse mortgages. A
specialist with Credo Mortgage, a member of BusinessWeek Market
Advisory Board, Atare is the first to propose reverse mortgages as
risk-management tools for forward originators. Besides marketing,
originating, and researching reverse mortgages since 2001, Atare
has authored more than 100 articles and a book on reverse
mortgages. He may be reached by phone at (612) 203-9434 or e-mail
"We are not going to allow them to sell any other type
of third-party product other than reverse mortgages to their
customers and receive compensation. So, they can't sell annuities
or any other products that they would use a reverse mortgage to pay
for." David Peskin, CEO World Alliance Financial