Each month, National Mortgage Professional Magazine will focus on one of the industry’s top players in our “Mortgage Professional of the Month” feature. Our readers are encouraged to contact us by e-mail or consideration in being featured in a future “Mortgage Professional of the Month” column. This month, we had the chance to chat with Hugh Miller, president and chief executive officer of Melville, N.Y.-based Reliance First Capital LLC. A 20-plus-year veteran of the industry, Hugh Miller is the former chief executive officer of Delta Funding.
How did you first get involved in the mortgage industry?
My father, Sidney Miller, saw the unfulfilled need for borrowers who could not qualify for conventional loans, and thus started Delta Funding in 1982. I worked part-time for Delta since its inception (I was going to college at the time), and joined the firm full-time in 1985.
What has kept you involved in the mortgage business all these years?
The mortgage business is a very cyclical and challenging one. New products are constantly being made available for customers and changes are always occurring with existing product guidelines. The review and study of risk management and understanding of products and programs that make sense both for customers and investors is always taking place. We are also experiencing new technologies to be utilized to help streamline the process. Ultimately, and at the risk of sounding a little corny here, the great American dream is homeownership. The ability to assist borrowers in owning a home is something I think many people in the mortgage business pride themselves on being able to help with, and it’s something that drives them to continue in this business even in adverse times, myself included.
Delta Funding had been in business for approximately 26 years, which was a very impressive feat for a non-prime lender. During that time frame, there were many cycles where we saw most of your peers go out of business. What was the primary reason for Delta’s success?
I think there were a lot of reasons for Delta’s success. But if I had to identify a primary reason, I would have to say it was our lending philosophy. At Delta, we tried to always originate loans that we felt were in the borrower’s best interests, as well as loans that made sense in the secondary market. Just as a lender wouldn’t do a loan just because borrowers asked for it if it wasn’t something that made sense, likewise mortgage lenders should not be originating loans solely because investors or Wall Street have an outlet and a market for that loan. It is important to make sure that the product makes sense for both the borrower and the lender/investor.
Throughout Delta’s history, we had a strategy of originating only loans that we thought made sense for the borrower. For instance, Delta always originated the majority of its loans as fixed-rate loans, whereas the industry was clearly much more adjustable-rate (ARM)-focused. This was true of our company throughout its entire 26-year history, and in fact, we were originating in excess of 90 percent of our loans fixed-rate in 2007. While this kind of strategy hurt us from a volume perspective, we felt it was the right thing to do.
We did not originate risky product types such as 125 percent loan-to-value or option ARMs and significantly reduced originations of higher risk loan types by creating underwriting overlays that we thought made sense. We just were not willing to sacrifice quality just to boost originations in the short run when we knew it did not make sense in the long run.
We think this long-term approach to the business ultimately led us to having a very low employee turnover rate. We had many people with the company for 10-plus years. I began running the company when we had eight people, and we grew it to more than 1,600 by 2007, which is something we are all very proud of.
I was really sad to see the hugely successful mortgage powerhouse that your father and you created [Delta Funding] become another casualty of the credit crunch, but we can assume that successful mortgage professionals like yourself look at such misfortunes as learning opportunities. What lessons have you learned from the current credit crisis?
Everyone at Delta Funding was obviously very sad to see what happened to our company. While we take a tremendous amount of pride in our 26-year history, and our ability to operate through multiple cycles, the complete collapse of the entire non-prime market and the disappearance of the securitization market, ultimately spelled our demise. This current environment is the worst global economic crisis seen in seven decades, according to U.S. Treasury Secretary Timothy Geithner.
Being purely a non-prime lender, our business model was reliant on the securitization markets. When those markets for non-prime loans disappeared in late 2007 and we had many hundreds of millions of loans on our warehouse lines with nowhere to sell them, that proved to be our undoing. Since we had securitized for 17 years prior to then, and were able to successfully complete a securitization even in adverse environments such as the fourth quarter of 1998, and the first quarter of 2007 (a time frame where we saw the majority of our peers go out of business), we had hoped that Delta’s superior loan performance based on the products it originated would enable us to continue to access the markets as we had in other adverse times. But, unfortunately, with virtually no market for non-prime, that was not to be the case. We take solace in the fact that we lasted much longer than our peers, and made it through the first half of 2007 with all of our warehouse lines intact and our business thriving.
We are now in a market where the vast majority of loans originated have either an implicit or an outright government guarantee. These agencies were created for a reason, including to normalize the markets in adverse times, which is obviously what we are witnessing now. Going forward, we believe a more diversified approach to the business with different product types makes sense for our company. While the government has made it clear that it does not want to be the sole provider of mortgage financing and would like to see the private sector return. We are certainly interested in participating in those markets again as we did successfully for more than 25 years, but we do think it makes sense to have a diversified approach in terms of available products. This way, we can offer a broad-based set of products to customers and have the company best set up for all different market environments.
While I am not sure of the percentage of wholesale business you were doing at Delta, I would venture to guess it was well over 50 percent. What led you to make the decision not to include a wholesale platform with Reliance First Capital? Do you think that could change in the future?
While Delta started back in 1982 as purely a wholesale operation, it is important to note that in the last 10 years, we made a conscientious effort to originate retail loans. In fact, retail business was approximately 50 percent of our total business for the last few years at Delta. Hence, we are very well-versed in retail and very comfortable with originating loans from the retail channel. We actually had one of the highest percentages of retail originations that we are aware of in our industry. We were even a top 10 retail lender, so it was natural for us to continue retail originations.
The decision not to enter the wholesale arena at this time is both a strategic decision to focus on retail and a market driven decision. As with any business, we will continue to analyze our business strategies and the markets, and will consider wholesale lending, among many other opportunities, as time goes by.
How did Reliance First Capital come to be?
In the weeks and months after we publicly announced that Delta Funding was closing, we were contacted by numerous third parties wanting to invest in a new entity with Delta’s management team. We first focused on an orderly wind-down of Delta, which we believe we accomplished. We were then fortunate to be able to review the capital partners available to us. Ultimately, we decided on Wexford Capital, a [Securities and Exchange Commission] SEC-registered investment advisor with billions of dollars of assets under management. This has proven to be a great partnership and we are very pleased with our choice.
Why are you pleased with your choice of Wexford Capital? What have they done that makes you say that?
There are many reasons, as our similar business and corporate philosophies being top of the list. Our warehouse financing arrangement is a great example. Last summer, before we started originating, we were working on obtaining warehouse financing and had received some term sheets. We then received a call from Wexford telling us they did not want us to take a warehouse line from a bank, because they were concerned with the current market conditions and any bank’s commitments to continuing to provide such lines. Needless to say, with what has happened in the markets, it has been very comforting having a warehouse line with your capital partner and not having to deal with the market vagaries. This is just one of the many ways they have provided value added to our company, and demonstrated their commitment to our business.
What is your growth strategy for Reliance First Capital?
We are definitely looking to grow our company significantly. We are well-capitalized, have numerous outlets for our loans and have more than sufficient warehouse and support in place to allow us to grow. While we are looking to grow organically from our three current offices (New York, Pittsburgh and Charlotte) and a fourth that is opening shortly, we are also looking at other opportunities in the marketplace. We are very open-minded as to the different forms those can take. It could be consideration of some form of a strategic alliance or other business partnership to an outright acquisition. We are looking for people who are the “right fit” for us most importantly.
If someone is interested, how should they go about contacting you?
If they are interested in joining Reliance as an employee, they should contact our Human Resources Manager Cindy Neuendorf at (516) 422-8888 or e-mail
[email protected]. For anything strategic-related, they can contact our Executive Vice President Randy Michaels at (516) 422-8850 or e-mail
[email protected].
Visit Hugh Miller’s Reliance First Capital LLC on the Web at www.reliancefirstcapital.com.
