New Penn Financial and company Chief Executive Officer Jerry Schiano are the focus of this month’s NMP’s Legend of Lending. New Penn Financial was founded in the midst of the mortgage crisis in 2008. Schiano had just completed a two-year non-compete period following the sale of his previous top 15 non-agency-oriented mortgage firm, Wilmington Finance. It is certainly accurate to say that his timing was fortunate, as his new venture emerged to the forefront while others were crashing around him. Yet, such a statement on its own would obfuscate the truth of the hard work and ingenuity that has been essential to both firms’ success.
As you read selected excerpts from my recent interview with Mr. Schiano, you will hear the voice of experience coming through loud and clear. Building one successful firm in this industry is a major accomplishment, let alone doing it twice. While Schiano’s previous success was impressive, his stewardship of New Penn from 2008 through today is more impressive from my vantage point, as it has required an uncommon ability to grow steadily, while the industry was taking on a new shape.
What emerges below is a blueprint for what the largest, most successful mortgage originators of the future will look like: Multi-faceted with diverse revenue sources and well capitalized. In a nutshell, much more like the most successful businesses across the financial services spectrum.
I recently had the chance to speak with Jerry to reflect on his career and how New Penn Financial, now a top 20 lender in its own right, is positioning itself for the emerging and ever-shifting mortgage industry.
Tell us about how New Penn was established.
Jerry Schiano: I started New Penn in May of 2008. Previously, I had started a mortgage company in 1999 and ended up selling that company to American General, which was an AIG company. We grew that company to a couple of thousand employees and from $0 in originations to about $15 billion annually.
You had to sit out of the industry for a couple of years. How did that impact you?
Schiano: I had a chance to view the mortgage market from the sideline as it was imploding. That provided an invaluable perspective on what a sustainable mortgage company must look like. It was a great time to learn, if you really wanted to learn. I was trying to figure out why at that point in time companies were being hit by loan buybacks. Some of them were directly related to the products of the previous era, and they had already gone away, but others were related to the loan manufacturing process.
For example, a good reason for buybacks, even today, is undisclosed liabilities. It happens when borrowers have an inquiry on their credit report and mortgage companies don’t successfully follow through to make sure the borrower doesn’t have other debt.
We set up New Penn based upon those types of lessons. We put a policy in place where we focus on the credit inquiries and we make borrowers sign a form that says, “I am aware of this credit inquiry and I’m not taking out this debt.” We also have our loan officers speak with borrowers about credit use during the origination process. Our focus is on education, but also on risk management. We have instituted the practice of having a recorded call between our loan officer and borrowers in situations where inquiries show up on their credit report.
That’s just one small example, but we tried to understand what the problems were in the market and have developed manufacturing processes in response that would ensure that we didn’t fall into the same traps. You have to figure out a way to offer good quality and good manufacturing, but still do it in a way that’s customer friendly.
Your timing was fortunate, wouldn’t you say?
Schiano: I would love to say I was really smart about the timing of it, but it was also simply good luck. The truth is also that our years of effort to build a successful non-agency platform just happened to be rewarded at an opportune time.
New Penn is a multi-dimensional lender, is that a fair description of your model?
Schiano: New Penn is a multi-origination channel business model. We have a TPO Division where we get business from brokers. We also have mini-correspondent and traditional correspondent lending on select products as part of that business channel. We have a traditional distributed Retail Division with “people on the street” working with real estate agents and builders. And we have a Call Center Division that focuses on purchases and refinances. There are times where some distribution channels are hotter than others, but we think our balance works really well.
In addition to that, we’re a multi-revenue stream company. Our goal was to become self-sufficient. Part of that is our ability to deal with Ginnie, Freddie and Fannie directly.
We are also able, through our parent company, Shellpoint Partners, to create non-agency or jumbo products and to securitize them. We acquired a servicer not too long ago, so we now service our own loans and other company’s loans as well. We think a balanced company can create revenue from origination and also the servicing book that we have been building up over time. Such a structure is vital because we are in such a cyclical business.
What will separate one lender from another in the smaller, more complex mortgage market that is emerging?
Schiano: It starts with the customer (which for us, depends on the business channel). You have to create a positive experience for your customer and their customers. We have to make sure that we implement all of our best manufacturing and risk management practices and still have people say, “I want to deal with them.” In the same way, I judge us by these measures, “Are we a company I’d want to deal with? Are our rates good enough? Are our practices good enough? Do we make it as easy as we can?”
It’s a cumbersome business. First, we have to create a positive experience for the customer. Then we have to create quality loans that are compliant - and we have to do it at a reasonable cost to manufacture. Those are the things that we focus on: customer experience, quality, compliance, costs.
What opportunities to you see in the mortgage industry in the near term?
Schiano: There are a couple of things. The market right now is in a resetting stage. Volume in the market is down. Capacity is still too great. So, we think for companies that are well capitalized, which we are, it creates opportunities to selectively add origination from companies that maybe don’t have access to the same products or the same capital.
What will the winners in the emerging mortgage market have in common?
Schiano: Leading mortgage companies will have to figure out a way to use technology to deliver a compliant, high-quality loan at a much lower cost than the marketplace does today. That’s really where the operational focus of cranking it up a notch has to be.
In addition, we try to align ourselves as much as we can at the beginning of the mortgage process rather than towards the end. What I mean by that is, as a company, we’re striving to align ourselves with the mortgage lead. So, getting as close to builders, real estate agents and consumers as we can to introduce ourselves along the way, rather than just when there’s a deal.
What’s the key ingredient in New Penn’s emergence as a major force in the industry?
Schiano: We care about doing the right thing for our customers at New Penn, and are willing to work really hard to make sure we do it. We have integrity with what we do, and we think that’s important.
The larger a company gets, the easier it is for what matters to get lost. Customers and employees become numbers. It’s just another “origination unit.” But at the end of all those “origination units,” and the end of all those reports, there’s a customer or employee. If you treat that customer or employee right, they’re willing to say nice things about you and tell people about you. For us, it’s the customer experience that’s most important. Always been and always will be.
David J. Coster is senior editor of National Mortgage Professional Magazine. He may be reached by phone at (919) 559-2171 or e-mail [email protected]