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On Wednesday, Feb. 24, the Mortgage Leadership Outlook featured John Lynch, founder and CEO of PCMA Private Client Lending. Lynch and series' host Andrew Berman, head of engagement and outreach for National Mortgage Professional Magazine, explored how to work with high-net-worth clients, create a business big retailer can't touch, an overview of capital markets for the jumbo market and more.
After 25 years in professional finance, Lynch uncovered a trillion-dollar credit blind spot due to unintended consequences born from the Dodd-Frank Legislation. When Lynch first conceived of PCMA as a prestige financial services brand, he envisioned righting the wrongs of overregulation, rebuilding trust in the system and delivering an elevated level of service to match clients’ accomplishments.
His first job in the mortgage business was through an opportunity to be sponsored for his securities license. He went into institutional fixed-income and realized he didn’t want to be on the securities side. His mentor introduced him to banking and encouraged him to get into the mortgage business.
From August 1997 to 2006, Lynch and a colleague grew his business to the largest, privately-held home equity line of credit lender in the country. They were also acquired by Capital One.
Highlights From The Interview:
- “There’s so much distrust in the marketplace. Sellers won’t accept contingent mortgage offers if there’s an all-cash offer on the table. Why won’t the seller accept that? Because they don’t trust the loan actually getting through and not causing escrow problems. So, you have all this distrust built into the deals. No matter what, the mortgage broker has been tarred and feathered that they’re the face of the financial crisis. Now, what they need to do is recognize that the mortgage process is a dreadful experience. At the end of the day understand you don’t sell mortgage products, you serve a community of people who have this situation, you need to level-up, you need to reposition yourself to speak in their language and understand the complexities of their needs and get comfortable in that new role.”
- “The only way that you’re going to get the attention of the clients that you’re going to serve is you have to get them to believe that you know them and that you’re 100% committed to them. You’re a specialist in your space. Mortgage brokers aren’t good at anything because they don’t specialize in anything. When you’re an independent mortgage broker, you’ll do any loan that you can because you’re just trying to run your business. The best way to grow your business is to specialize in a category. Stay on message so that you know what you need to do internally in where you live. In return, you don’t create brand confusion and capability confusion.”
- “You have to identify who you are and what you are in the market so that you have clarity for yourself and your team and you have clarity for the community you’re trying to serve. Our firm was growing towards the private client community through jumbo lending, but I was invited to be a part of an advisory council that met occasionally to talk to the CFPB about regulations they were thinking about changing. They wanted to know what kind of unintended consequences it would cause and get feedback. I was at this conference with the MBA and they and showed two slides: a 2003-2007 slide and a 2013-2017. The average loan volume per year between ‘03-‘07 was $2.8 trillion, in ‘13-‘17 $1.7 trillion. I started doing the math and said ‘Can we talk about the elephant in the room? In the lowest interest rate environment in history, where did $1 trillion of annual loan volume go?’”
- “I immediately started doing my homework and put two and two together. Prior to 2008, the client and community we serve today that high-net-worth they used to be absorbed by the depositories on their jumbo portfolio programs. Due to regulations and stringent ATR requirements, they pushed out the business owners, the investors and the asset-rich retirees.”
- “At the end of the day you take 30% out the credit out of the entire housing credit pool and they’re the upper echelon, that doesn’t bode well for us. We don’t have a housing issue from not building enough housing, we have an inventory issue. Where does the inventory issue come from? Well, you just took 30% of all U.S. housing out of the ability to bring their houses forward, into the market to balance that demand and supply dislocation. So, you have this real unhealthy price appreciation because you have the most creditworthy and houses that aren’t coming to market sitting on the sidelines.”
- “There are two components to the jumbo market. Obviously, prime jumbo is correlated to the interest rate cycles that typical agency stuff is correlated to. When you get into non-correlated rate products where we are bound by credit spreads and different things like that, the stability of our coupons, we don’t have mid-day activity and different things like that. We are based on swap trades and different things like that, that’s what we’re correlated to. As interest rates move up in the mortgage space, that will definitely create a move towards ‘Clearly there’s no benefit in the agency trade anymore. How do I move into the jumbo space and untap the $1 trillion a year of activity?’”
- “There is an enormous amount of liquidity, unlike anything I’ve ever seen. We are not creating enough mortgage-backed securities for the investor appetite by 13, 14. 15 to one. We do not have attention in the community to build and produce enough assets from that credit class, to satisfy the appetite for the capital market investment community.”
Check out the full conversation between Lynch and Berman below.
See all the interviews from the Mortgage Leadership Outlook series on its YouTube channel.