Doing Away With “Brokers Are Better”

It helped, too, that Kriss and Charly had been in business together before—long before Charly floated the idea of opening a mortgage company in the worst market in decades. In fact, they first worked together at Jasper’s Giant Hamburgers, a 1950s-style diner that Kriss opened and owned, and Charly managed, back in the 1990s. 

Their transition to the mortgage industry was quite accidental. Kriss sold the restaurant in 1997 when an acquaintance who frequented a nearby Saturday night cruise-in offered Kriss a job at PNC Mortgage. Charly went, too.

From Area Manager at American Home Mortgage to District Manager at GMAC Mortgage to Regional Manager, Division Manager, then Vice President of Production at Academy Mortgage Corporation, Kriss spent the decades spanning 1998 to 2018 climbing ladders up and across the industry. Where Kriss went, Charly opened and managed branches, focusing on operations. 

Their final stint together at HomeTown Lenders motivated Kriss into a second (brief) retirement.

“The last two companies we worked for,” he explains, “everything was going great. Then they keep increasing the corporate margins, so the rates in the field get higher and higher. You either have to not do the loan or you take the loan short, so the branch starts losing money.” Charly knew—as Kriss knew, and as the rest of the Bates family knew—they could run a better company by correcting others’ mistakes.

“You can ask people that have been doing loans for 20 years and they still don’t know how things work,” says Branden Bates, Charly’s brother and Peak Residential’s capital markets manager. “We just wanted to try something different.”

“Different” fails to capture the distinct mission upon which the Bates team embarked. 

Founded in November 2022—just after that phone call to Suggs—Peak Residential is a fully delegated retail mortgage bank that the Peak team stood up in less than a year. An unheard of accomplishment, as far as they know, no matter the market. Beginning with eight loans in February 2023, the company peaked with about 60 loans in June and July. Now licensed in 16 states, Peak closed $146 million across 408 units last year during the worst market in decades.

Prepping for volume to return in 2024, the partners allotted a year to have full FHA, VA, and USDA approvals in hand. And they did, passing all 15 FHA test cases without issue, a process that is particularly stressful for start-up mortgage companies because each file can trigger an automatic buyback—and an uninsured FHA loan is worth nothing in the secondary market.

Beyond strategy, seed capital, and many sleepless nights, though, opening a fully delegated mortgage bank in less than a year required that thing which cannot be tallied on rate sheets or scorecards—the prevailing belief that only this team could have done what it did.

“There was never a doubt in my mind that this would not succeed because of the men that started it,” says Chrissy Kopp, Peak’s underwriting manager. Having worked with the Bates team for 18 years, she adds, “They don’t know how to fail.”

It is challenging to overstate the amount of industry experience assembled at Peak. But, that concentration of competence powered their rapid development into a fully delegated shop. Much of the team has been working in the mortgage industry for more than 20 years. Most have been working with the Bates team for at least 10. Their operations manager even married in.

“People that we used to work with, they’re seeing our pre-approvals out there and we’re winning the deals,” says Allyson Bates, Branden’s wife, who also manages the company’s credit policy department. “We can take everything that we’ve learned from all of these companies, learned what worked, what didn’t work, and really provide a better option for the loan officers.” 

Their timing was not perfect though, Suggs admits. “This year was supposed to be the year that everything rebounded, right?” Volume remains elusive, but the Peak team is not waiting around. They’ve hired loan officers. They just opened a branch in Nevada. They did enough business last year to earn a $10 million warehouse line increase. Investors are calling.

“We’re ready to go now,” Charly says. “We’ve got all our approvals. We have 11 or 12 investors that we sell to, $40 million in lines to fund off of. We’re hedging and selling our loans in the secondary market. We’re ready to get it done.”

Leveraging Experience Equity

Everything has an exception. Everything is not a ‘No,’” says Suggs, Peak’s President, who is based in Scottsdale, Arizona. When he consulted with mortgage start-ups in the past, that was the out-of-the-box advice Suggs gave to clients hitting roadblocks over licenses and approvals. “You got to know how to get around it, and what the requirements are for that as well.” 

It’s old advice, really: You have to know the rules before you can break them. But, it makes all the difference when time is of the essence—and time was of the essence for Peak Residential.

“Simply the act of applying with FHA, applying with VA, USDA, all of those government agencies, every single one of those states, you think you can just go get your mortgage license, but you can’t,” Suggs explains. Each state has its own requirements and approval timeline, and insurance, surety bonds, and registered agents must be addressed. “Most people have never been through that.” Suggs has.

Opening a fully delegated mortgage bank is normally an incremental process. Broker for a year to demonstrate competence and build a book of business. Transition to non-delegated, allowing investors to underwrite, but closing with your own funds. Jumping to delegated means hiring in-house underwriters while still selling to investors. Next stop, hedging. Next stop, selling-direct to Fannie and Freddie. The pinnacle, servicing your own loan portfolio.

“Kriss kind of pushed me,” Suggs says of his business partner who wanted a mortgage company in one year, not four. “He was like, ‘No, I want to do it all, like all at the same time.’” In Yuba City, located 40 miles north of Sacramento and home to roughly 80,000 residents and half-a-dozen broker shops, the company wanted to be competitive on pricing. 

Most of all, though, the partners wanted to be ready for when mortgage volume returned. That required condensing the typical four-year process.

Suggs brings a lifetime of business lessons to the new venture. As chief credit officer for Ford Motor Credit Company in the early 2000s, Suggs was tasked with starting an FDIC-insured bank that would have been called the Ford Credit Bank. The project had been underway for more than three years when the Great Recession struck. Millions of dollars later, the bank plan was iced.

“It was a great, great first lesson,” recalls Suggs, who served for six years as chief credit and risk officer at Academy Mortgage Corporation following his tenure with Ford, then two years as vice president of process management at V.I.P. Mortgage. In 2019, Suggs was hired by HomeSmart, the largest real estate firm in Arizona, to start a mortgage company. A year later, Minute Mortgage was launched. 

Now he applies his acuity to designing strategic shortcuts for Peak.

Approval from the FHA usually takes around four months and requires companies to prove with audited financials that they have a net worth of $1 million. “The first thing that we did,” Suggs says, “is we put a million dollars in the bank in November and we found a CPA firm that would audit that million. There were no expenses, no revenue, no nothing, and we paid them $3,500.”

Most companies are not auditing financials immediately. Instead, they’re putting money in the bank so they can apply for licenses and pay vendors, only auditing their financials after they’ve actually started doing business. By mid-December, however, Peak had audited financial statements for November. “Even though they’re blank, it didn’t matter,” Suggs says.

The next strategic shortcut was getting the company’s first license in Colorado. “It was the simplest one,” says Kriss. “It took one day to get licensed. That gave us access to Comergence, and to be able to get lines of credit established, aggregators to sell to.” Comergence is an application system that roughly three-quarters of the industry’s investors and bankers use. By getting licensed as quickly as possible, Peak could begin conversations with counterparties while applications in states with longer timelines worked through the process. 

Peak Residential’s main market, for example, is California. Even there, Peak was approved in three months, as opposed to the usual six. “Kriss called his politicians,” Suggs says.

Common industry knowledge says it takes two years to get Fannie-Freddie approved, but Freddie can be more lenient. “If you want Freddie,” Suggs says, “you do not need to wait two years. But, you need $3 million in the bank, $3 million in cash, and of course you need a strong résuméd team.” Peak was close to attaining Freddie approval, but fell short as production volume declined—shorting their bank balance—through the late summer and early fall of 2023. 

“They wanted to see a little more money in the bank,” Suggs says.

Best Of Broker Pricing, Best Of Retail Service

Ask a mortgage broker to unbutton his shirt and you’re likely to read, “Brokers are better,” tattooed over his heart. Charly calls it “the cool tagline that’s out there” while acknowledging that retail shops and brokerages can coexist in the mortgage business. However, in starting Peak Residential, Kriss and Charly knew they had to differentiate the company from brokers and from traditional retail shops. 

Where do most brokers fall short? Customer service. Traditional retail? Competitive rates.

“A lot of the rhetoric out there right now is that retail lenders are evil because they’ve inflated margins,” Charly says. “It’s not all true. There are different companies out there and we’re one of them. We’re trying to provide the service you get from a more traditional retail lender, but with the pricing and control you can get in the broker world. In some aspects it’s almost like we’re hybrid.”

And, the way Kriss and Charly saw it, going fully delegated as quickly as possible was how. “If we’re not delegated,” Kriss explains, “it’s a little better than brokering, but you’re still dealing with underwriters that you have a hard time talking to and discussing things with. They’re adding conditions for feel-good things.” So, they hired two underwriters and two closers who they had worked with for years.

As a start-up shop chasing the best of broker pricing and the best of retail service, Peak Residential takes a “back to basics” approach. The company invested in technology, but not every bell and whistle: Encompass for their loan operating system (LOS), Surefire for customer relationship management (CRM), and LenderLogix for accepting online applications. What else do you really need to originate, Suggs asks? Profitable branches can do their own marketing.

Doing more with less also explains the company’s secondary marketing strategy. Transitioning to capital markets after 23 years as a loan officer has been a dramatic shift for Branden. The company doesn’t have $200,000 to hire a capital markets expert. “We still, obviously, can sell investor-specific in certain scenarios, but ideally you want to see if you can make a little money off your money. That’s essentially what hedging is,” Branden says. “I’m good with numbers. I can learn things online. I can go to these seminars. We can join up with a hedging group. They can teach us things. And that’s what we did.”

Building the capacity within the company even without the loan volume to make much money from hedging prepares Peak for a return in volume while continuing Peak’s growth plans.

“I don’t want to be able to hedge,” Branden continues. “I want to know everything about hedging. I knew everything about loans. My goal is to get the same way about hedging, that way I know that when people are locking loans with me, we’re making more money, not so I can go buy a car, but so I can help them get better rates, so we can help them get better marketing.”

While a down market is possibly the best time to put such plans in motion, it’s also a good time to shop; there’s more room in negotiations when everyone is a little desperate. “When the market’s down,” Suggs says, “we can get a lot of things cheap. We can even get approved. I think it’s a little helpful to get approved by people, your bankers and such, because they’re hurting as well.”

Where larger lenders may chase production over profitability, Kriss believes that companies pushing too hard for growth can let expenses get out of control too quickly. “I was pushed as a regional, as a divisional, and as a VP, to hire people,” he says. “Hire, hire, hire.”  At Peak, he wants to hire people who meet the company’s profile. “We’re not going to take risks on people that have bad reputations.”

In a down market, Peak also has an advantage keeping costs under control because the company is building everything from scratch—everything but their close-knit team. Without middle management, “fancy corporate headquarters,” leases on under-utilized office space, contracts on under-utilized tech, or teams of staff, Peak hires as needed, leaning on collective experience (hooks lining the wall for the many hats Peak’s employees wear).

To achieve broker-comparable pricing, the corporate margin on every loan is 50 basis points, with an additional $650 corporate fee per loan. “That takes care of all our corporate employees and it covers the expenses,” Kriss explains. Originators net an average of 150 basis points per loan. The company’s twin paradigms are rate-sheet transparency and keeping it lean—the Bates team has been burned by back-office antics too many times to do so themselves.

“Even as VP of production at Academy,” says Kriss, “I couldn’t get a straight answer on what the corporate margins were. I’d ask the head of capital markets, he’d tell me one thing. Head of secondary tells me another thing. The owner of the company would tell me another thing.” At Peak, the Encompass pricing engine is configured to show every margin on every rate. “They’ll see the branch margins, the corporate margins. They’ll see all the investor hits on their loans. If we’re going to mess with margins, they’re going to know right away,” Kriss says.

Lower corporate margins grant branches more operational liquidity. Branch managers are asked to be more entrepreneurial, Charly explains, than perhaps would be expected at a traditional retail company. Branch managers set their own margins, run their own P&Ls, and hire as their markets and margins require and allow.

With a lean corporate office and an all-hands-on-deck ethos, that is the autonomy valued by Peak.

“You need to be the low-rate leader? Sure, don’t rent an office, work out of your house,” Charly says. “Are you in a market where having a brick-and-mortar office is important and you need the staff and you need to be at events? You’ve got the control to do that. It’s not somebody from corporate dictating how to run your business.”

Back in Yuba City, where the several broker shops and local Guild Mortgage and American Pacific Mortgage branches create fierce competition for every loan, Charly says Peak wins on pricing and service because it has the right people and the right margins. Possibly—just possibly—the “better way” of running a mortgage company that Peak has seeded is taking root. 

“We’re the number one lender in town,” Charly continues. “We have the highest percentage of market share.” But, he acknowledges, every day is a battle—to keep operations sharp, to keep in touch with partners and borrowers. “We’re just really trying to educate our agents, our appraisers, and our referral sources that they’re not cheaper. We’re actually doing better.”

A Family Business For All

The mortgage business abides by numerous first principles, running the gamut from ‘All loans begin in the secondary market’ to ‘The mortgage industry is cyclical.’ 

At Peak, “It’s a people business, first,” holds as high a merit as it ever has in this industry.

In order to satisfy the FHA’s million-dollar net worth requirement, as well as most aggregators’ and bankers’ warehouse line requirements, Kriss aimed to raise $1.2 million in seed funding between himself, Charly Bates, John Suggs, Branden Bates, and Allyson Bates. When the rest of the team was approached about plans for Peak Residential, they all wanted to get involved.

Altogether, 30 people anted up at least $50,000 to raise $3.2 million. “I wouldn’t say we’re a fully company-owned shop,” Kriss says, “but 30 out of the 60-plus people are owners of the company. It’s the trust in us, the belief that this was going to work.” 

Allyson calls those colleagues stepping up as “one of the most humbling experiences ever.” 

Peak Residential may be a family business, but bloodline isn’t the benchmark for being part of the family. Neither is seed capital. Eliminating middle management frees up lines of communication and empowers Peak’s experienced team members to think creatively about their jobs while cultivating a culture of trust and accountability.

Formerly the West Coast operations manager for Academy and then HomeTown, Allyson says that operations departments often possess an “us versus them mentality” in their dealings with loan officers or sales divisions. But Kriss, Allyson’s father-in-law, mentored her when they worked side-by-side at Academy, he in sales and she in operations. “Because it was intertwined within my own family, I couldn’t allow for that,” she explains. “At the end of the day, I couldn’t show up at Thanksgiving dinner without a solution.”

Amy Nuttall reinforces that mindset. “This place really is a family,” says Nuttall, who joined the Bates team eight years ago at Academy, transitioned with them to HomeTown, and now serves as Peak’s lead loan processor. “They have the heart to succeed in anything they do.”

One of her first days working for Charly, Nuttall requested a longer lunch break to watch her daughter’s first pig show at a California Future Farmers of America event. Due to delays, Nuttall’s daughter had not yet performed when she returned to the office, where Charly found Nuttall crying at her desk. Not only did he insist that she take the afternoon off to watch her daughter’s event, but Charly bought her daughter’s pig from the fair, then brought in the meat to share with the office.

“There’s not very many people that do that, you know,” Nuttall asserts. “That’s kind of how they roll. Family definitely comes first, but when you work here, you’re part of the family.”

Celina Garcia, director of branch operations for Peak, agrees. When considering new recruits, this family-first mentality shapes that decision-making process. “We spend more time here than we do at home with our true-blood families, so we really want someone that has that mentality of not just themselves, but wanting to grow our company,” she explains. “We tell them upfront: here’s what we have. Here’s what we don’t have. Here’s what we’re going to have. If you think you want to be a part of that and want to be a part of growing something amazing, then we want you.”

On the second Tuesday of each month April through October, Charly invites community members – from first responders to past customers and real estate partners – to a food-truck lunch in the parking lot. Typically, 100-200 people show up to eat and chat. It’s the soft politics of building a company with staying power – finding family in the community. 

“We’re not out here to make millions and millions of dollars in profit,” Kriss says. “We just want to make a decent living for everybody, be able to give back to the community and keep what we started permanently, not just a one-off for a year or two and then get greedy.”

That being said, the company’s viability hangs in the balance of 2024, as the sustainability of many companies does.

“If the markets don’t change,” Suggs says, “if we don’t grow substantially, then we have some decisions to make about what we want to be.” Peeling back some of their hard-earned capabilities, like hedging (which requires volume) or in-house underwriting (which investors will do for them), could lower cost structures. However, that also could compromise the mission.

“Right now,” Suggs insists, “we want to compete. We want to be a full mortgage banker doing everything mortgage bankers do to attract more people to us.” Most of all, and perhaps most importantly, they want the interest-rate-insensitive pride of building an outside-the-box company that serves its customers and its employees into the future.

At the peak of the booming pandemic-era housing market, when much of the team was working exceedingly long days at HomeTown, Charly bought everyone in the office electric scooters. They spent an afternoon racing around the parking lot – remembering the fun amidst the frenzy.

“I think it’s quite impressive how fast we’ve grown,” says Nuttall. “I think everybody should know that because I’m proud of it, what we’re doing here and how far we’ve come.” 

Allyson Bates has watched her post-closer, whose mom is a loan officer at the company, grow up since she was little. “Even though we’re not related by blood, everybody here,” Allyson says, “It’s not just the Bates. It’s Peak.”