Meet the Godfather of wholesale

Richard: [00:00:13] Hello and welcome to the latest edition of MPA TV. I'm Richard Torne Mortgage Professional America's US News editor. And today we're going to be talking to one of the leading figures in the world of wholesale lending. Willie Newman, the founder, CEO and president of Homepoint Financial. Described as the godfather of wholesale. He's been a flagbearer for brokers since way back in the mid 1980s, when he saw the advantages of wholesale lending over retail. He founded Homepoint in 2015, and within five years it became the country's third biggest wholesale lender. Hello and welcome, Willie.

Willie: [00:00:50] Oh, thank you, Richard. Appreciate it.

Richard: [00:00:53] It's great to have you on the show. I believe it's the first time we've interviewed you at MPA. And in fact, you don't do many media appearances. I understand. How do you do? How do you view the media? Avoid, whenever possible, a necessary evil on occasions?

Willie: [00:01:07] Now, it's funny because in my career I used to be very out front of the organizations that I was fortunate enough to lead. And in this one became Maybe it's because of my advancing age, I've taken a little bit more of a backseat. But I think that there's an issue out there that I'm so passionate about that I feel like I have to be out front of it. And fortunately, I've got a lot of support from others in the industry as well as, of course, our own Homepoint organization to to to evangelize the message. So I'm looking forward to the discussion.

Richard: [00:01:37] Okay. Well, in that case, the first proper question has to be, why are you known as the godfather of wholesale lending? Although I think I've given away a small clue.

Willie: [00:01:46] Yes, I like to say I was there at the creation, so I'll go back to the late eighties. And I was I had worked at a savings and loan. And I actually learned in that job how to sell loans to Freddie Mac and Fannie Mae. Subsequent to that, I met a gentleman who became a mentor. He was looking to expand his mortgage banking business. And he really identified, Richard, the confluence of several different trends that he thought we could take advantage of. One was the savings and loan crisis. And because of that, that crisis in savings and loans at the time, where the predominant lender or I guess ultimate source of funds to homeowners. And because of that crisis, there were a number of loan officers that were displaced who not only had no place to call home from an employment standpoint, they had no way in which to further their livelihood by selling loans or or being able to have their mortgage loans funded. So he saw that trend. The second was that really the evolution of Freddie Mac and Fannie Mae. So as I said, when I started selling loans to Freddie Mac and Fannie Mae or Freddie Mac specifically, you had to ship the documents physically to Freddie Mac in order to get funded. That is not a scalable enterprise. So so at the time, after I started doing that or learned how to do that, the agencies had started to evolve and they really sort of driving off of data as opposed to documentation. And he saw that and he determined that he didn't have to be a large organization in order to really use Freddie Mac and Fannie Mae as your capital or funding source for mortgage loans. The third component really was there was this legal vehicle in place called mortgage brokerages. And at the time, this is this was so early, it was pre subprime, Richard. The mortgage brokers primarily provided hard money loans to people who could not get. They were the lender of last resort on the mortgage side. But what he saw was that because this legal construct was in place, it could be used to really mainstream mortgage brokerages. So if you match up savings and loans or saving a loan oriented loan officers who are very much in the mainstream origination, you lined up Freddie Mac and Fannie Mae and look at the ability to scale up using their I'll say at the time, more advanced ways in which you could sell loans. And then you look at the this mortgage brokerage vehicle. If you put all those together, you don't have to be a large company in order to start to grow a large mortgage business. And that's exactly what we did. So like I said, long story, but I like to feel like I was there at the creation back in the late eighties.

Richard: [00:04:23] That point evidently grew very fast and and quickly. And can you pinpoint the key moments when you realized that the company was going places?

Willie: [00:04:35] Sure. So founded in 2015 and in 2018, we made the decision to invest heavily in wholesale. And so we participated at the time. In 2015, I still felt like wholesale would be the best opportunity, but it hadn't grown from a market share standpoint to the extent that we had anticipated. So we participated across all channels of origination at that time because, Richard, we wanted to be positioned to make sure that we were on a leading edge of where it where we felt the industry was going origination wise. But in 2018, it became evident to me that that this version of wholesale really is the most sustainable that I've seen in my career. And I always have to give full credit to you and my friend Matt Ashby for really designing the current version of wholesale. So really looking at the landscape, looking at where we felt the opportunity was, we invested heavily in 2018. We also brought on Phil Shoemaker, who leads our originations unit today. And Phil really was the catalyst for kind of operationalizing the vision that I had for us to expand in wholesale to a greater extent than we had previously. So I'd say 2018 was a primary inflection point for us.

Richard: [00:05:50] A third Homepoint is being described as a small group of people working very closely together, almost as though it's a family, if you like, as a family business. I don't know how accurate that is, but that's one of the impressions I've had. You have a motto which is We care. You know, very often the bigger a company becomes, the harder it is to maintain that close knit ambiance. And I don't want to sound cynical, but a lot of companies pretend they have that quality, but very often they're found wanting when they have to make difficult decisions, such as shedding jobs. What makes you stand out from the rest in that sense?

Willie: [00:06:23] I would say that it's my personal involvement in the culture. So again, having a very long career, I've really learned the importance of culture in essence from day one being in this business and. Obviously the way in which that culture is promulgated for me has evolved over time. But I think especially in an environment like this, the level of personal involvement the CEO has and not only defining the culture, but extending it out and to your point, operationalizing it every day, I think is is absolutely critical. So I think, you know, maybe it sounds a little bit like I'm saying the differences me, but I think from from a cultural standpoint, it has to come from the top. So I do think that differentiates us.

Richard: [00:07:08] You mentioned that you had a mentor when you were younger, Stan Rhoades, who was he to you and what did you learn from him?

Willie: [00:07:15] Oh, gosh. So, yeah. So I mean, he's the one that hired me, took a chance on me. And, you know, I think one, he taught me the business kind of back to front. So I actually started in capital markets or back then we call it secondary marketing. And so and I felt like, of course, I didn't realize it when I came into the business, but it was a great way to start because you really understood all the mechanics from a financial standpoint of how to obtain leverage, how to take funding, how money is made, what the what are the pitfalls associated with depending on the agencies, depending on leverage, etc.. And so I kind of got that foundation at the beginning rather than quite often. And these are kind of built from the front to the back. So one that you he really gave me the opportunity to to learn probably a little bit actually in advance of when I deserved maybe. But but as we were growing, he really he gave me he gave me the the flexibility as he gave me different functions in the organization to really build them out, kind of as I saw fit, you know, not in a unstructured or unsupervised way, but just in a way that he allowed me to make some mistakes along the way.

Willie: [00:08:28] And I think that for anybody, it's really helpful to to be able to to make those mistakes and learn from those mistakes and build off of those mistakes as opposed to kind of having a safety net around you all the time. So he taught me so much. And then, like I said, I think probably strategically the most important thing he taught me was that dislocation creates opportunity. So and those of you that hear me, I've talked to you, they'll hear that a lot from me. But if you think about my original entry to the business was a massive dislocation saving the loan crisis. Lots of loan officers disintermediated away from their companies. And it was a great opportunity for us to build a business. I think today we're in the middle of a significant dislocation in our business and to me it's a challenge to navigate through it, but it does create an opportunity coming out the other end. So I think ultimately, strategically, that's probably the most important thing he taught me is that dislocation does create an opportunity.

Richard: [00:09:27] To bring those issues up here right now. In fact, like everyone else in the mortgage industry, one of the biggest challenges you've had to face is your response to the COVID pandemic. But before that, you've spoken about the savings and loans crisis in the mid eighties and early nineties, which was no small event in itself. And of course we had the 2008 financial crash. What business lessons did you learn from those two episodes and indeed from the COVID pandemic?

Willie: [00:09:53] Oh yeah. So I think every time you learn more and you kind of add to the add to your arsenal, obviously COVID was a very unique set of circumstances, I think, from the from the crisis, I think. Sometimes things are too good to be true when they're too good to be true. You might want to check them out and make sure they are true. And so I think there was a lot of. Obviously, credit was significantly overextended. There was a lot of dependency on home price appreciation and demand being always being there from a crisis standpoint. But I think I think you have to kind of stay true to what your principles are and where you see the opportunity without extending too far into believing what everybody else says about whatever whatever business it is you you're in. I think particularly the thing about COVID is that I was amazed at how quickly our organization adapted to COVID. I mean, literally within a week we were we went from we fortunately had the plumbing in place to be remote because we had a meaningful percentage of our associates that were remote. But we went to 95 plus percent remote within a week, and I had no idea we could do that. So I think I think what I learned from COVID, lots of things, but in particular, if you have the right type of culture in your organization, organizations can be very resilient and very adaptive. And I think we were able to leverage that in a way that really gave us the opportunity to grow. Of course, in accordance with the market, but also above and beyond what the market was providing to us. So but every every cycle, lots of lessons learned. And I think one of the things that's probably underappreciated I've been thinking about this a lot is that these dislocations don't have to be massive in order for you to take take advantage of them. They could be small things, particular segment, particular geographies. But I think always being on the lookout for when there's kind of this uncertainty where you can execute and create an opportunity, I think it's a very worthwhile thing to be thinking about strategically for any organization and any leader.

Richard: [00:12:00] Talking about uncertainty and creating opportunity. You mentioned your president of originations, Phil Shoemaker, a moment ago in January when I interviewed him, he said it was your collective belief at one point that this was probably going to be one of the worst years, if not the worst in mortgage banking. What opportunities can you create in such an environment and do you still feel the same way?

Willie: [00:12:26] Right. So yeah, what I've said is that I think this is going to be the most challenging cycle since the financial crisis, and I think we're seeing it even today. I mean, obviously you have kind of almost a rate shock increase. It's taken 40% plus demand out of the system. And you still have a system that is $4 trillion like supply is four, 4 trillion demand is two and one half trillion. Something has to something has to adjust. I think the opportunity is, as I said, back in 2018, we felt like wholesale was going to win. Just specifically doing business with mortgage brokers and we've done a lot of work to make that more than intuition. We we wanted to actually prove that with data. And so in 2018, the 100 data set was expanded. And it really allows anyone who digs down and does the deep analysis that we've been able to perform. You can do a very apples to apples comparison between different channels of origination in order to determine who is indeed providing the best deal to consumers. And we now have irrefutable evidence, based on the data, that mortgage brokers provide a lower upfront cost and lower rates than retail lending does pervasively, consistently, pervasively and across all income categories and across different racial demographics as well. So to me, the opportunity in a in a declining market is for those who are interested in navigating through it, is to migrate to the channel of origination that is the most efficient because the most efficient is really the most valuable at this point in time.

Richard: [00:14:08] We've been talking about how brokers are so important to you. Now, I understand that you've been lobbying against the FHA phase capital rule, which I could explain very briefly on very clumsily possibly that essentially proposes to reduce the capital relief the GSEs receive for transferring credit risk to private investors. But why are you against capital rule and how does it undermine the broker's role?

Willie: [00:14:32] The capital rule basically applies a surcharge from a capital standpoint to third party originations, which includes, of course, wholesale originations that are sourced from mortgage brokers. This is based on pre crisis performance data, which would indicate that mortgage brokers or broker originated loans coming through. Wholesale lenders don't perform as well as retail. I mean, the data is that that data is irrefutable as well. However, post-crisis, the performance is very consistent amongst the different channels. And as a matter of fact, there are points in time in which the wholesale segment performs materially better or at least marginally better than than retail does. So the premise upon which this capital surcharge is applied does not is now is no longer valid and has not been valid for years. Further to the point, the capital charge itself has been at least in existence from a proposal standpoint since for several years. And so I look at it as more of the agencies use this as a pretext to to upcharge on third party business where it's not warranted from a performance standpoint. And if indeed the FHA phase goals, which you've stated pretty clearly, are to expand into underserved, historically underserved or minority communities, penalizing the channel that does the best job of doing that is not the way to accomplish their mission.

Richard: [00:16:06] Fair point. Now changing the subject slightly, I spoke to one of your competitors recently about how wholesale lending sometimes comes across as a very cutthroat business. Now, on more than one occasion, I've seen CEOs involved in highly publicized spats with rivals. Now we live in an age where important people, famous people, including politicians, don't seem to rate decorum very highly these days. I understand from what you've told me before, you'd like to keep a low profile, but do you ever feel tempted to take a verbal swipe at some people?

Willie: [00:16:41] No, I really don't. I don't know if maybe that's a character flaw on my part. Oh, no, but. But I feel like, again, maybe this is a function of age and my experience in the business, I kind of feel like my mission really is to grow wholesale. And I think mortgage brokers, they take a disproportionate amount of the blame for the financial crisis in a strange sort of way. Some of the regulation it came subsequent to that actually helped the channel in the long run because it forced a certain amount of discipline and to have both how we manage costs and how we interact with each other as a lender to broker. But I think everyone had plenty of blame for the financial crisis. But since then things have been changed so significantly that to the earlier point, mortgage brokers are offering better deals to consumers, and they're serving the communities more broadly than their retail counterparts. So to me, if I if I can facilitate growing the whole wholesale pie one, I'll accomplish something that I'm very passionate about from a personal and a career standpoint, but also will be the beneficiary of it. And if others are the beneficiary of it, and frankly, if they out execute us, then they deserve more of it. So I'd rather focus on the segment as a whole. I'd rather focus on here at Homepoint in our execution to make sure that we're doing the best job possible for for mortgage brokers and their customers and our collective customers. And so I just don't get too wound up about what other people say.

Richard: [00:18:14] I joined today by asking you, asking whether you would do anything differently in business if you could start all over again.

Willie: [00:18:22] Wow. Every time I would, I think. Um. Yeah. I think what I would do a couple of things I would do is you kind of commented on earlier where we grew very rapidly as an organization, especially in 2020 with with the market and with the opportunity set that we saw. And I think I probably would have a little earlier spent more time on the cultural kind of the cultural implications of growing that fast. And maybe that would have resulted in a bit slower growth. Maybe that would have resulted in more infrastructure, I don't know. But I think that's part of it. I think the second thing is like like I said, it's like I've kind of mellowed in my old age and I'm a little bit wish I would have been this mellow earlier. So so maybe there's I might have ruffled a few feathers back in my day or not treated people as well as as as I should have. But, you know, maybe that's the other thing, too, is just make sure I like to pride myself in treating everybody that I interact with or with respect and dignity and and interest. So hopefully I'm adhering to that.

Richard: [00:19:30] Willie, thank you so much for joining us today. It's been great having you on the show.

Willie: [00:19:34] Absolutely. I really enjoyed it. Thank you.

Richard: [00:19:37] And thank you to all of you as for watching as well. I've been your host, Richard Torne, and we hope you'll join us again soon for another edition of MPA TV. May you all have a happy and successful week. Goodbye.