legendsoflending BY DAVID J. COSTER
New Penn Financial’s Legendary Status: Just Good Timing an
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APRIL 2014 n National Mortgage Professional Magazine n
NationalMortgageProfessional.com
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ew 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 noncompete 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 evershifting 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 lia-
bilities. 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 multirevenue stream company. Our goal was
“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.” —Jerry Schiano, New Penn Financial, Chief Executive Officer