Hard-earned lessons from a 40-year vet in mortgage

October 29, 2024 5:00 AM

neil_bader-the_federal_savings_bank — Neil Bader is the executive vice president and national director of retail lending at The Federal Savings Bank.

After a bank merger derailed his opportunity as a management trainee, Neil Bader moved over to the mortgage side at Bowery Savings Bank. He quickly figured he could be more successful in the growing mortgage brokerage industry.

He and a partner founded Skyscraper Capital, which in 1999 merged with IPI and its affiliate MortgageIT to become IPISkyscraper, creating at the time one of the top four mortgage brokers in the nation, according to MortgageStats.

After exiting the broker business, Bader went over to the banking side, first at Wells Fargo, and now as the executive vice president and national director of retail lending at The Federal Savings Bank.

That provides him with insight on the trends in how originations are done during that period, from the heyday of the mortgage brokers through the resurgence and then pull-back of the banks.

National Mortgage News spoke with Bader about his career. Responses have been edited for length and clarity.

On getting started in the mortgage business:

I've often said over the years that nobody goes to college to be in the mortgage business, and certainly not in 1986. The banks weren't really keen on opening branches in those days. They weren't doing as much cross-selling. It opened up this unique opportunity for mortgage brokerage. I worked for the Bowery Savings Bank, I went to a management training program. The day after I went there, they got taken over by H.F. Ahmanson, which was the parent of Home Savings of America, one of the big California lenders. They were like, "you can't do management training anymore, you can be a teller, you can be in the mortgage business." The next thing I knew, I was doing mortgages and I immediately found a couple of young guys to go into mortgage brokerage.

A birds-eye view of how mortgage brokers took over:

Because of these changes in the market, the mortgage brokerage industry exploded. We filled a gap where banks didn't necessarily have the wherewithal. They didn't have the lending presence because they were only in their own states, and they didn't have the personnel to do it. We were part and parcel of growing that business, to the point where, eventually, 85% of all the loans in the country were coming from mortgage brokers. My value proposition was my wholesale discount, especially as banks came online back in that time, with the Citibank Power Broker Program, which had very few rules. You could be like a car mechanic, and you could hang a shingle and you got paid a little bit on the fringes. We went to develop relationships with banks all over the country in order to provide that service. We were like mortgage doctors.

Then the broker’s advantage ended:

Of course, things change. As you got to the mid-1990s all of a sudden the banks started consolidating. Cross-selling became a huge feature of retail banking in general, mortgage became a product that they could use to bring in deposits and other business, sell credit cards and student loans and everything else. I often compare it to the travel agent business; you would never dare go to an airline directly, you go to a travel agent, because they got a wholesale discount. In some ways, I feel like [mortgage brokering] evolved just like the travel agents. Travel agents still exist today, but they're not the same as they were back then. They had every airline; now, if you have a specialty trip, you can go. That's the same for mortgage brokers. Mortgage brokers in the 1980s or 90s, we've had 30, 40, 100 different relationships with real wholesale discounts, where it was always better to go through us than it would be to go directly to the bank. The discount was usually between 75 and 100 basis points,

What changed, even before the Great Financial Crisis:

As we got to the late 1990s, first of all, my yield spreads started to get squeezed. They weren't paying me as much on their deals. All of a sudden the banks were like, "Why in the world should we pay all this money to mortgage brokers? We can do the business ourselves." All of a sudden you wake up in the late 1990s and there's branches every 100 yards, and they're able to do mortgages. We read the tea leaves. I felt like that was kind of the end. I also found that the retail banks weren't giving me all the products then. They really squeezed us, and then they started competing against us and hiring loan officers. They were like, "Hey, you can come directly to the bank and you'll have better loan-to-value, better rates."

Creating the largest broker, than exiting:

We looked to sell [Skyscraper], and at the last second, we ended up working with IPI, which was right down the block from us [in Manhattan]. They had actually started a mortgage technology company called MortgageIT, and they said, "Hey, why don't you come in, take over our brick and mortar old style mortgage brokerage business." So we merged and became IPISkyscraper, and then we cross-pollinated ownership. Goldman Sachs was their banker, ING gave them $50 million and so I took a small ownership in the technology place, and then my original Skyscraper partner and I ran the brick and mortar. That merger made us the largest broker in the country, and the thought process to it was, now it'll be easier to sell. We put a two year horizon on it, and we ended up selling in two years.

What happened to IPISkyscraper:

Ultimately, what ended up happening was ING gave MortgageIT, which was the other company that my other partners were involved in, money to buy us. The one little caveat, is that we were going to go public originally, and the tech crash happened, and so that's why we had Goldman as our banker. It never happened. They ultimately did go public a few years later, and then sold the entire thing for a fortune to Deutsche Bank [who eventually closed the company]. I was gone by then.

The next step — going to a bank:

I thought there was a bigger opportunity in retail and Wells Fargo had been coming after me for years. It was pre-Wachovia [which it acquired at the end of 2008]. So Wells Fargo didn't have a footprint here. They had nothing east of Michigan, and they really didn't have a lot of activity here. I came in and I started the operation in New York, and we built a $4 billion operation in Manhattan. A lot of my people came from the mortgage brokerage side. Changed the value proposition, but it was a great institution at that time. I loved it. I mean, that was my business.

Going overseas and coming back:

That's the only thing I've ever done, mortgage. At one point when I left Wells Fargo in 2009, I had this dream to see if I could export the American-style mortgage business to other countries. I did try to do some deals in Argentina and Brazil. It wasn't the same thing, so I ultimately came back to the business here.

His job wish list was a business with the best of both worlds:

My wish list was always, if I could find a business model that was a combination of the things that I thought were very effective: A model where you had a menu of products, you also had 50 state licensing. If you're on the mortgage banker side, it was really hard, especially in New York, to recruit good loan officers to get to the banks, because it took six months or a year to get your license. That was like almost a natural barrier to competition. A lot of the banks, what I had observed over the years, weren't necessarily 100% focused on mortgage. The thing that was important to me is I wanted to be at an institution that was mostly focused on mortgages.

A mortgage-centric depository was the next stop:

That's what I do for a living, but also had a business model that I thought would be a really good value proposition. I found that a decade ago at The Federal Savings Bank. I was like, 'this is crazy.' This is unlike any other market player that I know of, because 95% of all the revenue of The Federal Savings Bank comes from mortgage. It started as a mortgage banker, veteran-owned. They purchased a bank along the way. The Federal Savings Bank, for example, doesn't have credit cards, student loans, car loans, business loans. Basically, it's a mortgage company.

What makes it different:

To me, it was a combination of being able to have a fully focused mortgage company, the ability to offer correspondent options, which is that menu of products like from when I was a mortgage broker that I loved. Banks don't usually have the option to [sell to] 30 different investors. It's very unusual for a bank to be doing non-QM over the last 10 years. Then on top of that, they have portfolio lending. When I first started, we were in our infancy with portfolio lending. It's now a core business, the centerpiece of our lending strategy overall, and our bankers can be more effective because they have access to every product.

Responding to the changing landscape:

We're not waiting for every banking solution in the world. What we're looking for is solutions for mortgage customers. That personal loan, which started as a VA loan, was a VA debt consolidation loan. That was the original birth of the loan. We started to do it, not just for VA customers, but for all customers. When we saw all the issues bubbling up in the residential real estate brokerage industry, we decided we could reposition it. We didn't change anything in terms of writing or anything else, but we think that there's a need for people on the purchase side. Now, buyers potentially have to finance their brokerage fees. That's a really sexy tie-in to our Realtor agents, who are our most important referral sources. We really think that there's a lot of opportunity to help them sell more properties, plus help the customers who might not have enough money to pay a brokerage fee out of pocket.

Helping ITIN consumers buy a home:

Another one of the things we do is a 90% ITIN loan, which is for people who don't have Social Security numbers. We just got regulatory approval to offer ITIN checking accounts now, for people who don't have Social Security numbers. That's where we designed a banking product that its only purpose is to help our mortgage customers. We're doing it to help people who are ITIN candidates for a mortgage to get a mortgage. Everything we do has that same mission to tie back the mortgage.