mba magazine: radius financial group inc
TRANSCRIPT
• • •
• •
: radius financial group inc.
Wanted:
This independent,
New England-based
mortgage company
is training young
industry outsiders
to grow its business
and serve tomor
row's homebuyers.
ndust utsiders
- by STEVE BERGSMAN -
As with housing in general, the mortgage banking industry is
facing a demographic problem-but it's a little more serious
than just millennials not buying homes and not getting mort
gages. 11 In the mortgage banking universe, the workforce is
aging, there is a dearth of young people in the business, and
at a time when Hispanics and other immigrant groups will
take up some of the home buyer slack, most of the industry's
workforce would check the box "white" on the census form. 11
In 2014, Sarah Valentini, principal and co-founder of radius fi- �cr:
(9
nancial group Inc. , Norwell, Massachusetts, was sitting with u
z < the other co-founder of radius, Keith Polaski, at an industry z
conference and, as she recalls, "everyone was talking about �
the crisis in the industry, about the lack of young people :
entering the business." 11 She adds, "We looked around at our I-er:
:> 0 u
own organization and although our top loan officer is only 35 � 0 I--
years old, the rest of our loan officers were in their 40s and 50s. �
MORTGAGE BANKING J 50 J NOVEMBER 2015
new company opened its doors with a core group of former GMAC employees.
At the time, barriers to entry for mortgage banking were relatively low; the minimum net worth needed to capitalize a new company was $50,000 as compared with today, where the minimum is now $2.5 million.
Radius experienced success from the start. "Right out of the gate, we quickly got up to a lending volume of$100 million and then up until the recession we were doing $300 million to $400 million annually," Polaski reports.
The company didn't play in the subprime world, although there was a lot of pressure to do so.
"There were many discussions between Sarah and myself about subprime, whether we were leaving cash on the table. Our loan officers were looking at us cross-eyed," he jokes.
The company also wasn't a big alt-A player, but it did offer that product because the New England market needed it. Without subprime and doing just a small amount of alt-A, radius still wasn't knocked off track.
"We did well during the recession years," he says. "We were well capitalized and we didn't have repurchase issues. For a couple of years, we just ran lean to make sure we weathered the storm. We didn't lay anyone off through that whole period."
There were even opportunities to acquire small competitors and some brokerage firms. "That was really the start of our growth," Polaski notes.
Market coverage
Currently the company does business in all the New England states except Vermont. Due to so many customers retiring to the Sunbelt, radius is licensed in Florida and may also include Arizona in the near future.
Even so, it is a concentrated book of business with 85 percent of its lending in Massachusetts and another 10 percent in New Hampshire.
This year annual production will be between $550 million and $600 million, says Polaski. "We have three warehouse facilities totaling about $75 million. We turn that two times a month, giving us a funding capacity in the $130 million range.11
The market in general has liquidity all over it because the quality of loans in New England is tremendous, he says. "We are a highly sought-after counterparty as we have really low delinquencies. One of our big aggregators [radius sells its loans] is JPMorgan Chase in New York. We have sold it around 7,000 loans over the years and we've had just six delinquencies.))
The company, which can offer Freddie Mac loans, also received approval to write Fannie Mae loans this past summer. Ginnie Mae is next, and the company is already working on that submission. All that will change things a bit.
"We have done a proforma to retain about 15 percent to 20 percent of our production," says Polaski. "We will probably do our first cash-window, Fannie trade in the third quarter. A Freddie trade should follow."
With all that in place, Polaski and Valentini have ambitious
goals for their company to reach a production volume level of $2.5 billion in seven and a half years.
One of the quirks of the New England market is that the big banks don't have a big footprint in the region.
''At the end of 2007, Chase pulled its entire mortgage operation out of New England. Wells Fargo has some mortgage operations here, but not a big bank footprint," Polaski observes. "We compete more against the regional banks. That gives us more space to be successful."
are smaller than us," he says.
What also helps is that New England-especially Massachusetts-is a highly fragmented market dominated by no one company. "Radius is a good size as an independent, but in the state of Massachusetts, where we do 85 percent of our business, we only have 1.25 percent market share. The largest market share by any firm is probably 4 percent. We can leave the top of the market to those already there and take from those who
Polaski adds, "If you look at the mortgage market over the last three years, the glide path is crashing. The market shrunk 30 percent, then 30 percent, then 20 percent. This year the market looks to be even. But radius' glide path is taking off. To me, there is always an opportunity to grow our business."
There is where the new hires will make their impact.
Organic growth
"I always thought what we have done best is grow organically," says Valentini. "Even when we were at GMAC, we taught people without experience to become loan officers. They went on to become our best loan officers. Many are still with us today. When you teach someone the business, you have a different relationship. And the workers are more loyal. We have had success with that."
Polaski concurs. "We had a lot of success organically growing with our own loan officers, but it has always been one-off," he says. "Our top loan officer is ex-military and has been with us l.�ears. He had never been in the mortgage business before"'1,f\ow he is going to be a $50 million producer. Still, growingone person at a time is inefficient and it doesn't scale, itdoesn't move the needle enough to meet our five-times-current-volume growth plans."
So, as Valentini observes, "We need younger people and training that is comprehensive. Nex-Gen is the cutting edge. We will fill another class." M3
Steve Bergsman is a freelance writer based in Mesa, Arizona, and the author
of The Death of Johnny Ace and Growing Up Levittown: In a Time of Conformity,
Controversy and Cultural Crisis, available on Amazon.com. He can be reached at
MORTGAGE BANKING I 55 I NOVEMBER 2015