Longbridge Financial CEO Chris Mayer is a unique presence in the reverse mortgage industry by virtue of his wealth of accomplishments. Not only has he earned a PhD in economics from MIT, but he serves as Paul Milstein Professor of Real Estate at Columbia Business School, bringing an unparalleled academic pedigree to the leadership structure of a major reverse mortgage lender and servicer.
It’s that unique perspective and keen understanding of all the underpinnings of home equity in retirement planning that has allowed Longbridge to become a top 10 reverse mortgage lender less than a decade after its founding. Motivated by a desire to change the retirement of Americans for the better, Dr. Mayer is also the kind of company leader who thrives on the ability to incorporate his academic perspective with the wide variety of thoughts and opinions of other members of Longbridge’s diverse leadership team.
Mayer sits down as part of the inaugural class of RMD’s Changemakers to tell us what it takes to look at this industry differently, and how the value of the people who drive it at all levels should never be overlooked. This is before getting into the fact that Dr. Mayer has grown a major reverse mortgage business from the ground up, in spite of its operation in an environment of constant change.
Do you thrive on making change? Why or why not?
Yes, I do. For me personally, getting into this business was an opportunity to change the way people retire. In a good way, obviously. We know there’s a retirement crisis, we know people are struggling to figure out how to retire and to find products to address growing mortgage debt and increasing medical costs, and more uncertainty in retirement.
For me, getting into this business was a way to help address those problems in a very practical way. And so, the ability to create change to help lead people to make the country a little bit of a better place and to make retirement a little bit better, those for me were important things and getting into the business.
What are some traits or skills that help you to be a changemaker?
You know, it’s helpful to be somebody who is relatively new to this business. And coming from a background as a professor and a researcher, and somebody who’s been involved in public policy. Those are helpful background skills, because it means that I’ll look at things a little bit differently. That can be good or bad. Sometimes, I’ll suggest and work on ideas and discover that’s been tried. It didn’t work so well.
But sometimes that means bringing to the table new and different things, and taking a different approach to the problem. And that the differential approach can be valuable, as well. That idea of bringing a new and different perspective has been helpful for us in this business. One of the things I would point to is the article that you did last week when we relaunched our Platinum proprietary program, we took a different approach in how to fund proprietary reverse mortgages.
That approach as a company came from learning from some of the problems that happened in the last crisis with the originate-to-securitize model. And that, by finding committed investors who are in the business for the longer term as opposed to holding loans on a balance sheet and securitizing them, was a different view.
And that idea, I think, came from having a background as somebody who wasn’t in the mortgage business during the last crisis, but was studying the mortgage business and involved in the public policy of how to address and fix some of the problems.
Coming from the academic side, I’m sure, gives a different perspective than someone who’s just so embedded in the business on a day-to-day basis in crisis mode.
I think it is important to have a team of people that includes different backgrounds. And for us as a company, it’s critical to have some people on our team [with different ideas]. I think that has helped us, as a company, be more innovative. And for me, it’s really important to have people around me who bring different ideas and challenge our thinking. I like surrounding myself with people who bring new ideas and a natural skepticism, but a willingness to try new things.
If something doesn’t end up working out, do you believe that it’s best to “fail fast?”
I think failure has to be a part of everything you do in business. Because if you’re not afraid to fail, then you’re afraid to succeed. As you innovate and try new things, nobody knows what’s going to work and what’s not. You’d like it to be the case that things work, but they don’t always work. The big thing to me is not necessarily how quickly you figure it out, because I have a stubbornness which people around me sometimes say is maybe too stubborn. [laughs]
But like lots of people, you become stubborn. There’s got to be a reason why something doesn’t work. So, I think you have to try things and have an element of being stubborn. Then you have to be willing to listen and learn. You can’t just keep doing something, because then you’re not getting feedback. So, when you try something, you have to get that feedback in the process.
The other thing to keep in mind is that you have to balance the risks and rewards. Regret can really kill you. You can’t keep looking back and lamenting what happened. Managing is mostly going forward, but just making sure you learn from mistakes. There’s no shortage of things that we wish we had done differently in retrospect.
From your perspective, what are the downsides to making change? And if possible, how do you try and avoid them?
One risk associated with change is you often need vendors, partners, clients, and other people to be on board. Sometimes that can be hard to do if what you’re doing is too radical. I can come up with all sorts of products or ideas of things we can do, but they have to work with the rest of the partners. If we have a product that you can’t finance, it doesn’t matter how well it would sell. There are things we’d like to do, but practically speaking can be very difficult or require a large expense and a lot of time.
You have to find a way to work within the constraints you have, which are both budgetary and system-wide, and of course financing. You’re always operating in an environment and trying to solve problems subject to those kinds of constraints.
Is the reverse mortgage industry changing fast enough today?
Yes. But, the reverse industry is operating within a really tough set of constraints. Those constraints have more to do with the people around us than it does the industry itself. The industry was doing the most loans in 2009-2011, which obviously was a terrible time for our country. We went through the Great Recession and horrible circumstances, but we also had large, reputable institutions in this business like MetLife, Bank of America and Wells Fargo.
For our industry to hit the level of credibility we would like, we need participation of larger financial institutions. The fact that traditional financial services firms and retirement planning firms have not yet included home equity and reverse mortgages into the software that they use to help their people at or near retirement, I don’t think that’s the fault of our industry, per se.
And so, in a sense, what I think is holding the industry back is not something that people in the industry have done wrong, as much as it’s an opportunity that we have to continue to build and create for ourselves. I would also say that the FHA has done a lot of work to reform the product, and I think we should all be grateful – particularly now – for everything that FHA and Ginnie Mae are doing. But, some of those reforms have taken a long time and been slow relative to when we needed them.
So, some of the problems that harmed the industry and its reputation were things that more prompt action by regulators could have addressed sooner, and were issues that people talked about at the time. We’re still paying the price as an industry for things that happened a long time ago.
In terms of your own background, tell me a bit about your early career, and how you first became aware of reverse mortgages.
I first heard of reverse mortgages very early after I left MIT and grad school. I was working at the Federal Reserve in Boston, and had started studying housing and started reading about this question of whether or not people had enough money for retirement. We tend to think of this as a problem that we’re just talking about today, but this has been a problem that’s been around for decades. I just got really interested in the idea of using home equity for retirement.
So, I wrote my first two papers on reverse mortgages in 1994, five years into the HECM program. It was just a demonstration program at that time, and they were relatively simple, and looked at what the potential size of the market could be and how they could help people in retirement. But after that, I didn’t look at this business at all again until 2012. So, that was a long 18 year gap in between when I first learned about reverse mortgages and came back to the business afterwards.
Did you always have a desire to exit the more academic side of finance and enter industry?
To me, the link between what I do as a professor and what I do in industry are integrally linked. The way I think about problems has an academic bent to it, and it’s colored by the kind of research I’ve done: decades of work on securitization, on housing markets and on cycles on household balance sheets. So, I have a long history of studying those problems and trying to find solutions and recommended policies, which led me to do a deep dive in understanding the institutions.
I wrote a paper called ‘Conflicts of Interest in Securitization’ back in 2003, before the subprime crisis or anything like it. So, well before the subprime crisis, I was sitting and looking at the securitization structure that existed at the time and felt it was a problem, because you had people who just wanted to sell loans, and then had no stake in it going forward. That to me was a problem.
One of the things that came out of that study was recognizing that if you’re going to have a robust securitization structure, you wanted to align the incentives of the parties as much as possible. That idea is really just driven by thinking as an academic, about how to create a more efficient, robust structure. So for me, I don’t see the role of being a professor, researcher and practitioner as conflicting. I see them as actually informing each other, and hopefully my work in industry makes me a better teacher. You have to be careful about separating the two roles. But from a thought process perspective, I see them not as separate but as integral to being successful.
In 2013 after you stepped into a more prominent leadership position at Longbridge from your original role as Chief Credit Officer, what did you identify as necessities for change, things that the company could do better?
I’m a big believer in collaboration, not in top-down management, which is to say I want to develop people and bring ideas together. When I think about running an organization, you’re only as good as the rest of your team. If everything runs through you, in a sense, it’s a problem. You want people to be able to go and make decisions. If they’re big decisions, you want to talk about them. But that’s true of me also, which is when I have big ideas and big decisions, I don’t just say ‘this is what we’re doing,’ and leave it at that.
We will have a conversation as a management team or with individual people about what we want to do, and try to figure out together what the best way is to do something. So, my view of how to manage an organization is to bring in smart, talented people and put them in an environment where they can be successful.
What are some changemaking efforts in the reverse mortgage industry you’re most proud of?
Proprietary products is a big one. I think we’ve worked very hard as a company to have really strong service levels. As a company, we care very much about our stakeholders, especially including the seniors that we work with. Longbridge has now serviced well over 20,000 loans. We have foreclosed on one borrower for tax and insurance default, as a history of our company since 2016.
The reason I’m so proud of that is that it’s a function of a bunch of things: of vetting and working with good people upfront who are making loans to borrowers who can sustain homeownership, part of it is financial assessment. And the other thing we do on the servicing side is we built a website that we offered to all of our customers before other companies did, and we put our own resources into it, with the same idea that we need to think about a loan not just as something that we originated and then dumped into securitization never before to be seen again, but we think about that loan over a lifetime.
So, we have a commitment to borrowers. It’s not just about taking out the loan, but it’s about the lifetime that they’re going to be in their home. We service a loan as if it were one of our relatives. We offer services, which may seem kind of odd. A website, why doesn’t everybody have that? When the financial crisis hit, when it became very difficult to reach call centers and other things, we were able to provide that service to our customers that we had built a year earlier.
In my time, I’ve found a greater appreciation for how talented and committed a group of people that are in the business. The reputation of reverse is just all wrong, there are tons of great people here. But, our company has built in an infrastructure that is about how to bring people from the front all the way through to the back so they can sustain homeownership for the long term, and achieve their retirement goals.
Based on what you describe, I would think that if servicing was a more active part of the conversation, then maybe lingering reputational issues might be mitigated in the future.
No, you’re exactly right. We think that the view of the product is the key barrier to large institutions, and name brand institutions coming into this business. That reputation, the negative view of reverse mortgages, the challenge of a government product is a real barrier to people getting involved.
We’ve built our company around trying to address that. And so, we think this is a circumstance of doing well by doing good. If we do the right things by our clients, we think it builds a better company and diminishes the reputational risk that comes from not focusing on those issues.
What do you think that Longbridge, as a company, brings to the reverse mortgage space?
I think of change as evolutionary as opposed to revolutionary. I never think of things in terms of we as a company alone, or I as a person alone. I think we’ve meaningfully improved proprietary products, particularly the line of credit product that’s in the market. I think we’ve materially impacted and improved that product and made it better and more accessible for people. I think we pushed pricing a little bit on the wholesale side, to try and offer the best deals to brokers and lenders as we’ve been able to.
And, I think we’ve pushed servicing and technology, and how people think about servicing in ways that I think have helped improve the industry. But, these are changes that occur not alone, but in combination with other companies and being pushed by competition to do better. So, I don’t want to take credit alone for too many things, because I think there are results of reforms and working with partners.
What would you say is an example of a changemaking effort that didn’t work out?
One thing that we have not succeeded at so far is being able to take to market financial planning, in a couple of different ways. We’ve had conversations with lots of large reputable financial planners, and so far – and I want to underline so far – we have not succeeded in bringing them into market with a product where they will put reverse mortgages on a platform in an easily-usable way, not in some obscure place in the background.
We’re as far from that today as we were when I came into this business on both of those, unfortunately.
We’re in the midst of a major moment of change throughout the world due to the COVID-19 pandemic. What does this moment mean for Longbridge, and even more broadly, what does it mean for the reverse mortgage industry?
For Longbridge, this has been a pivotal moment for us as a company. I don’t think any of us have ever seen anything as hard as this. To get up for work, day after day and to work incredibly long hours – because people are working much more than they ever worked before – by themselves, sitting with a computer with kids running around in the background, a spouse who’s trying to do their job, a parent, or a kid who’s working and facing their own issues and challenges.
The sheer personal challenge of this has been immense. We’ve had one or two employees who have had COVID. Luckily, as a company, we stopped really early on coming into the office before other people did. So that hasn’t spread at the company, but we have employees who have lost loved ones, and we have employees who are sick. That is just heartbreaking. And so, I start with how each person has had to go through some of the same things the company has gone through.
I will say that as a company, I couldn’t be prouder of our team and our people, and the clients and brokers and lenders that we work with. This is an adversity no one has ever seen before, and it’s just going on for week after week of pain and anguish. I put that first. I think it’s been pivotal for us in keeping our proprietary product in the market and strong, even with some modifications. And, I think we’ve found creative ways to help some of our clients with what was, for a while, a broken securitization system.
Those to me were the things that for our company, along with the heroic efforts of our team, enabled us to get through this in a way that I think was helpful for our reputation. Things like seeing our servicing website get so much traffic. Our biggest draw day was more than twice as big as the next highest draw day we ever had as a company in the third week of March. And partly, it was because our clients could get access to draw forms and other things on our websites. We had this huge spike. But you know what, that was good.
As an industry, I think I would say some of the same things. Our industry stood strong, kept operating, kept providing liquidity for our clients, kept funding draws for people who needed money and needed the security of knowing that they could access their home equity. We demonstrated to our clients and to the broader world the reasons why we have been saying for a long time that reverse mortgages are a product that provides stability for households and borrowers and retirees, and improves their ability to manage in challenging times.