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 5 reverse mortgage lender and securitizer, 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. 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 there is an opportunity to find products to address growing mortgage debt, increasing medical costs, and increased uncertainty in retirement.
Reverse mortgages are a way to help address those problems in a very practical way. And so, the ability to create change, to make the country a little bit of a better place to retire, were important reasons to get 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. My background is as a professor and a researcher, and somebody who’s been involved in public policy. Those are helpful skills and lead me to 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 and it didn’t work so well.
But sometimes that means bringing to the table new and different ideas, and taking a different approach to a problem. 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 history of our Platinum proprietary reverse mortgage program. We took a different approach in how to fund proprietary reverse mortgages, which allowed us to keep our product in market while most other proprietary mortgages, both forward and reverse, were pulled in the early days of the COVID Crisis.
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. We found a committed investor who was in the business for the longer term as opposed to holding loans to quickly securitize them.
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 trying to fix some of the problems from the last crisis.
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. I think that has helped us be more innovative. It’s really important to have people who bring a variety of perspectives 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, but it cannot dominate your thinking. Because if you’re too 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 always work, but they don’t always work. It is important not to abandon things too quickly—I have a stubbornness which people around me sometimes say is maybe too stubborn. [laughs]
But it isn’t just about being stubborn, or not, but about learning. There’s usually a reason why a major project doesn’t work. So, I think you have to try new things and be stubborn in the sense of analyzing what happened. Then you have to listen and learn and then adjust. You can’t just keep doing the same thing that fails, because then you’re not getting feedback. So, when you try something, you have to incorporate data and feedback in the process. That means measuring, listening, learning, and adjusting. But sometimes you ultimately end up killing a project because it just isn’t working and nothing you can do seems to fix it.
You have to balance the risks and rewards. Of course, regret can really kill you. You can’t keep looking back and lamenting what happened. Managing is looking forward, but 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 challenge associated with change is you that you need to bring along vendors, partners, clients, and other stakeholders. Sometimes that can be hard to do if what you’re doing pushes too far. I can come up with all sorts of new products or ideas, but they have to be implementable with the rest of our partners. If we have a product that you can’t finance, it doesn’t matter how well it would sell. You have to worry about implementing changes with the software and training your team and clients.
There are definitely more things we’d like to do, and will do over time, but practically speaking, change requires time and resources. You have to find a way to work within the constraints you have, which are budgetary, system-related, and, of course, tied to financing. We’re always trying to solve problems subject to those kinds of constraints.
Is the reverse mortgage industry changing fast enough today?
Yes, our industry is changing, but not as fast as I would like. However, the reverse industry operates within a really tough set of constraints. Those constraints, which include many rules regulations at the state and federal levels, place a lot of limits on our industry. New reverse mortgage products, no matter how innovative and safe and consumer-friendly, must be approved by all the states we operate in, which is simply impossible today. It is important to work with consumer advocates and the broader business community to continue to improve the perception of the product and the regulatory environment.
For our industry to hit the level of credibility we would like, we need participation of larger financial institutions. The industry hit its peak in 2009-2011, which obviously was a terrible time for our country, but we also had large, brand-name institutions in this business like MetLife, Bank of America and Wells Fargo. 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 that people in the industry are doing things wrong, today, 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 some of the reforms that FHA and Ginnie Mae did to keep the industry running in the face of budgetary pressures on the HECM program and COVID. But, some of those reforms have taken a long time and been slow relative to when we needed them.
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 after I left MIT and grad school. I was working at the Federal Reserve in Boston and had started studying housing and 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 getting worse 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. I looked at what the potential size of the market could be and how reverse mortgages 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 subsequently came back to the business.
Did you always have a desire to exit the more academic side of finance and enter industry?
To me, there is an integral link between what I do as a professor and what I do in industry. The way I think about problems has an academic bent to it, and it’s colored by the kind of research I’ve done: more than two 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.
I wrote a paper called ‘Conflicts of Interest in Securitization’ back in 2003, before the subprime crisis hit. I was teaching about 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. It is something that we still haven’t solved today, as you can see with the serious problems that hit the private securitization market when COVID hit. That idea is really just driven by thinking as an academic, about how to create a more efficient, robust structure.
So for me, I see the roles of being a professor, researcher and practitioner as complementing each other. Hopefully my work in industry makes me a better teacher. You have to be careful about separating the two roles and avoiding conflicts of interest. But from a thought process, I see them not as separate but working together 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 the top, 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, with my partners Melissa Macerato and Manjiang Xu, with our board and investors, Ellington Financial, Home Point Financial, and Stone Point Capital, and with stakeholders 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 are a big one, as I talked about earlier. Another is that we’ve worked very hard as a company to have really strong service levels. As a company, we care very much about all our stakeholders, but especially the seniors that we work with. Longbridge has now serviced well over 20,000 loans. We have foreclosed on only one borrower for tax and insurance default in the 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 lenders who are making loans to borrowers who can sustain homeownership. Longbridge had its own financial assessment even before it was required by the FHA. We have a commitment to our borrowers. It’s not just about earning a monthly servicing strip from a loan, but it’s about the lifetime that they’re going to be in their home. We service a loan as if the borrower were one of our relatives. If a borrower gets into trouble, we have a dedicated team in Houston led by Rick Burke that works tirelessly to find a solution rather than leaving this to a contract subservicer. Our team has cured many defaults that might otherwise have resulted in a foreclosure.
Our servicing team is heavily focused on customer service in other ways too. We built a website for our servicing customers before other companies and before it was commonly offered by subservicers. It seemed kind of odd that so many servicers didn’t offer something as simple as a website for their servicing customers. When the COVID crisis hit, when it became very difficult to reach call centers, our customers could learn about their loans and request draws much more easily.
It is the same idea that I studied as a professor. We need to think about a loan not just as something that a lender originates and then dumps into securitization never before to be seen again, but we think about that loan and that borrower over a lifetime.
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. Our company has built an infrastructure to help our customers 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.
You are exactly right. We think that the sometimes negative perception of the product is the key barrier to large, brand name institutions coming into this business. That reputation, the negative view of reverse mortgages, the challenge of a government product, is a real barrier to borrowers and to consumer institutions getting involved. We also think that a robust compliance effort is critical to addressing reputation, an effort led by long-time industry veteran Laura Cullen.
We’ve built our company around trying to address that by creating a partner that a larger institution can have confidence in. 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 for our partners.
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. In addition to our servicing successes, 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. And there is a lot more to come from a product development perspective that may be even more innovative in the future.
I think we pushed pricing a little bit on the wholesale side, to try and offer the best deals to brokers and lenders. Our servicing investments have resulted in our mortgage pools having the lowest payoff rates in the industry and thus they sell for the highest prices. Along with our head of capital markets, Tim Wilkinson, and our work with Ellington, we bring some of the most sophisticated pricing models into the wholesale business, allowing us to purchase closed loans at the best prices.
But, these are changes that don’t occur 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. For its size, our industry is surprisingly competitive and innovative.
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 bring reverse mortgages into the financial planning space. We’ve had many conversations over the years with both large and small financial planning firms. So far — and I want to underline so far — we have not succeeded in bringing them into this market. Reverse mortgages are not yet integrated into a single mainstream software platform in an easily-usable way, not in some obscure place in the background.
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 COVID in our careers. 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 –sitting with a computer with kids running around in the background, with a spouse who’s trying to do their job at home. We are dealing with our own parents and kids. And still trying to serve our clients in an industry with a huge growth in demand. In a matter of six weeks, our pipeline of new loans doubled, even as our offices were closed to all but a few workers and everyone was working at home.
The sheer personal challenge of this has been immense. We’ve had only one employee who has had COVID. Luckily, as a company, we stopped coming into the office really early, before many other companies. So the disease didn’t spread at the company, even though our headquarters in Mahwah, N.J. was in the heart of the original hot-spot. But we have employees who have lost loved ones. That is just heartbreaking. And so I constantly think about what our team has gone through. I will say that as a company, I couldn’t be prouder of our team, and the clients and brokers and lenders that we work with. I put that first.
I think it’s also been pivotal for us in keeping our proprietary product in the market and strong, even with some modifications. As well, we found creative ways to help some of our clients access broken capital markets, bringing dedicated pools of loans for our largest closed loan sellers allowing them to get better prices than if they had to sell to capital constrained lenders during what was, for a while, a broken securitization system. Finally, we focused our efforts on our brokers and PAA customers, keeping relatively stable pricing at a time of great uncertainty. These all led to a big increase in HMBS market share across the board as we worked to help the industry adjust to COVID.
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 on our website. We had this huge spike. But you know what, that was good. Our servicing clients knew they could count on us.
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.