Nex-Gen IMB

1. • • •• •
: radiusfinancial 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 homebuyer 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

6. 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 volumeof$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 thetable. Our loan officers were
looking at us cross-eyed," hejokes.
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
haverepurchaseissues. 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 evenopportunities 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 fa­
cilities 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 [radiussells its loans]
is JPMorgan Chase in New York. We have sold it around 7,000
loans over the years and we've hadjust six delinquencies.))
The company, which can offer Freddie Mac loans, also re­
ceived 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 op­
eration 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.
Whatalso helps is that
New England-especially
Massachusetts-is a
highly fragmented mar­
ket dominated by no one
company. "Radius is a
good size as an inde­
pendent, 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 prob­
ably 4 percent. We can
leave the top of the mar­
ket 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,fow he is going to be a $50 millionproducer. Still, growing
one person at a time is inefficient and it doesn't scale, it
doesn't move the needle enough to meet our five-times-cur­
rent-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
smbcomm@hotmail.com.
MORTGAGE BANKING I 55 I NOVEMBER 2015