In many ways the Chicago-based special servicer that manages distressed and at-risk residential mortgages was spurred into the business by the foreclosure crisis.
Its founder, a native of Canton, a small town of 4,000 people outside of Syracuse, N.Y., has been specializing in nonprime originations, servicing and borrower credit management for almost 13 years.
Fay’s business philosophy could be described as a seamless merger of services lenders and servicers need to provide to ensure a mortgage loan does not go into foreclosure starting at loan closing, servicing and all the way through the life of the loan, including securitization.
“I’m the accidental entrepreneur,” he says.
Fay decided to take the plunge because he wanted to create a company culture that cherishes staff and tried to understand the people they serve in continuum.
“How you treat people is important. Equally important is to understand their behavior, the financial choices they make and why.”
At the peak of the foreclosure crisis when everyone was firing originators, Fay was hiring and teaching them how to use their prior knowledge and borrower communication experience to mitigate loan defaults.
In his view, it is debatable as to how Countrywide affected the industry and the customer. “Their lending model was pretty simple,” he claims. It artificially increased mortgage lending demand and securitized high-risk loans. “Back in 2004 I was the biggest bear you could have found.”
It also was the year Fay started thinking seriously of a business plan.
“I put every penny I had saved into this company. In 2007 when the real cracks started to show I started the company.”
He focused on a company structure that has the right model, process and staff.
Fay’s goal since 2007 has been to attract experienced mortgage professionals through referrals. “Always the best way to find talent,” he says, and a kind of guarantee Fay Servicing will continue to attract the best in the business.
Lessons Fay had learned before the crisis were put to the test and confirmed as the foreclosure crisis reached its peak starting in 2009 when demand for special servicing was unprecedented.
“That model of single point of contact is the only way things can work,” he says. “We felt it was very important that someone who’s going through a difficult time does not have to tell their story a hundred times.”
Also, there will always be “some customers out there willing to game the system,” he notes, which is why process is very important for a servicer.
In Fay’s view servicers and originators need mortgage-related information that is not limited to loan data. “You need information about the people, you need to have all the pieces of the picture in front of you to understand their financial decisions, and you need to take all that into account when making lending and servicing decisions.”
Fay may not have been thinking of his own company during the first years of his career, but he was devoted to creating a highly effective mortgage servicing model.
In 1999 while working for Household international (acquired by HSBC), Fay put together “a very basic“ borrower assessment model that included a questionnaire with inquiries about automobile, groceries, entertainment, vacations and other untraditional expenses “that give a better sense of people’s personalities.”
At the time a senior VP coming out of the management training program, Fay initiated the consolidation of a national branch residential lending and servicing network into a centralized, direct lending and servicing office.
“I would listen to borrowers’ tapes in the car. Sometimes what people say casually is very telling. It is not easy, however, it took almost a decade to refine the final cash-flow model.”
It is an in-depth interesting model that shows how the money is spent and can be customized to help borrowers understand what their options are and what is their best workout. “It’s basically risk-based lending model.”
He does not expect the distressed mortgage market to shrink any time soon. Distressed loans from new originations are expected to be at roughly $50 billion in 2014, according to some estimates, he says, so special servicing will continue to be in demand.
The company model is like a three-legged stool, "and staff is the third leg." It consists of college-educated professionals who have experience talking to people, live near downtown Chicago where the company headquarters are located, or are willing to move into the area.
Education and good sales skills matter, not scorecards or sales talent based on hard data. “I don’t ask for scores, don’t need the ones who have the highest number but the best with people.”
It has paid off.
“Our turnover is less than 5%. The type of persons we’re looking for are not easy to find,” says Fay, who personally interviews everyone. “We’re growing rapidly but at our own pace, not exponentially. We’re trying to be the best, not the biggest.”
Today, the marketplace continues to evolve as mortgage companies prepare for the next return of massive originations.
“We’re not in a hurry to be in originations, our focus is on servicing, but when the market does change, which would take a lot of private capital to do, we’ll be the first to raise our hand.”