Subprime mortgages keep minting cash for ex-Bear Stearns banker

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Subprime mortgages may have wreaked havoc on the U.S. economy over the past decade, but they have been very good to Tom Marano.

At Bear Stearns Cos., he gained fame in the industry and no small fortune leading the team that bundled billions of dollars of subprime home loans into securities. The historic implosion of those low-quality, risky bonds brought down Bear and helped fuel the worst financial crisis since the Great Depression.

Yet it's done little to hinder his career or earning potential. He has, in fact, leveraged his extensive mortgage background and relationships into a lucrative second act. He cleans up and sells troubled mortgage companies that had suffered in the housing crash.

In his latest role, which closed last month, Marano guided the home loan servicer Ditech Holding Corp. through bankruptcy and sale. The buyer of most of its assets was a firm run by a former Bear Stearns colleague. Before that, Marano oversaw a similar Chapter 11 bankruptcy for Residential Capital, known as ResCap. Ironically, pieces of the loans that his group securitized at Bear ended up at both ResCap and Ditech.

Marano's career and connections show how even a decade after a crash that left millions jobless and evicted from their homes, the same bankers who created pools of risky loans continue to benefit. Critics chafe at the unfairness, while others say people like Marano are well suited to play fix-it roles given their expertise.

"It's like somebody who works at a nuclear power plant and causes a disaster and then works on the cleanup," said Jared Ellias, a professor of bankruptcy law at the University of California Hastings. "It may feel a little bit morally ambiguous, but in truth it's just capitalism. People who have specific skill sets will get hired to use them."

In an interview and over email, Marano said it's not surprising that he's been brought in to restructure mortgage firms.

"I’ve got some pretty good experience defusing these overleveraged financial companies," he said.

Marano said the financial crisis was the result of systemic failures, while acknowledging some "slippage in industry standards" by bundling loans to home buyers with low credit ratings.

"I have always put doing right by the customer first," he said. "At every place I worked, from Bear to ResCap to Ditech, I put in place policies and practices to strengthen standards and protect consumers to help them keep their homes."

Marano worked at Bear Stearns for more than 25 years, becoming one of the firm's central figures in its push to ramp up the sale of bonds backed by loans to low-credit borrowers. With Marano as head of its mortgage-backed securities unit, the bank was selling tens of billions of dollars of those investments each year.

But after real estate prices fell and mortgage defaults surged in 2007, lawsuits against Bear started to pile up, accusing the bank of false and misleading statements in securitizing loans made to borrowers with no ability to repay.

While it’s difficult to tally Marano's total career earnings, some numbers are public: He was paid $5.6 million in his first full year at ResCap in 2009 while the company lost $7.3 billion. At Ditech he was hired with an annual compensation package of $2.25 million, not including stock options and potential bonuses, according to filings.

Marano didn't comment directly on his past earnings but said that he contributes to causes including cancer research and homelessness.

It took him only one month to land a top job at ResCap after Bear Stearns was sold to JPMorgan Chase & Co. in a fire sale in March 2008.

When he arrived, ResCap, once one of the largest subprime mortgage lenders, was already facing a rise in foreclosures that had left it on the brink of bankruptcy. It was subject to lawsuits from buyers of mortgage bonds who alleged the underlying loans were faulty.

ResCap filed for bankruptcy and sold its assets for $4.5 billion in 2012. The sale included servicing rights on $50 billion of mortgages to a company that would become Ditech.

After that deal, Marano spent three years running the ski resort owner Intrawest Resorts Holdings Inc., until it was sold in 2017.

A year later, in 2018, Marano was hired as CEO of Ditech, also struggling before he arrived. Within two months he was shopping Ditech for a potential sale. It filed for bankruptcy last February, selling its servicing rights for about $1 billion to New Residential Investment. That firm is run by Michael Nierenberg, another Bear Stearns alum who had worked closely with Marano as co-head of mortgage-backed securities trading.

Ditech's assets included the servicing rights for at least four pools of mortgages that were packaged and sold to investors by Bear Stearns in 2003 and 2005, when Marano was heading up the unit.

"These are 30-year loans, so you are going to have some subset of them that are still around," said Marano. Subprime loans were under 4% of Ditech’s balance sheet in 2018, he said.

Marano earned a $500,000 bonus for executing the sale and then stepped down from Ditech on Oct. 11. He said he has no immediate career plans.

Bloomberg News
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