The can-do entrepreneurs who built empires selling home loans to baby boomers have given way to a new breed of mortgage executive.
Unlike the old guard, whose members made their names as top producers, the new leaders in the mortgage industry were incubated in banking, accounting, and finance.
"We've gone from Wild West to white-shoe," said Angelo Mozilo, chief executive officer of Countrywide Home Loans, the second-largest originator and servicer of home mortgages. "The new breed of mortgage banker has to possess substantial quantitative skills as well as a broad base of other executive abilities."
The rise of the mortgage-backed securities market, changes in accounting rules, the swallowing up of independent companies by large commercial banks, and general industry consolidation have radically changed the face of the leadership.
Top mortgage executives now need to be conversant with IOs, POs, Remics, OMSRs, PMSRs, and all manner of alphabet soup. Most of them have to justify their decisions to shareholders in the publicly traded parent banks.
Though he is perceived as a salesman, Mr. Mozilo actually got his start in the operations part of the business-as a messenger, at age 14, for United Mortgage Servicing Corp.
Mr. Mozilo founded Countrywide in the late 1960s and spent several years originating loans himself. "Life in the business in those days was much simpler," he recalled. "Securitization, yield spread premiums, FASB, and convexity were not in the mortgage banking lexicon."
Countrywide was one of the first mortgage companies to recognize the importance of financial acumen and to use financial hedges. Mr. Mozilo surrounded himself with "a whole team of physicists," as he puts it.
Mr. Mozilo's biggest competitor embodies the new breed. Mark Oman, chief executive officer of Norwest Mortgage, the top originator and servicer, started at Deloitte, Haskins & Sells, a predecessor to accounting powerhouse Deloitte & Touche.
"The big companies today have a lot of capital at play and are doing fairly sophisticated transactions," Mr. Oman said. "You're seeing that skill set on the CEO part valued."
Mr. Oman joined Norwest Mortgage from Norwest's consumer finance unit in 1985. The home loan unit had suffered large losses a year earlier; Mr. Oman was part of a team brought in to turn it around.
"Most of the new management team came out of Norwest Financial and didn't know a lot about mortgage banking," he said. "We learned a lot of lessons very quickly."
Since the late 1980s many other large financial institutions have made sizable investments in mortgage companies, bringing to them "a more disciplined approach," said Joe Bryant, president and CEO of Roslyn National Mortgage Corp., Hauppauge, N.Y.
With more focus on the bottom line, the pressure increased to entrust the reins to finance experts, rather than to risk-takers.
"The investor community expects predictable returns year in and year out," said Saiyid Naqvi, chief executive officer of PNC Mortgage, the Vernon Hills, Ill., subsidiary of Pittsburgh-based PNC Bank. Another member of the new guard, Mr. Naqvi worked at a financial management firm before entering the mortgage business.
Mr. Bryant said the culture of massive banking organizations had little appeal for some entrepreneurial sales pros. "They don't want to deal with hierarchy or projections," he said. "Instead of a strategic plan, they believe in strategic improvisation."
Today many of the gregarious entrepreneurs who ran the mortgage banks of yore are mortgage brokers, Mr. Bryant said. "That's where the sales and marketing talent has gone to."
Another change that has helped create the need for more financially savvy executives is the evolution of the servicing side of the business.
Servicing used to be "a repository of whatever the producers produced," said Paul Bognanno, chief executive officer of Principal Residential Mortgage Inc., Des Moines. In the 1980s lenders began to realize they could profit by collecting payments on loans at lower costs than the fees they were being paid. Firms specializing in brokering servicing trades sprung up.
Today the right to service a loan may pass through more than one set of hands. And whoever ends up with it can hire a subservicer to actually do the work of collecting monthly payments and distributing monthly statements.
But servicing is a risky asset, highly vulnerable to changes in interest rates. Like interest-only mortgage securities, servicing's value evaporates when homeowners refinance.
By the time of the 1993 refinance boom, lenders realized "the production network won't replace servicing entirely," Mr. Bognanno said. Servicers started buying complex financial instruments that rise in value when interest rates fall. New accounting rules implemented in 1995, which require lenders to book servicing on loans they originate, have only heightened the attention paid to hedging.
Mr. Bognanno comes from the production side of the business, but found he "had to adapt a great deal to begin to understand the financial side.
"The CEO's got to be on top of it," Mr. Bognanno said. "You may not have to do it yourself, but you have to understand what your people are doing."
But sales skills are still valued, and the new breed aren't all CPAs. William Schenck, chief executive officer of Fleet Mortgage, comes from retail banking; before joining Fleet last year he was in charge of consumer and small business banking at PNC Bank.
Mr. Schenck still sees a prominent role for the salesman in the mortgage business. "The most successful managers in the next five years will be sales- and service-oriented," he predicts.
Though lower interest rates and a robust housing market have made 1998 a boom year for most mortgage companies, Mr. Schenck said, "this business doesn't walk in the door.
"It's a pure market out there. It's more difficult for someone whose focus is on the numbers side to deeply understand the sales and service process. If you're not taking care of customers you're not going to have business."