Steve shares how his college ROTC experience taught him values that serve as an excellent foundation for his career, explains his journey into the mortgage finance world, and explores how FHLBanks and the MPF program have helped expand homeownership and affordable lending.
You were in the Navy ROTC as an undergraduate and served as a Naval Officer for a couple of years after graduating. What prompted the interest in the Navy, and looking back, how did that experience help prepare you for leadership in the private sector?I was fortunate enough to be accepted during my junior year in high school into the Navy’s BOOST program, which was designed to develop classes of minority naval officers. This was a unique opportunity because upon completion, graduates were guaranteed either admission to the US Naval Academy or a 4-year Navy ROTC scholarship.
My parents told me I had to do it!
It turned out to be a great blessing, as my attendance for four years as an Ivy League student at the University of Pennsylvania (Penn) was fully funded by the Navy. Additionally, during four years of college ROTC, I honed my leadership skills. There was another blessing here, because while at Penn I became exposed to its #1-ranked business school, Wharton. Wharton exposed me to numerous aspects of a career working on Wall Street, and that’s what I’ve been doing for 25 years now!
Overall, Naval Officer training provided an excellent training ground to learn how to accept responsibility, communicate well, manage teams, provide inspirational leadership, demonstrate ethics, and numerous other qualities expected of not only of a Naval Officer, but a true leader in all walks of life. Having responsibility for the management of a division of over 20 men at age 23 provided me with a huge platform and boost at the start of my career that shaped who I am professionally today.
How did you make the leap to mortgage finance? Had you always had an interest in the subject?Another great blessing in my life is my family. My mother worked as an admin at a municipal bond law firm for 19 years while I was growing up. She always brought home interesting stories about the firm which gave me insights into both the municipal bond market and the legal profession. I heard enough to know that I didn’t want to become a lawyer, but that bonds seemed “cool”. While I was at Penn, the country was going through the Savings & Loan Crisis, and the Resolution Trust Corp (RTC) had been created to deal with the troubled assets. My friends in college and I started to try to buy some of the foreclosures for sale in Philadelphia, and in the offerings we always saw “loan packages for sale”. I didn’t intuitively understand how or why loans are sold, so I researched this and discovered the connection to bonds and the lightbulb went off! I became enamored with researching and understanding the mortgage bond markets, and I literally haven’t stopped since around 1990, my junior year of college.
When I left the Navy, I slept on my sister’s floor in New York City while job hunting and was lucky enough to land my dream job at Hyperion Capital Management, the hedge fund founded by Lew Ranieri, who is widely credited as the creator of the mortgage-backed security. From there I went on to have very exciting jobs at Countrywide Home Loans and Fannie Mae which provided some of the best mortgage training grounds available in the industry.
I was very determined to succeed and worked very hard during those years, often telling anyone who would listen, “It’s not what you do between 9 and 5, it’s what you do between 5 and 9pm.”
You’ve worked for the FHLBank Chicago on two separate occasions. What was it in particular about the FHLBank Chicago that drew you back in?First, MGIC is an important member of our FHLBank so we thank you for the membership and the partnership. [Steve’s words, not ours! – MGIC]
There are only three housing GSEs in this country: Fannie Mae, Freddie Mac, and the FHLBanks. In the mortgage industry, everyone knows Fannie and Freddie, but the FHLBanks are not as well known or understood. This struck me as a huge opportunity, so I left Fannie in 2002 to join the FHLBank Chicago and help it build and expand its secondary mortgage market program called MPF. We had great success in those early years. For example, MPF grew from $16 billion in 2001 to $27 billion in 2002 to $71 billion in 2003. During those years Fannie and Freddie also began to fall on hard times tied to their massive size, accounting issues, and finally the housing crisis.
I left the FHLBank of Chicago during the housing crisis as the crisis presented a unique environment to be a mortgage capital markets entrepreneur, and I was lucky enough to start and help run my two dream entrepreneurial ventures: a hedge fund and a mortgage department at an investment bank. It was a calculated risk that didn’t pay off as big financially as I hoped, but it greatly expanded my knowledge base and networks.
As the crisis subsided, I was presented with an opportunity by our President and CEO, Matt Feldman, to return to FHLBank of Chicago to help again with both our mortgage portfolio, as well as with the MPF Program which was beginning a renewed growth effort. It’s been almost six years since then and it has been a lot of fun managing both the bank’s loan and bond portfolio investments and capital markets for the MPF Program! I also spent four years co-directing the Bank’s Office of Diversity and Inclusion (D&I), which has become another career milestone, for the progress and impact we were able to make on the bank’s culture through its employees.
Speaking of D&I, I must share a bit on my own personal progress. Initially in my career I shunned diversity conversations – I didn’t want to highlight my race. I used to think, “I just wanna be known as a strong mortgage guy, not as a black mortgage guy.” Eventually I knew that wasn’t realistic. When people see me the first thing they see is a tall, black guy who is unique in running a mortgage trade desk. I’ve learned that you can’t run from yourself. This is part of being an authentic leader. I’ve learned to embrace race and the innate differences between people in the workplace as a strength, not a weakness, and worked hard on understanding how to create collaborations, not conflicts, based on these superficial qualities.
Looking back, what are some of the things you’ve worked on that really stand out as having advanced your career?
I have a few sayings that have appeared on my phone in my “daily reminder” file for many years and continue to remind and inspire me. I have summarized them here, hopefully succinctly enough that anyone can use and relate to them:
• You either have Results or Excuses – but not both.
• To be successful, the first thing you have to do is fall in love with your work. You need the passion for work to happily get up early, stay late, be on the road, and to wake up and be excited to think through that creative 4 AM idea.
• The first half of career is about success; the second half is about significance.
• TALENT is God-given, FAME is man-given, CONCEIT is self-given. Stay humble!
Can you tell us about the role that the FHLBank Chicago has in helping to expand homeownership, and how capital markets and the MPF Program support that role?Many people aren’t really aware that the FHLBank System was the first housing government-sponsored enterprise, founded in 1932. By comparison, Fannie Mae was founded in 1938, and Freddie Mac in 1970. So, we’ve been serving our members for quite a while. Also, the size of the FHLBank System and its role in housing is massive. In 2016, we surpassed $1 trillion in FHLBank System assets, most of which are housing and mortgage-related. Our membership has also grown over the years – today it exceeds 6,800 members. Membership is limited to depository intuitions, credit unions, insurance companies and community development financial institutions.
The FHLBank Chicago started and manages the MPF program on behalf of the FHLBank System. When MPF started in 1997, we had six approved sellers, and today we have over 2,000. Moreover, the program activity has increased dramatically in recent years – since 2011, we have added more than 650 Participating Financial Institutions (PFIs) and annually reached approximately 900 active loan sellers, so acceptance and utilization of the MPF Program has really accelerated during and after the housing crisis with our members. What’s most unique about our customers is that they aren’t the Top 10 mortgage originators nor any non-banks. Our customers are generally smaller community banks and credit unions. For example, over the last four years, 55% of MPF Program active sellers are institutions with $500 million or less in assets. And so, because we don’t have any of the top 10 originators in the program – and none of the large independents mortgage banks – while we have a lot of sellers, we do not have the commensurate volume because we have a totally different profile. This seller base has consistently produced amazing credit and prepayment performance.
It’s also worth mentioning that the MPF Program offers a product called MPF Government MBS which allows our members to originate and sell FHA, VA, and RHS loans to the FHLBank Chicago’s Cash Window. We then securitize those loans into GNMA MBS. This product helps small lenders and their communities have liquid financing for government loans on a servicing retained or released basis.
Lastly, the FHLBanks are unique in our support nationwide of affordable housing. 10% of ALL FHLBank net income goes into our affordable housing programs, creating a direct positive impact on the communities where our members operate.
What does the word “homeownership” mean to you?Well, I believe the housing crisis made or should have made a lot of mortgage professionals rethink their careers and how they can improve this industry. For example, the crisis moved me into the diversity space especially as I read the data which showed the disproportionate share of toxic high-rate, fast-reset 2/28 and 3/27 subprime loans were sold to minority borrowers, with the resultant disproportionate share of foreclosures and home price depreciation in those minority neighborhoods. You don’t have to look very far to see this. While the housing crisis has ended for most American families, it is still on going here in the South and West sides of Chicago. Home prices are still depressed. So, like I said earlier: “The first half of career is about success; second half is about significance.” There is a great opportunity to help improve the options for these families. For them, and for me, homeownership represents a family’s well-being and future financial health – something that needs to be within reach of all Americans, regardless of their demographics.
Since the crisis I’ve worked on improving diversity and inclusion, on pushing an understanding around changing housing demographics at our bank and with our Board, pushing for greater use of diverse vendors and partners – and I’ve spent a lot of time on housing finance reform efforts in the FHLBank System tied to helping to create a better mortgage market in the future for us all. These are the qualities and characteristics around leadership and ethics which I learned growing up in my family and while being trained as a Naval officer during those early years.
The opinions and insights expressed in this Q&A are solely those of its interviewee, Steve Thomas, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.