MANHATTAN BEACH, Calif. -- Kinecta Federal Credit Union shocked the industry again on Oct. 30, when it announced it had hired former Countrywide Financial executive Jess Lederman to fill the newly created position of senior vice president and chief credit officer. The $4.4 billion Kinecta made headlines last year when it purchased alternative services provider Nix Check Cashing.
Lederman, a high-profile industry veteran who played a key role in Countrywide's merger with Bank of America, said his two-year Countrywide stint was only one short chapter in his career. Lederman was director of pricing and research for PMI Mortgage Insurance before holding senior positions with Sears Mortgage Securities Corp. and Bear Stearns Mortgage Capital, pioneering the first private-sector counterparts to Fannie Mae and Freddie Mac.
Among his accomplishments, Lederman is the principal architect of the first SEC-registered, mortgage-backed securities backed by ARMs and the first pool of capital formed to invest in subordinate MBS, and he created innovative financing vehicles to support affordable housing offered by community land trusts.
Credit Union Times: You have a very impressive r?(C)sum?(C). Why the move to Kinecta and credit unions?
Jess Lederman: Sixty million years ago, an asteroid hit the Earth and wiped out the dinosaurs. Small, furry mammals emerged, animals who previously had much less market share than the dinosaurs and look at where mammals are today. Flash forward, where today, a financial asteroid has hit the Earth, and I'll let your readers draw their own conclusions as to who the extinct dinosaurs will be. But I'll make one thing very clear: credit unions are well-positioned to vastly increase their market share.
I've worked with credit unions over the decades, and I've always been very impressed by the quality of production of credit unions that have sold loans to firms I've worked for over the years. While everyone's delinquencies are up, credit unions have less to worry about than large banks, and I think consumers will take to the idea of credit unions as a kinder, gentler alternative to banks. I think it's precisely the right time to better educate the public about the accessibility of credit unions, which is a story that is still not out there. Many people still don't understand how easy it is, typically, to become a member of a credit union, and credit union balance sheets are much less encumbered and have better legacy assets. It's just a wonderful opportunity.
If you look at my background, my years at Countrywide have been the exception to the rule. Most of my background is in start-ups and relatively small organizations, helping them expand and grow, and Kinecta fits that pattern for me.
CU Times: Are you concerned about the ongoing FBI investigation into Countrywide's business practices?
Lederman: No, I don't have anything to hide. I'm not going to make any comments about Countrywide, considering there's an ongoing investigation, but I'm proud of the time I spent there.
CU Times: What does the future hold for the secondary-mortgage market?
Lederman: It will come back, but it has to be rebuilt. We have to reestablish the foundations of quality. One good example is automated underwriting...one of the unintended consequences of automated underwriting engines was an erosion of human underwriting talent. Many people grew to rely on those engines, and people were calling themselves underwriters when they were really just data entry clerks. While automated underwriting is here to stay, we have to reestablish a base of human capital. The basics of loan quality and data accuracy have to be reestablished and companies that have a true culture of quality will emerge as leaders, and will help bring back a secondary-mortgage market.
CU Times: What do you think about a credit union- controlled secondary mortgage market?
Lederman: I think it's a terrific idea, and when I took this job I was thinking about it, so I'm not surprised to hear [the CU Housing Roundtable] initiative exists. I'm looking forward to a little time to catch my breath, but then I plan to get involved in that initiative because makes perfect sense. It's a good way for credit unions to get involved in the secondary market because they typically suffer from a lack of economies of scale.
CU Times: What do you like about Kinecta?
Lederman: There's a good strong base of underwriting talent here. Kinecta uses automated underwriting, Fannie Mae Desktop Underwriter, but it's a good example of a shop that has talented, experienced underwriters, so the data that goes into the underwriting engine is meaningful. We only do full-documentation loans, so there are the makings of a very solid foundation, which we're going to build on.
CU Times: What is your strategy for Kinecta going forward?
Lederman: In this environment, aggressive lending would be foolhardy, and while we're in a period where home prices will continue to fall, the strategy will be to remain conservative in our lending practices, to be diversified across a broad range of assets from mortgage loans to auto loans to commercial loans, and to build the infrastructure for future expansion. I think we're in a consolidation mode, and it's prudent to be cautious during this fragile economic environment and build a solid base for expansion. So we will come out of this period of infrastructure building, and we'll be a much larger player in the secondary market. We won't just be a portfolio lender but also originate loans up for sale.
CU Times: You have a reputation as an innovator. Do you have any new mortgage products in mind for Kinecta?
Lederman: Really, the industry is going away from new products; after all, a lot of interesting--quote, unquote--products were created and have been scaled back since. It's back to basics for a while. You can meet a lot of peoples' needs with basic 30-year, fixed-rate loans and basic short-term adjustable-rate mortgages. Our strategy will be to permanently invest in short-term adjustable rate mortgages while originating fixed-rate loans for sale.
CU Times: Do you think credit unions have what it takes to increase mortgage market share?
Lederman: Kinecta can do it. I can't speak for other credit unions out there, but I don't doubt the team here. The formula is to accommodate portfolio lending with one hand, while building secondary-market infrastructure with the other. I don't see any limit to growth opportunities by employing a strategy like that. I think many credit unions simply have not had the scale to develop a robust secondary-market execution. The secondary market is a missing link because it enables volume origination to be freed from balance sheet constraints.