MBA NewsLink 2021 Tech All-Star Tom Pearce: Challenging the Status Quo

By Lesley Hall

Launched in 2016 through a commercial partnership with J.P. Morgan, Atlanta-based MAXEX is the first digital exchange for buying and selling residential mortgage loans through a single clearinghouse. Its goal was to simplify the complex process of trading residential loans in the secondary mortgage market while enabling loan buyers and sellers to obtain faster, more consistent liquidity.

MAXEX connects bank and nonbank lenders with investors, including Wall Street banks, real estate investment trusts and insurance companies, thereby reducing costs and mitigating risks.

Think of MAXEX as the hub out to the spokes of sellers and spokes of buyers, says Tom Pearce, a co-founder of MAXEX and its CEO and Chairman. All sellers and buyers sign a single, standardized contract instead of expensive individual ones. They execute trades through MAXEX’s cloud-based platform, and the MAXEX proprietary clearinghouse serves as the central counterparty to each side of the transaction. By democratizing the mortgage process, MAXEX allows Main Street to compete head-to-head with Wall Street. This feeds into the company’s ultimate goal of helping U.S. homeowners obtain less-expensive mortgages while reducing errors in the loan process — and the risk bad loans often pose to taxpayers.

MAXEX is the first mortgage exchange to successfully have its loans securitized. To date, more than 180 sellers and 19 buyers – “some of the most active buyers out there,” says Pearce – have been approved to buy and sell loans with MAXEX.

Pearce has extensive experience in the financial services, asset management, mortgage finance, real estate and private equity arenas. He has worked in the center of the secondary market’s buyer-seller dynamic for more than 30 years. He served on the Board of Directors of Five Oaks Investment Corp., a mortgage REIT sponsored by XL Group Plc; was founder and Managing Partner of Vertical Capital LLC, sponsored by Bank of America to specialize in the management of nonagency residential mortgage-backed securities; was a founder and CEO of Peachtree Financial LLC, a middle-market commercial lending firm and rated servicer sponsored by First Union Bank and A.J. Gallagher; and was Managing Director/Principal and a senior member of the Mortgage Department at Bear Stearns, where he focused on risk-management solutions and portfolio optimization for community banks and insurance companies.

Inspiration for MAXEX’s creation was informed by the 2008 financial crisis and collapse of the U.S. housing market. When considering the root causes of the financial crisis, Pearce saw the lack of transparency and due diligence throughout the mortgage loan process as key factors, and applied this conviction as one of the original founders of MAXEX. By persuading lenders and banks as well as investors in the mortgage ecosystem to adopt the standard of buying and selling under a single generic contract, MAXEX brought consistency and trust back to the private market.

The vast market experience and existing relationships fostered by MAXEX’s experienced executive team also created instant credibility for the new company that brought it more attention than any advertising or marketing efforts could have. Over the years, that credibility has only grown. “There is still a lot of wood to chop,” says Pearce. But the company’s most valuable asset is still its reputation. “We’re careful who we do business with.”

“Tom is a hyper-visionary,” says Greg Richardson, MAXEX’s Chief Commercial Officer. “He is very passionate about impacting the mortgage industry in a positive way, looking to create efficiencies for buyers and sellers in the secondary mortgage marketplace. We all experienced a lot of challenges during the financial crisis. Tom, understanding those challenges, wanted to create this company, MAXEX, to overcome those difficulties. He has the experience, knowledge, and dedication to accomplish what many thought would never be possible: Disrupting the mortgage secondary market and challenging the status quo.”

Pearce echoes the importance of that disruption. “Our biggest competitor is the status quo of how people do business,” he says.

In 2020, a new kind of crisis disrupted the mortgage marketplace. When the COVID-19 pandemic hit and the nonagency mortgage market deteriorated, it “created a great deal of uncertainty over how loans would be funded and settled,” says Pearce. The pandemic and the financial crisis of 2008 dealt with many of the same issues of lack of transparency and erosion of trust, and COVID-19 was an important test of the MAXEX business model.

In an August 2020 letter to MAXEX exchange participants about the company’s reaction to the new crisis, Pearce wrote, “MAXEX stepped in to play a vital role. First, we kept buyers in the market and settled all pipeline commitments, even as established investors outside our exchange left the market entirely and, in some cases, refused to settle on their committed pipelines. Additionally, we worked with each exchange participant to create new standards around forbearance and early payment defaults that provided much-needed certainty and ensured the consistent flow of liquidity.”

The validation of MAXEX’s platform during the pandemic resulted in record trading volume that more than doubled in the second half of 2020 compared to the first half. It had trading lock volume in nonagency mortgages of more than $4.5 billion in the last three months of the year alone, versus $2.7 billion in all of 2019.

“The recognition and the execution of the exchange has allowed us to grow exponentially over the last several years,” says Richardson. “Technology is at the forefront of that change. The mortgage industry has been focused on the digitization of the mortgage process on the front end. We’re hype-rfocused on that on the back end.”

Loans sold through MAXEX have been included in more than 55 private-label mortgage securitizations, and MAXEX plans to expand into the agency market this year. It was recently approved as a direct seller to Fannie Mae and Freddie Mac.

The company continues to expand its portfolio of offerings to include a broad range of jumbo, conforming, and non-QM programs. In addition to reaching $13 billion in aggregate nonagency trading lock volume in 2020, MAXEX launched a strategic partnership and technology integration with Ellie Mae, introduced MAXEX Bulk Trading Services, executed multiple transactions exceeding $1 billion for a top 25 U.S. bank, and launched its Jumbo Express program that dramatically reduces the time and complexity of manually underwritten loans by leveraging Freddie Mac’s and Fannie Mae’s automated underwriting system engines.

MAXEX has also expanded its Environmental, Social and Corporate Governance (ESG) lending programs, developed in collaboration with J.P. Morgan. By providing pricing incentives and enabling borrowers to finance green energy improvements – such as solar panels and geothermal units – into their mortgage balance at the time of purchase or refinance, homeowners now have a low-cost option to amortize the cost of these improvements over a 30-year term at a below-market interest rate. The programs are available to MAXEX’s nationwide network of community banks, regional banks, independent mortgage bankers and credit unions. And they are getting “a ton of traction,” says Pearce. “MAXEX is a purpose-built platform, and it is efficient to deploy ESG in the marketplace” to benefit homeowners in this way.

It’s been fun “being unique, getting people to adopt a different way of doing business,” says Pearce. He says he enjoys building a business around an inefficiency or a need that isn’t being met.

“The passion that Tom has is infectious, and you can’t help but want to be part of what he’s doing,” Richardson said.

Pearce continues his passion for marrying need with purpose outside of MAXEX as well. He is co-founder, President and Chairman of FACT Relief, a nonprofit organization dedicated to supporting families battling debilitating or terminal disease, as well as other catastrophic life events, that may impact the household’s ability to provide for its family.

After Pearce saw a close friend struggling to provide for his family following a diagnosis of amyotrophic lateral sclerosis (ALS), a progressive neurodegenerative disease with no cure, Pearce wanted to find a way to help. He contacted the United Way, ALS associations and other charities, asking how to help someone in such a situation. “But most charity donations go to research, not family help,” he says. “So, I formed a 501(3)(c) [charity].” 

FACT Relief has distributed $1 million in uninsured health-care costs and granted more than $100,000 to families experiencing financial hardship while dealing with catastrophic medical issues.

“There was a need,” Pearce says. So, he provided a solution.