Tom Pearce of MAXEX on ESG Lending and Investment
Tom Pearce is a co-founder of MAXEX, Atlanta, and serves as its CEO and Chairman of the Board. He brings more than 30 years of expertise within the community banking and insurance arenas as well as expertise within the mortgage finance, credit and asset management arenas. He served on the Board of Directors of Five Oaks Investment Corp., a mortgage REIT sponsored by XL Group Plc from 2013 to 2015 and was Chairman of the Compensation Committee. From 2002 to 2011, he was founder and Managing Partner of Vertical Capital, LLC which was sponsored by Bank of America to specialize in the management of non-agency RMBS as well as bank loans.
MBA NEWSLINK: Why is Environmental, Social and Governance (ESG) lending becoming increasingly attractive to lenders?
TOM PEARCE, MAXEX: Many U.S. companies view ESG lending as a way to give back to the community and protect the environment by making socially responsible investments. However, finding a robust supply of creditworthy ESG loan investments, especially in the mortgage markets, has been challenging for institutional investors to accomplish.
It has historically been difficult to implement and scale new lending programs for large retail and investment banks because of the archaic way of buying and selling loans as well as the complexities in managing many lender counterparties.
NEWSLINK: Describe MAXEX’s ESG lending program. What inspired its creation?
PEARCE: Reducing the complexities in the mortgage market between loan originators and loan investors is how MAXEX is changing the game. We are uniquely positioned and seamlessly connect hundreds of lenders
across the country to the markets most active institutional investors. This enables our loan buyers to create new products and programs and efficiently deploy these programs into the marketplace to lenders across the US.
The ESG program we have rolled out was inspired by one of the largest buyers on our platform – J.P. Morgan – who approached us with the concept of an ESG lending program they wanted to deploy through MAXEX. The initial ESG program we have launched with JPMorgan is designed to support the growth of minority, women and veteran-owned mortgage lenders. Institutionally, JPMorgan has one the markets largest ESG initiatives focused on Diversity, Equality and Inclusion.
NEWSLINK: How will the ESG programs improve Diversity, Equality and Inclusion in the lending industry?
PEARCE: These programs are leveling the playing field for minority, women and veteran-owned lenders and enabling them to become more competitive as well as reducing the cost of home ownership for consumers in these underserved communities. We have modified our most popular, non-agency loan programs and offer preferred loan pricing for MWOB and veteran lenders through the MAXEX Opportunity program, which makes them more profitable while also reducing home mortgage interest rates for borrowers in these underserved communities.
Through our ESG program, MAXEX enables buyers to efficiently aggregate mortgage loans from MWOB and veteran owned lenders and then securitize these loans into private label mortgage-backed securities (PLMBS). Institutional investors who are looking for an efficient way to invest in ESG compliant fixed income investments will be able to purchase these PLMBS bonds which are collateralized exclusively with loans from the MAXEX Opportunity program. The demand for ESG securities will in turn translate into reduced borrowing costs for homeowners and allow these lenders to be more competitive.
NEWSLINK: How many financial institutions will participate in this program?
PEARCE: We have already trade locked more than $310 million in ESG loans through the Opportunity Program since its launch at the end of December. Currently we have 15 of our lenders on MAXEX who qualify for the Opportunity program and we are focused on expanding the number of qualifying MWOB and veteran-owned lenders as sellers on MAXEX. JPMorgan is the primary investor to date, but we expect to expand the number of buyers in this program later this year. We have also been approached by several other marquee loan investors that are current (or prospective) buyers on the platform who desire to roll out their own unique loan programs to our large base of originator/sellers later this year, which includes additional ESG programs.
NEWSLINK: Are there specific benefits for different sized institutions?
PEARCE: MAXEX’s unique exchange and counter-party structure levels the playing field for small and mid-sized lenders and allows them to sign a single contract, face a single counterparty and gain turn-key access to the best liquidity providers. MAXEX’s entire platform provides a significant advantage for small to mid-sized lenders to dramatically expand their buyer takeout’s and corresponding liquidity without navigating complicated, costly relationship-based contracts. For MWOB and veteran owned lenders, the MAXEX Opportunity program immediately gives them preferred pricing and access to optimal liquidity.
Many of the nation’s largest loan originators who are sellers on MAXEX already have direct connectivity to many of the buyers on our platform. However, they have found that selling through MAXEX and facing us as a single counterparty, significantly reduces their operational costs by consolidating their correspondent delivery channels while also expanding access to new buyers and more consistent liquidity.
For loan buyers, the MAXEX platform allows them to efficiently scale their mortgage aggregation businesses without dealing with the complicated multi-contract system as well as the costly overhead of a loan conduit. Instead of trying to execute a bespoke legal contract with each individual seller, our standardized contract gives them immediate access to buy loans from hundreds of qualified sellers while facing a single counterparty – MAXEX. Many institutional investors who have historically not been able to efficiently gain exposure to the residential loan markets have found MAXEX a turn-key solution to access hundreds of qualified sellers and only purchase the whole loans which meet their specific investment criteria.
NEWSLINK: Are there any plans to expand the current ESG program beyond jumbo loans?
PEARCE: MAXEX and J.P. Morgan are also in the process of delivering additional socially responsible ESG loan programs through MAXEX. The company expects to launch a clean energy program in early 2021, which is designed to facilitate lending for homes with renewable energy enhancements such as solar panels and geothermal units. As mentioned, additional buyers on MAXEX have approached us about deploying their own unique loan programs through our infrastructure.
NEWSLINK: What is your main goal for this and other programs you’re implementing?
PEARCE: Ultimately, we are trying to create the cash window for the non-agency mortgage market and allow mortgage originators across the United States to sign one contract with MAXEX and have access to much greater and consistent liquidity. Through our mixed portfolio of investors and our standardized system, MAXEX allows for immediate scale of programs and gives lenders a much more cost-effective way to deliver loans to underserved communities.
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