Exclusive: CrossCountry Mortgage CEO unveils organic growth strategy

CrossCountry’s strategic moves

Another strategic move was the creation of an asset management division a few years ago. This arm, which already manages $7 billion in assets, recently closed a $1 billion funding deal^[2] with Ares Alternative Credit and Hildene Capital Management, representing roughly $20 billion in potential new non-QM loans. “We created the asset manager and the non-QM seccuritization platform, and we view it as being an important piece of our future, as diversifying our revenue for the company,” Leonhardt said.  

At this stage, expanding the asset management business beyond loans originated by CCM is not part of the company’s immediate plan. But Leonhardt — a former mortgage broker who founded CCM in 2003 — doesn’t rule it out in the future.

CCM also recently completed the issuance of $900 million in debt^[3], after previously considering but ultimately passing on high-yield offerings in 2021 and 2022 due to unfavorable pricing.

“We kind of kicked the can down the road,” Leonhardt said. “Our inaugural offering was over seven times oversubscribed; we had approximately 200 institutional investors. We did extremely well. Investors believe in the story and the financial makeup of the company.”  

The interview

Leonhardt went in depth on several topics during the course of a recent interview with HousingWire, which has been edited for length and clarity.

Flávia Nunes: Based on CrossCountry’s recent moves, it looks like the company is focused on strengthening its funding structure. When did you start to deploy these strategies? 

Ron Leonhardt: As far as the asset manager, you’re seeing the end product, but this started in probably mid-2022. We created the asset manager and the non-QM securitization platform, and we view it as being an important piece of our future, as diversifying our revenue for the company. 

The first deal was done with Hildene; since probably 2023, we’ve done 17 non-QM securitizations^[4]. We have the third overall non-QM securitization platform as a whole by volume. And, as you know, we’re retail, so it’s not like we’re buying from hundreds of people. It’s pretty important to go ahead and build that out. It’s an important part of our strategy going forward.

Nunes: How do you see the broader mortgage landscape right now?

Leonhardt: When you look at the landscape right now, every down market follows an up market. And I believe that we operate really well in bad markets throughout my history of owning the company, and we’ve always taken market share. We’ve reinvented ourselves in these down markets, and I view it as being extremely important to having multiple revenue streams to compete with some of the bigger companies^[5] we’ve seen be put together in the future.

Nunes: Will all these different revenue streams come from mortgage-related products, or can we expect CrossCountry to expand to other financial products?

Leonhardt: No, our extensions are, we have servicing^[6]. Our servicing portfolio by year-end will be approximately $200 billion, and we’ve acquired $72 billion in MSRs year to date. We see our income kind of growing — we have our asset manager, our servicing fee income and we also have our origination income.

Nunes: What is currently the most relevant area in terms of income for the company? 

Leonhardt: I would say origination and servicing are, in my eyes, equal because they fuel each other. The asset manager, I believe, we have close to $7 billion in assets under management. We’ve done extremely well since it’s been open, but that one’s only been going on for two-and-a-half years. But again, having servicing is extremely important, for the future of the mortgage market, in the next five- to 10-year outlook. 

Nunes: Is your plan to expand the asset manager for assets other than non-QM loans? 

Leonhardt: We do plan on expanding it with some different product offerings that we’ll probably release later this year — residential transition loans^[7], bridge, fix-and-flip, and this will be for resi multifamily. We’re going to do builder financing, resi and multifamily, and we’ll be offering the multifamily for up to 30 units. Those will be products that we will be offering by year end that will fit into that asset management bucket.

Nunes: What is the volume in the non-QM space for the lender?

Leonhardt: This year, our current lock volume puts us at almost a $9 billion-a-year run rate in non-QM locks. It’s a pretty significant piece for us, a great tool to attract a lot of good originators who do non-QM loans, because so many companies have a really broken process on it. We’ve sort of perfected it. And I think people look at us as the clear-cut leader in non-QM lending^[8]. 

Nunes: You mentioned the $7 billion under management, how large do you envision the asset management arm becoming?  

Leonhardt: The money that was raised by Hildene and Ares will give us an additional $20 billion of dry powder for non-QM loan purchases. When that $20 billion is done, we’ll go raise more. The $1 billion in capital commitments will fund $20 billion in origination, accounting for the risk retention requirements related to non-QM securitizations. 

CCM will act as the co-sponsor, and Ares and Hildene will be the retaining sponsors on each securitization. We get paid a management fee on the assets under management and an incentive fee on the performance of the securitizations.

Nunes: Could CCM look like a Rithm Capital in the future, more so than other origination and servicing competitors?^[9]

Leonhardt: Our core strategy is retail, but we feel that having these two two different revenue streams is going to really fuel our retail origination and really is good for the originator. It’s all about how you’re acquiring the loans. We don’t do correspondent or wholesale; we’re producing all of our own loans. But again, this will also give us a lot of pricing power to the originator.

Nunes: How competitive can you be on the pricing side when you have this structure?

Leonhardt: We’ve been extremely competitive already. If you look at the companies who have had a lot of issues since 2022, I would say the majority of them don’t have servicing or other revenue streams. 

I feel like we are extremely competitively priced. I don’t think there’s anyone who’s the clear rock bottom out there. I would say more in the coming years, we feel we will be shifting our focus from origination income to servicing income, which means that our main purpose of doing that loan is really for the service fee income. The ambition is to have 75% from fee servicing, and we think that we’ll be there, probably, in the next 24 months. 

Nunes: How does this strategy differentiate CrossCountry from competitors, especially those who have recently engaged in mergers and acquisitions such as Rocket, Mr. Cooper, Bayview and Guild? ^[10]

Leonhardt: When you look at those deals, and when you look at what we’re doing, it’s very similar. We are the largest retail lender in the country and we’re growing a pretty sizable servicing portfolio. 

If you look at my direct peers who I’m competing against, no one’s close to us in servicing. When I look at it, you’re putting a massive origination team together with a very scaled servicing platform. And I’m talking about Mr. Cooper and Rocket, and I’m talking about Bayview^[11] and Guild – again, we didn’t have to do an acquisition. We just did it organically.

Nunes: Is CrossCountry still looking at M&A transactions with smaller competitors, like AmCap?

Leonhardt: We’re always looking at M&A opportunities. I don’t think any fit our criteria, or would have been a good fit so far, so we’ll keep exploring that. We feel good. Our branch network has done a great job helping us grow. So, at this point, we don’t feel like it’s something we need to do. It’s more, it would be more opportunistic in nature.

Nunes: How aggressive has CCM been in terms of hiring and retaining LOs? 

Leonhardt: We’ve had great success attracting and retaining top LOs. If you just look at some of the LOs we’ve taken on over the last two to three years, we haven’t lost one top 10 LO in the last six-plus years. I believe our retention of the top 250 in the last six years is approximately 98%, and that accounts for about 40% of our total volume. 

But when you see these big names^[12] moving companies, they’re coming here. We’ve had great success in doing that. That’s why there’s really no need to force an M&A deal.

Nunes: How has CrossCountry Mortgage invested in its operations? 

Leonhardt: We have the best platform in the industry. We’ve put the work in over the last three years in a down market to expand our proprietary tech. 

Our product lineup is unmatched by anyone under one umbrella. Everything’s done in house, whether it’s construction loans, non-QM loans. We have over 50 institutional investors in our CROSS securitization shelf, and we keep expanding that. We’ve grown our marketing^[13] team over the last three years instead of downsizing it. We’re pouring money into all different departments. Operations still have 30% capacity. We always want to make sure we have enough room to grow into it; it comes down to our benefit. We check the box in every department. 

Nunes: How is the company investing in technology amid the AI revolution? 

Leonhardt: We’re using some vendor AI tools, but we also have developed a slew of them ourselves in house. I would say our focus is more on the operation side, to go ahead and lower our cost to originate. We are exploring throughout the organization, every department, and how we can improve that department with AI.

I believe just figuring out how you’re going to deploy and use certain technologies in the future in the mortgage world is going to be important. It’s changing so rapidly that guys who developed what they thought was proprietary tech just two, three years ago, I hear these guys, ‘Oh, I developed this proprietary tech. It’s irrelevant. It’s not native.’

I do think that that’s probably the biggest challenge: figuring out how everything is going to shake out with the use of technology and AI in the mortgage industry. There appears to be multiple use cases for it in our business, from sales to operations to HR to marketing. It’s going to hit every department^[14].