Since leaving the Consumer Financial Protection Bureau months ago, the agency’s former Deputy Director Raj Date has returned to his private capital roots.
The industry veteran formed Fenway Summer – a platform that plans to deliver mortgages to a segment of the market that remains a solid credit risk, despite falling outside the “qualified mortgage” parameters of the established ability-to-repay rule.
How the platform shapes out is a question for the future, but risk retention and credit risk analysis are key parts of Fenway's mission.
“We are going to focus on new products, new credit analytics, new pricing strategies and new channels," said Date. Over time, Fenway Summer’s mission might expand to all parts of consumer finance, he explained. But the mortgage consumer is Fenway Summer’s focus for right now.
In some cases, Fenway Summer may work with a partner, such as an existing bank, or it may counsel a start-up or venture-backed firm. Another possibility may lead Fenway to eventually build a business from seed money to deliver consumer financial products directly to a key part of the market.
Despite Date’s candor about his platform, he has faced criticism for forming a business in the mortgage space after leaving a regulatory role at the CFPB.
One of the criticisms recently levied against Date by lawmakers in a letter to CFPB Director Richard Cordray is that his firm could benefit from Date’s understanding of the qualified mortgage rule, which was drafted during his time at the CFPB.
But Date says his company has no magical insight into what a qualified mortgage is or is not. “The rule is there for everybody,” he points out. "It’s not like there are special loopholes in the QM definition that are only available to me."
"Our business is not about loopholes; our business is about risk retention," Date said. “So many people in the prime mortgage business have gotten into the habit of thinking that you make a loan, you sell it to Fannie or Freddie, and you’re done. For those people, the notion of risk retention is anathema. It’s scary. They don’t want to take credit risk. For me, the notion of retaining risk, that’s not something to be avoided. That’s something to be embraced. We are building an engine that can do that well."
Date’s firm is content to build consumer financial products for those reliable borrowers who are likely to fall outside the parameters of QM no matter how safe lending to them may be. For this reason, Fenway Summer is targeting prime borrowers who are low credit risks, but who still fall outside the barriers of QM because of their debt-to-income ratios or other factors, such as owning their own business.
With the right analytics and products in place, these consumers are still in the market and need a mortgage, Date explains. Furthermore, Date and his firm are willing to take the risk, rather than pass it off to another party, relying on their thorough credit analysis.
He added, "We are targeting a niche where private capital can actually compete – where you can get paid for making a good decision."
But Date’s first several months at Fenway Summer resulted in what he and ethics experts, quoted in American Banker, consider unwarranted criticism. Lawmakers had raised questions about Fenway Summer in a letter to CFPB director Richard Cordray, suggesting Date’s new role at Fenway conflicts with his time at the CFPB.
Date addressed those concerns in an interview with HousingWire, painting a picture of a company that neither lobbies the government nor represents clients before regulatory agencies. Instead, Fenway sees an area of the market where lending can still safely exist outside the qualified mortgage rule, and the firm is ready to meet those demands and take the risk upon itself, Date asserts.
"I can’t influence what the CFPB does. To influence the agency, you would have to lobby the agency, or represent clients before the agency. And we do neither.” He added that Fenway Summer is not creating a “commercial advantage” by using inside information carried over from Date’s days as a regulator.
"This is not a close call from an ethics point of view," Date said. There are bright line restrictions on former government officials, and I am not even close to that bright line."
Date remains confident in what Fenway Summer is doing and could potentially bring to the mortgage market.
The firm, he says, is focused "on delivering consumer financial products better than in the past."
"It means new products, new credit analytics, new pricing strategies and new channels of delivery," he explained. What’s even more, Date says the risk is on Fenway Summer. Furthermore, he believes solid credit-risk analysis and data will allow his company to serve what could become an underserved, but still qualified, portion of the mortgage market.