Voices: Acting fast helped Keystone Funding survive the pandemic

CAMDEN –Keystone Funding has come out of what has been a tough three months for the residential-mortgage business with a $130 million pipeline of business mostly because it “reacted faster” than other lenders who sell their mortgages to investors, CEO Tim Paret said.

When COVID-19 became a reality, the market for residential securitizations was thrown into flux. The government announced widespread forbearance allowances for homeowners without guidance to lenders and mortgage servicers, leaving mortgage lenders like Keystone with a large pipeline of loans that nobody really wanted.

“It’s difficult to manage risk when you don’t have all the information and when so many people are experiencing hardships from layoffs and concerns about their health, Paret said. “We really didn’t know how many homeowners would fall behind on their payments in an extended shutdown.”

“That persisted for three weeks or so. We made the decision to cut our losses and sell off our loans earlier than most, meaning that we took significant discounts [on how much we made] and reduced the risk to investors,” Paret said, adding that he believes some of the mortgage lenders who tried to wait it out may be “mortally wounded.”

Keystone, which is licensed in eight mid-Atlantic states, ranked 1,259th on the 2019 Inc. 5000 list, with 328% growth to $5.3 million between 2015 and 2018. Paret, who had been in the mortgage business since 1998 with much larger companies, bought a majority stake in Keystone in January 2018 because he liked the technology platform that founder Jared Martin had created and felt that he’d rather help capitalize the company rather than start from scratch and then push the fast-growing company “over the finish line by helping to expand its distribution channels.”

Paret said Keystone is coming out of the pandemic in “really, really good shape. The market has been going gangbusters since late March after a start to the crisis where nobody was calling us back. People now are refinancing; people are buying homes. That market is really strong.”

Lenders like Paret say there are three phases of recovery during a situation like this: You start by updating your credit policy with no exceptions; then move to phase two where you make exceptions where it makes sense; and then memorialize changes with a new policy.

Paret said Keystone tightened its credit policy “earlier than everyone else,” increasing minimum credit scores and required reserves, and initiating verification of employment within two days of closing a loan.

“A lot of times when things get difficult, business owners are drawn toward shiny objects, said Paret, who employs 37 people – 25 of them in Delaware. “I believe that when things get hard, you have to focus on blocking and tackling of your business, on getting more efficient, on efficient spaces, and identifying people and expenses that don’t belong [in the culture you’re trying to create]. This is the advice my mentor, Jerry Schiano, gave me in early March. We’ve made this advice a daily topic among the leadership team — we’ve laid off two people but replaced them. With the growth we’ve seen, we hired three additional team members and we are now looking to fill four open positions.”

“I think we’ll come out of this fine with the [Inc. 5000] rankings” in 2021, Paret said. “I think we’ll double in size from a revenue and profitability perspective. We’ve been able to double our capital base with retained earnings, mostly from adding two new channels — wholesale lending and consumer direct — and we have some tailwinds given that some of these other lenders seem to be absent from this space because they took significant losses.”

By Peter Osborne

posborne@delawarebusinesstimes.com