MReport July 2020

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34 | M R EP O RT FEATURE their communities … [that] was important to me." After leaving Morgan Stanley, Pallotta spent several months visiting Washington and at- tending meetings with the U.S. Department of the Treasury, Fannie Mae, and Freddie Mac. Pallotta recalled telling his wife, following those meetings, "Great things happen when you put party aside. You put everything else aside, you concentrate, and you singularly focus on how you help people." "That's the reason that I de- cided to serve," Pallotta added. Early on, Pallotta, who is running as a Republican, said he knew he was on the right track when many of his early donors and supporters were Democrats from Wall Street. "I'm a Republican, but they were people who didn't care what side of the aisle we were on. They said, 'You know what, Frank, go get them. Whatever you need, call me,'" he said. He described the mortgage industry as a marriage of science and art, understanding the science of prepayment speeds, the science of duration, the science of num- bers, but also figuring out how the mortgage products work and how they can be applied in differ- ent sectors of the economy. Pallotta's career brought him through the Great Recession. He said the biggest takeaway during that period is that managing risk is different than managing policy. "You could try and manage the two, but if you manage them separately—in other words if you're managing too much to a policy and you forget that running a mortgage industry or running a mortgage business. Or, in the GSEs' world. you're manag- ing mortgage risk on the balance sheet and the backs of the govern- ment and your taxpayers," he said Aside from his career at Goldman Sachs, Credit Suisse, and Morgan Stanley, he also founded Steel Curtain Capital Group in 2008. Pallotta said his company focused on, at the time, a new strategy called "strategic de- fault." Strategic default is when a homeowner can make a payment or pay off a loan or continue to make payments, but they choose not to. They would do so if the home values had fallen so much that homeowners were upside down on their mortgage. "We married the concept of trying to reverse what we thought would be a huge pickup in strategic default, but what we also concentrated on was, how do we help people and how do we make sure it doesn't cost the home- owner anything? Our program, which was called the Responsible Homeowner Reward Program, was exactly that. We helped con- sumers," Pallotta said. He added: "I recognized that the group of borrowers least likely to ask for mortgage assistance or help from the government, were veterans. They are programmed to serve others before self. That's why we chose to help them first." Pallotta's company worked closely with the VA and several banks to put this program togeth- er, at the same time assisting more than 10,000 veterans to avoid foreclosure and delinquency. "I was very proud of it. We ended up winning a Time Magazine award for the Best Invention of 2010 for the creativity of our program to, not just reach out to the people who need it most at no cost to them, but the ability to lower default rates, at the time, more than 50%," he said. Insights From Colleagues T erry Smith, CEO and founder, Rushmore Loan Management Services, and a former colleague of Pallotta's, said that Pallotta under- stands not only the issues facing the housing and market industry but also the possible solutions necessitated by COVID-19. Smith said he was "proud" to say that he worked with Pallotta from 2002–2006 at Morgan Stanley. "I would consider him a friend. And from the standpoint of him running for Congress, I think it's a tremendous fit for him. He's always been very good with people. He's also very good at understanding a wide variety of people from the standpoint of his constituents in his district. I'm sure there's a wide variety of socioeconomic bands within there, and I think Frank's a good person to understand that," Smith said. "He understands the problems in the housing industry today—what works, what's broken, and what needs to get fixed." Smith said Pallotta would be a good advocate for the mortgage industry as well as knowing what's right for the consumers. "That's a rare ability to be able to look and understand both sides of the aisle, from understanding what's important to consumers and what type of loan products are healthy for consumers versus unhealthy," Smith said. He added that "we could use more people like Frank in Congress": professionals who com- bine a business background with a commonsense approach that could help bring about real change. "Everything Frank's gotten in his life … he's done it on his own. We need more people like that," Smith said. Smith added that he was not surprised when he found out of Pallotta's political aspirations, saying, "Frank has always been a good politician." "Even inside of a large orga- nization like Morgan Stanley or Goldman Sachs, part of the job is not only being able to do your spe- cific job but also to politic—not only for yourself but for your employees, for your department," he said. D. Scott Clarke, Manager, Royal United Mortgage, worked with Pallotta during his time at Oak Street Mortgage, which coincided with Pallotta's tenure at Morgan Stanley. "Frank is a connector and a relationship builder. He under- stood the banking environment at the time and was very, very good, Frank Pallotta and his Campaign Manager, Kelly Anne Hart, discuss items leading up to the July 7 election.

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