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Trading Mortgage For Politics


Updated July 13, 2020


Frank Pallotta won the Republican Primary for the 5th Congress District of New Jersey of the U.S. House of Representatives, garnering 52% of the votes.

Pallotta captured 19,077 votes, nearly 8,000 more than runner up John McCann, and he told MReport that the victory was "decisive."

Pallotta added that it was important to remember what the voters wanted and to always "keep the voters in mind."


This story originally appeared in the July edition of MReport.

Mortgage industry veteran Frank Pallotta is now running for the U.S. House of Representatives for the 5th District of the state of New Jersey. But the road that took him to the point where he was ready to throw his hat into the political arena was a long and storied one, leading through several decades of work within the financial services sector. From 1990–1995 he was the VP of Goldman Sachs, working mainly within the mortgage sector of the business. He then moved on to become a Director of Credit Suisse, tapped to run the Institutional Mortgage Banking Salesforce.

After his eight years at Credit Suisse (and DLI), he spent the next five years as the Managing Director and Co-Head of the U.S. Residential Business for Morgan Stanley.

Pallotta said his career can be attributed to being in the “right place, right time.” He said he began his career at Goldman Sachs working in corporate credit, but former Goldman Sachs executive Mike Mortara tagged him to work within the mortgage sector.

Pallotta said Mortara told him, “We want somebody who thinks like you. We’re going to build up our mortgage area at Goldman, and we want you to be a part of it.”

“I was fascinated. I loved all the moving parts of the mortgage industry,” Pallotta said. During his experience working through the Great Recession, Pallotta said many in the government said everyone deserved a home. Pallotta, however, suggests that homeownership is a major responsibility, and the economic weight of that responsibility needs to be seriously considered.

“It should be available to those who are willing to work for it. Homeownership is a privilege,” Pallotta said. “It’s not a right. And just like anything else in life, if it’s given to you and you don’t work for it, or if it’s being given to you and you don’t understand the economics around what has been given to you, then it’s doomed to failure.”


Stable Housing for Veterans

Pallotta said one of the first issues he wants to address is the challenges facing veterans, especially those who struggle with homelessness.

“Our veterans have been left behind on a lot of fronts,” he said. “We know that 22 veterans a day commit suicide. Veterans are living and dying on the streets. So, one of the plans I would want to work on is collaborating with the private and the public sectors to come up with a plan to help veterans across the board, and that’s housing education.”

In 2018, the U.S. Department of Housing and Urban Development (HUD) reported that 38,000 veterans were without stable housing. However, a report from November 2019 revealed that the number of homeless veterans fell 2% in 2019. Pallotta said it is important to him that he put veterans in a position to have stable housing, especially those who are challenged. “These are people that spilled their blood for us, and they’re coming home and living on the streets, but at the Southern border, we’re talking about letting illegal immigrants come in,” he said. “My view has always been, we look to the U.S. first.”He continued by saying, “I think when you put a roof over someone’s head, their entire world changes. That’s what I would look to do first. I would look to lead-ers in housing, look to leaders in finance to come up with a plan to make sure that not one veteran is living on the streets.”


Lessons From the Long Road to Washington

The spirit of serving was instilled early on in mortgage industry veteran Frank Pallotta’s life. Pallotta’s mother was a nurse, and his father—a Korean War veteran—worked as a toll collector. Pallotta said that during his childhood in Queens, New York, through Catholic School and then attending college at St. John’s University, he was taught to give back.“

That turned into, in my mind, the idea that you have to serve. I was the first generation that wasn’t called to a draft, but I never took that lightly,” Pallotta said. Recalling what he called the “back nine of my career,” Pallotta told MReport that he often thought about service in the context of former colleagues from Goldman Sachs who left the firm, many at the peak of their careers, in order to go give back to their communities.

“I was at Goldman when Hank Paulson was running things. I was at Goldman when Bob Rubin and Steve Friedman were there,” he added. “They left, again, at the peaks of their career, and two of them served as Treasury Secretaries. They left to serve 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 decided 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 numbers, but also figuring out how the mortgage products work and how they can be applied in different 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 managing mortgage risk on the balance sheet and the backs of the government 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 default.”

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 consumers,” 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 together, 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 creation of our program too, 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

Terry 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 organization like Morgan Stanley or Goldman Sachs, part of the job is not only being able to do your specific 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 and very well connected through-out the country in terms of the relationships that he had with the mortgage banks,” Clarke said. “He was a guy that I knew as a very high-integrity guy. He was all business, no bullshit, and very results-oriented.” He added that Pallotta “always did things the right way.” He said that, while he was initially surprised that Pallotta had sought a political career, the more he thought about it, the more he knew it was a good fit for his colleague.

“I’m pretty impressed at how well he’s done and how far he’s gone,” Clarke said.


Housing and Economics in the Garden State

New Jersey has been ravaged by the effects of COVID-19. More than 167,000 positive cases of the virus have been confirmed in the Garden State with more than 12,600 deaths. The pandemic is also taking a toll on housing in the state, as a report by realtor.com revealed that new listings were down 40.7% annually in May. Camden, New Jersey, was among the areas hardest hit, with listings falling 38.6%.Pallotta said New Jersey is one of the highest-taxed states in the nation, and not just due to property taxes—it also has one of the highest business tax rates. New Jersey’s current property tax rate is 2.44%—more than double the national average of 1.08%.“Those difficult decisions to make each day generally revolve around money and finances. And when a higher and higher percentage of your income ... every year or every week or every month is going toward paying your bills, that’s emotionally taxing,” he said.

He added that the difficult decision many residents of New Jersey have to make is whether or not they should leave the state, adding that New Jersey is the most exited state in the nation.

“Taxes are overwhelming. It’s a horrible business environment, for small and large businesses. And when a large business moves out, what do they do? They take jobs, and they take employees, which makes it even more taxing,” he said. He added that policies were put in place pre-pandemic that caused unemployment to drop and consumer satisfaction to rise, adding “we were on our way” to making homeownership affordable. However, Pallotta said New Jersey was “moving in a different direction than the rest of the country” and gains were occurring slower, and they then screeched to a halt once COVID-19 hit. New Jersey’s unemployment rate grew to 15.3% in April—a far cry from the 3.8% rate in January and February.

“The economy was on track. We were moving in the right direction. Clearly, the pandemic has hurt us,” he said. “I do think, over the course of the year, you’re going to start to see unemployment come down, although I don’t see it coming down below 10% before the end of the year unless we get a great recovery. But I think that the rebound starts with what we’ve seen already.” Nationally, forbearance plans have given homeowners across the nation relief during these uncertain times. The latest report from Black Knight on June 18 found that while the number of loans in COVID-related forbearance has fallen by more than 150,000 from its peak, 4.6 million homeowners—or 8.7% of all active mortgages—are in forbearance. Pallotta added that while he likes the idea of forbearance, there are questions surrounding how the industry follows up and the amount of money owed by the borrower. “At some point, the servicer has to advance the money into the securitization, and they don’t understand all the rules around that,” he said. “I do think it’s a good idea because relief in any form for the borrowers through the crisis, or helps consumers or, or our residents of the crisis.”


Growing up in Queens

Pallotta said his ability to reach across the aisle and connect with people was something he learned as a child. Pallotta was one of five children growing up in Woodhaven, Queens. While his New York Yankee fandom was not necessarily welcome among the mass of New York Mets fans in his neighborhood, he said it was a working-class neighborhood with kids “as far as the eye could see.” “There were always people to talk with. And you always figured out how to work with big crowds and big groups, whether it was stickball or a game of tag. You worked in unison. You worked together,” he said. Pallotta explained that being around that environment as a child helped him during his professional career, saying it helped him grow into a leader and taught him how to gain consensus. “I enjoyed working to find consensus. But more importantly, I enjoyed working with a large crowd to also find dissent. You want to see both sides,” he noted.

Pallotta said that the art of finding consensus is all too often a lost one. He added that it is important to respect other people’s opinions and their ways of life, good or bad.

“Being able to hear someone say, ‘This is what I don’t like,’ and then look them in the eye and say, ‘I don’t agree, but I accept your way of thinking and I understand it. Now, let’s go out and play ball,’ or ‘Now, let’s go out and have a drink or go out and have dinner,’” he said. “The only way I know how to live is to respect other people’s opinions, their views. And that’s kind of where I land.”


About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.

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