How one of the country's top lending companies started on a California park bench

by Ryan Smith21 May 2014
Glenn StearnsIn the first of a new run of industry icon profiles in MPA, Ryan Smith takes a look at the extraordinary career of Glenn Stearns, founder of Stearns Lending
One of the top lending companies in the nation began on a park bench in Corona del Mar, California. That’s where Glenn Stearns was sitting 25 years ago when he had the epiphany that would change his life.

“I grew up in Rockville, Maryland, and went to college out there, and decided to jump in a car with my friend one day and drive across country,” Stearns says. “We made it out to California and I found myself literally sitting on a bench in Corona del Mar one day, and I just got inspired and thought, ‘I want to do something with my life.’”

Across the street from the bench was a beautiful house. Stearns knew then that he wanted a career that would allow him to live in a home like that one day.

“I walked up to a man in the yard cutting bushes and flowers and such, and said, ‘How did you get this? What did it take?’ He said, ‘I’m the gardener.

I have no idea. but I think the man's in real estate.' Literally, that moment, I decided, 'I'm going to get into real estate.' And it was all from that gardener.

“I became a loan officer for a broker, and I did that along with being a waiter,” Stearns says. “Talk about being green and not knowing what you’re doing—but you’ve got to start somewhere, right? I literally was an originator on the streets, hitting it hard and working with real estate agents and financial planners, anywhere I could find a loan. I did that for 10 months, then I decided to start the company with a friend. Talk about ignorance is bliss —I had no idea what I was getting myself into. The luck of it being that it was 25 years ago. With the advent of the CFPB and everything else that’s come along, there’s no way I could have done that today.”

Stearns started the company in 1989 and became a broker. “Probably within the first six months I thought, ‘How do I become a banker?’” he says. “I always had that quest to keep looking over the next mountaintop, so to speak.”

Stearns also started a title and escrow company, but business was slow in finding him. Undaunted, Stearns pursued a contract with the Department of Housing and Urban Development (HUD).

“In the nineties we became the largest HUD settlement provider in the country. We did about 75% of all the transactions in the country for HUD. We became the largest auditor for HUD through our auditing company. Just about everything that had to do with monitoring the mortgage originators and FHA originators we did for the government, so I had a great lesson on what HUD was looking for and how to do it right. It was a great foundation for me, as I had this small mortgage company.”

Around 2001, however, HUD consolidated and started phasing out larger business contractors. “By then we were a large business,” Stearns says. “So I really put my emphasis back on the mortgage business.”

At that point, Stearns Lending had around 500 employees and was funding about $200m a month. But he was watching his competitors grow even faster as a new craze hit the industry—subprime lending.

“There was always this deep reservation not to do subprime,” Stearns says. “I just never fell into that. After about five years of watching these huge companies getting gigantic with subprime, I had to question myself. But deep down, I knew they just weren’t good loans. So we ended up not growing as big as everyone else, but we just kept our core competency, which was A-paper. … In 2005, everybody was making so much money. But it felt irresponsible if you took the money out of the equation and thought, ‘Am I doing the right thing?’ So that was kind of a pivotal moment for our company.”

But that reluctance to join the subprime boom had consequences.

“We were having all our business go away because everybody else would do the loan and we wouldn’t do the loan,” Stearns says. “So it was really rough. By the time 2007 came, we had taken every loan that wasn’t a government or conforming loan and said, ‘We’re not going to do it.’ In September of 2007, we did $19m in loans. We’re basically out of business. We’d lost 85% of our revenue; we were down to maybe 70 people.”

Stearns’ business was sinking fast. And then the subprime crash came.

“I was trying to dig myself out, and then big companies started going under,” he says. “At that moment, I was literally taking cubicles out of my building. I didn’t need them anymore. I’m literally in the room saying, ‘I need these out of here,’ when my assistant comes in and says, ‘Glenn, these companies are going out of business.’”

Stearns bought back the cubicles.

The same day, he found out that one of his competitors was shutting his doors. Stearns saw an opportunity.

“I called the guy and I said, ‘I’d really like to talk to you.’ I spoke with him the next day and said, ‘I want to hire all the people in your office, from the receptionist to the shipper. I think A-paper is going to be the only thing now, and you’ve got a team that I never could have assembled.’ That was a Saturday, and by Wednesday I had them in my office.”

Soon Stearns was opening five new offices. It was a gamble even his colleagues questioned.

“I had my CFO and my president sit me down and say, ‘Glenn, are you crazy? The world is falling apart. Why are you opening these offices?’ I said, ‘I’ll never have an opportunity to assemble a team like this again. We’re either going to implode or hit it out of the park.’”

They hit it out of the park. Stearns Lending has since become one of the top lenders in the nation. In 2011, Stearns himself became the youngest person ever inducted into the Horatio Alger Association of Distinguished Americans, an organization for self-made professionals.

“We went from that $19m in September of ’07 to $13.3bn last year,” he says. “It’s been a hell of a ride. Watching this journey has been a thrill.”