Lewis S. Ranieri (; born 1947) is a former bond trader, and founding partner and current chairman of Ranieri Partners, a real estate firm.
He is considered the "father" of mortgage-backed securities and co-founder of mortgage-backed securities with Anthony J. Nocella former CEO of Franklin Bank, for his pioneering role in their emergence in the 1970s, during his tenure in Salomon Brothers, where he reached the position of Vice Chairman. Although he was named by BusinessWeek in 2004 as "one of the greatest innovators of the past 75 years", he was later strongly criticized for his role in the subprime mortgage crisis of 200709.
Early life
Lewis S. Ranieri was born in Brooklyn, New York, in 1947. Ranieri had sought to be an Italian chef before finding that his asthma prevented him from working in smoky kitchens. He began college at St. John's University but left before completing his degree. Ranieri later returned to school and completed his Bachelor of Arts in English in 1986. In 1987, St. John's University awarded him an honorary Doctor of Laws degree.
Career
In 1968, 21-year-old Ranieri took a part-time job in the mail room of Salomon Brothers. He worked his way to the position of vice chairman of Salomon Brothers, as discussed in Michael Lewis' bestseller Liar's Poker. In the late 1970s, Ranieri joined the new mortgage-trading desk of Salomon Brothers where he contributed to creating the innovative practice of securitization, a word he is said to have coined. BusinessWeek said that in 1977, with the creation of mortgage-backed securities (MBS), "Ranieri's job was to sell those bonds—at a time when only 15 states recognized MBS as legal investments. With a trader's nerve and a salesman's persuasiveness, he did much more, creating the market to trade MBS and winning Washington lobbying battles to remove legal and tax barriers." Ranieri also declared that "mortgages are math", hiring PhDs who developed the collateralized mortgage obligation, repackaging mortgages into more attractive bonds.
By 1981, American Savings and Loan (S&Ls) were battered by high inflation as well as the high interest rates charged by the Federal Reserve under chairman Paul Volcker, but Congress allowed S&Ls to hide some of their losses by moving assets off their books. Ranieri bought mortgages from one S&L and sold them to another, allowing Wall Street to become involved in the home mortgage market (and profit from the spread). He convinced Freddie Mac to assist with a deal which packaged older loans from Perpetual Savings, a troubled S&L in the Washington D.C. area. However, institutional investors only became attracted to the market when he and Larry Fink of First Boston created the CMO in 1983. In 1984, Congress passed the Secondary Mortgage Market Enhancement Act (SMMEA), overturning the previous prohibition against private banks selling mortgage-backed securities without a government guarantee. It also pre-empted state blue sky laws which had previously required investment banks to register with multiple states before selling them. Furthermore, institutional investors could purchase mortgage-backed securities, provided a nationally recognized statistical rating organization (NRSRO) gave them a high rating; in effect allowing those investors to outsource their due diligence to such agencies. Ranieri attended the ceremony in which President Ronald Reagan signed SMMEA.
Ranieri also secured a tax exemption applicable to pools of mortgages held by a REMIC. Legalized by the Tax Reform Act of 1986, the mortgage-backed securities market reached $150 billion in 1986. However, Salomon Brothers fired Ranieri in 1987, which some characterized as him becoming a victim of his own success, since his old traders staffed many Wall Street investment banks.
Ranieri formed Hyperion Partners, an investment firm, in 1988. In 2001, Ranieri and his partners at Hyperion sold Bank United of Texas, a firm they acquired in the late 1980s. Under Ranieri's leadership as chairman of the board, Bank United went from having been a failed savings and loan to being a successful $18 Billion asset regional bank at the time of sale.