(FORTUNE Magazine) – Lewis Ranieri is besieged by thoughts--an endless parade of business ideas, inventions, novel approaches, and the occasional house design. "It's a plague," says the 56-year-old Wall Street icon, immortalized by Michael Lewis in his rollicking tale about Salomon Brothers, Liar's Poker. "I don't know why my mind works this way." Sitting in his modest Long Island offices, the bearded and portly "Lewie," as he's known, interjects new thoughts before completing old ones, truncates his sentences with long pauses and slight stammers, and usually laughs long before he reaches a punch line--his whole upper torso bobbing up and down.

In the 1980s Ranieri gained notoriety as a loudmouthed prankster when he was a trader and later head of the mortgage securities and real estate division at Salomon. He was known for giving instructions by screaming across a room while standing on top of a desk and waving his arms like a referee. Tales of his fierceness at work are also legendary. "It's not all true," Ranieri offers with a smile.

What is true is that Ranieri virtually built from scratch the $5 trillion mortgage-backed security market and in the process helped spearhead a populist movement to make home mortgages more affordable. Now the "father of the mortgage-backeds" is back with a new company, a bigtime IPO, and his latest big idea: helping banks manage their property problem. In an exclusive interview, Ranieri sat down with FORTUNE to talk about his latest project.

The company is American Financial Realty Trust (AFR, $14), and Ranieri is its chairman. In June the real estate investment trust, or REIT, raised $804 million in its initial public offering, the largest IPO for a REIT in six years and the largest IPO so far in 2003. AFR already has $2 billion in assets and offers a dividend yield of 6.9%, well above the 5.77% average for REITs. It is also the only REIT of its kind, serving financial institutions and banks.

For lenders, property has always been the biggest pain in their balance sheet. Branches and buildings can take up a big portion of a bank's assets. As of September 2002, U.S. banks owned $91.2 billion of property. The problem, explains Paul Reeder, director of the real estate group at SNL Financial, is that "property is a nonperforming asset. They'd rather divest themselves of their branches and free up the cash for other investments." Banks used to sell off unwanted branches one by one or region by region. (Selling a nice bank building to a nonbank buyer, by the way, is not easy--not when each one houses a 70,000-pound, reinforced-concrete nightmare, otherwise known as the vault.) Even owning property they want to keep creates operating expenses and clogs up a balance sheet with nonperforming assets.

Ranieri first began "noodling" (as he calls it) over the problem a couple of years ago. He decided there was a big opportunity for a company that could apply a sale-leaseback model to the banking business. In that arrangement a company buys entire lots of properties (in this case, local bank branches) and leases back to the seller any buildings it still wants--with terms that give the bank flexibility and control of the property. The sale-leaseback structure has become increasingly popular with movie theaters, chain restaurants, and even prisons in recent years (see sidebar). And local entrepreneurs have long offered it for banks on a limited regional basis. But the investment costs of applying it on a nationwide scale--combined with the logistical challenges of managing bank property--made it daunting to imagine a profitable national business.

Then, in April 2002, Ranieri met Nicholas Schorsch, who with his wife, Shelley, had built a successful real estate acquisition and management firm in the suburbs of Philadelphia. Schorsch, now the CEO of AFR, was looking for a way to grow. Schorsch and Ranieri agreed to transform the company into a REIT and take it public, with Ranieri using his clout to attract investors. By then, Ranieri had a plan for adapting the sale-leaseback model to banks.

The solution was vintage Lewie. He simply put a brilliant new twist on an existing model. Ranieri's big idea was to, in effect, securitize the rental income. By using high-quality, low-risk bondable leases--in which the rent payment is guaranteed by the tenant for a fixed term no matter what happens to the building--the leases can be used as a financing tool. The stellar credit quality of most banks doesn't hurt. Some of the debt from the transaction is packaged and sold into the market (the good credit of the banks and guaranteed payments add up to a bond investor's dream). AFR, meanwhile, uses the leases and property as collateral to negotiate lower borrowing costs. Buying properties with more borrowed funds and less of AFR's own cash lets the firm boost its returns. "Why didn't anyone else think of it?" Ranieri muses. "I don't know. Because nobody ever thought of it."

AFR also buys blocks of unwanted branches from banks that are consolidating operations or reducing branch redundancies after a merger. The empty branches are leased, often to other banks that are expanding. The strategy capitalizes on the rapid branch growth of "super-regionals" like Wachovia, Bank of America, and Washington Mutual.

Analysts warn that if AFR buys too many empty branches and demand from the banking sector slows, Schorsch and Ranieri could be forced to accept lesser-quality tenants to meet their return projections. Right now that doesn't appear to be a concern. Over the next two years, Bank of America will add 550 branches, while Wachovia plans to increase its branch network 17%.

Ranieri is particularly proud of American Financial because unlike most of his ideas, this one didn't catch on immediately. "A lot of people told us we had rocks in our head," he says. These days most analysts are saying just the opposite. Even Ranieri admits that the REIT has taken off faster than any of his other businesses. In July, AFR purchased 158 buildings from Bank of America for $769.8 million in one of the biggest real estate sale and leaseback deals ever. Analysts estimate that the bank's rent payments for the 20-year lease will bring $2 billion to AFR's coffers. Most recently the company completed a 21-branch, $11.1 million deal with Citigroup.

Ranieri's adult life has been a series of big ideas that paid off. He started his career in Salomon's mailroom in 1968 earning $70 a week. For almost 20 years Ranieri worked his way up the ranks at Salomon, from back-office operations to the trading desk to a job eventually as vice chairman and head of the mortgage finance division. At one point his mortgage desk accounted for half of Salomon's revenues. Then, in 1987, John Gutfreund, Salomon's chairman at the time, summarily fired him. As Ranieri puts it, "Sometimes fate intervenes."

After flirting with retirement, teaching, money management, and even home and boat design, Ranieri plunged back into finance. He has launched nine companies related to banks or real estate over the years, including a private-investment firm that controls a Texas thrift, and Hyperion Capital Management, a fund that invests primarily in mortgage securities.

Just months after the American Financial IPO, signs of Ranieri's nomadic mind are already surfacing. He's "noodling" with ideas of how to use technology to reduce health-care costs. And as chairman of the American Ballet Theatre, he is orchestrating a big shakeup of the culture at the once financially strapped dance troupe. But for all the big ideas in Ranieri's head, returning to Wall Street itself is not one of them. "Wall Street doesn't create things anymore. It's no place for me," he says. That leaves every other industry up for grabs.