TMS Has Big Plans — Can It Pull Them Off?

John Walsh, who owns and operates Total Mortgage Services, is a confident young executive of 43 but has one central fear: “I’m worried that while everyone is running away from the fire, I might be running into it.”The fire he speaks of is wholesale lending, a business that has been steadily dying since early 2008 but has shown some recent signs of revival, albeit minor. A handful of medium-sized depositories has entered the sector in the past year but few have made a big splash.Over the next few weeks TMS — which has been in business since 1997 — plans to roll out wholesale lending programs in its home state of Connecticut. From there the company hopes to fan out into Massachusetts and New Jersey and then seven other states.To date, Mr. Walsh has focused on nothing but retail, selling agency-eligible loans to the nation’s mega “aggregators.” (He declined to say which ones but readers can probably guess which ones.) This year TMS hopes to fund a record $1 billion, a 43% jump from its 2009 volume.In a recent interview, he seemed not only confident that TMS will be successful in wholesale, but that it might do so well it will find itself “slammed by volume.” And that’s what concerns him, in part. “I’ve heard of other lenders trying this and being overwhelmed.” His goal, he says, is to avoid that.He also would like to avoid loan buybacks — which sometimes comes with having too much volume and not being careful about underwriting it. He brags that over the past 13 years the company (a banker/broker that recently obtained its full FHA eagle) has not repurchased any loans from its correspondent buyers. It’s a point of pride for him “and a record I’d like to keep,” he notes. (Even though the firm has never repurchased a loan, it has had at least one request to do so, a spokesman later clarified.)In general, the company has avoided the woes of other nonbank lenders by sticking to mostly conventional lending and concentrating on borrowers with average FICOs of 760. “No subprime, no alt-A — we didn’t get involved in any of that,” he says.TMS doesn’t service its loans and instead makes most of its money by selling its production “servicing released,” earning a premium on each sale. (Its specialty is zero-point lending, which comprises 98% of its volume.)And even though it funds mortgages in 19 states, all of its loan officers work in Connecticut, except for a small satellite office in New Jersey. (The lender’s only visible run-in with regulators came in 2006 when it was fined $9,000 for operating two offices without having the proper licenses.)In other words, Mr. Walsh has kept his employees close at hand where he has personally trained them and can keep an eye on the staff. “Retail is the blood of my business,” he said. Still, he can’t resist entering the wholesale space, finding the opportunities too tempting. “The need is tremendous,” he said. “It’s an extremely underserved market. Brokers need wholesalers.”As for the competition, he hardly seems worried. Wells Fargo and Bank of America, which dominate the wholesale business, don’t concern him much. “I don’t mean to sound cocky but I can beat their rates pretty handily.” For 13 years TMS has paid its bills and grown steadily, starting out in the business as a small retail shop that Mr. Walsh formed when he left Northeast Savings of Hartford. But as any mortgage veteran knows, wholesale lending can be a very different animal than retail. Confidence can only go so far.