Refinancing Storm Takes a Toll on RBC
Standard & Poor's has placed RBC Centura Bank, Rocky Mount, N.C., on "CreditWatch" with negative implications, citing "operational disruptions" at its mortgage banking subsidiary.
RBC Mortgage, which is based in Chicago, saw first-quarter production fall by 56% to $4.2 billion. Among the top-25 lenders in the U.S., RBC Mortgage had the second-largest production decline, according to figures compiled by this newspaper.
In a statement, S&P noted, "In the past three quarters RBC Centura has experienced poor earnings, reflecting operational disruptions at its mortgage banking subsidiary and lower returns on the investment portfolio, which has been shifted to lower risk instruments."
S&P analyst Tanya Azarchs told Mortgage Servicing News that the mortgage company's problems are "operational in nature," noting that it was caught by surprise by last year's fierce boom in refinancings.
"RBC was swamped," she said. "They were unable to handle the spike in volume. They had a huge backlog in loan documentation. They were unable to deliver loans in a timely and effective manner."
She added, "In particular they had hedging issues."
According to company documents, the mortgage unit's revenue peaked in the third quarter of last year at $61 million. In that quarter, RBC Mortgage funded a record $7.9 billion in home mortgages.
But in the very next quarter, the fourth, its revenue plunged to just $6 million on production of $6.3 billion. Its revenue bounced back a bit in the first quarter to $27 million on production of $3.5 billion.
In recent presentations made to analysts, RBC Mortgage officials admitted that it suffered from "bottlenecks" in its back office and from poor loan documentation.
"Loans remained on the warehouse line for a longer time period resulting in increased hedge [roll] costs," the company said.
Jon Legg, chief executive of RBC Mortgage, based in Chicago, said the unit is cleaning up its problems. "We believe operational excellence precedes earnings," said Mr. Legg.
He added that the parent of RBC Mortgage and RBC Centura is committed to the residential mortgage business. "We're committed to growth in mortgages," he said.
Last year RBC jettisoned its "net branch" operation, formerly known as Prism Mortgage, but bought another mortgage company, Sterling Capital Mortgage, Houston, installing that firm's president, Jonathan Threadgill, as president of the new, combined mortgage company.
"We got out of net branching," said Mr. Legg. "We did not like the model." He noted that one of the goals of RBC is to grow its home-equity business. Mr. Legg said he could not disclose HELOC production figures, but said recent growth in that area has exceeded 30%. "It's a terrific growth business," he said.
Note: Paul Muolo is on vacation. His regular Mortgage Scene column will resume with next month's edition.
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