How North Texas Became a Magnet for Mortgage Servicers
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The North Texas region has been a hub for mortgage servicing for decades, dating back to the oil bust and savings and loan crisis of the 1980s.
As the servicing industry continues its response to the most recent market downturn, some key players and many smaller ones remain firmly entrenched in the area. Much of the Dallas-Fort Worth region's allure rests on the relative business strength of the market compared to other servicing hubs. And while downsizing has occurred in some quarters, others have found the market ripe for recruiting due to its breadth of mortgage expertise.
"I think servicing companies are always looking for the next best place," said Marina Walsh, the Washington, D.C.-based Mortgage Bankers Association's vice president of industry analysis.
However, it wouldn't be easy for the North Texas servicing industry to pull up stakes because some of the biggest players in the business have long had established and sizable operations in the state.
"It has pretty substantial roots here," said Tiffany Fletcher, senior vice president of compliance at VRM Mortgage Services, an REO asset management outsourcing firm headquartered in the Dallas suburb of Carrollton. Fletcher previously worked in Fannie Mae's local REO sales unit for almost 15 years.
Both agencies have servicing and REO operations in the Dallas area. Fannie Mae, the larger of the two GSEs, has an overall headcount of about 1,800 there, according to spokesman Andrew Wilson. About 65% of those jobs are servicing and REO positions.
Another firm headquartered in the region is Nationstar Mortgage Holdings, which as of the third quarter of 2014 was the fourth-largest servicer overall and the leader nonbank servicer in terms of dollar volume of business serviced.
Others servicers based in North Texas include Caliber Home Loans, Guardian Mortgage and Colonial Savings. Of the 138 nonbank mortgage servicers registered in Texas, 62 are headquartered in the state, according to Texas Department of Savings and Mortgage Lending records. Of those, 18 are located in the 13-county Dallas-Arlington-Fort Worth metropolitan statistical area, more than any other region in the state.
In 2012, Texas had the nation's second largest real estate lending workforce, with almost 32,000 people employed by mortgage companies, construction lenders and related firms, according to the Texas Economic Development Corp., a business outreach group run by the state's governor's office.
North Texas "not only has the loan servicers, which typically are our clients, but it has investors, the GSEs and it also has a lot of the service providers," said Brandon Kirkham, senior vice president of business expansion at VRM Mortgage Services. Kirkham has worked in the region for two decades.
Approximately 80 of the Texas Mortgage Bankers Association's 250 members have offices in North Texas, a group that includes both mortgage originators and servicers, as well as law firms, title and mortgage insurance providers and other vendors. Members based in North Texas account for about one-third of overall TMBA membership and 44% of the 180 companies headquartered in the state.
North Texas emerged as a hub for servicing back in the 1980s, according to Brad German, a Freddie Mac spokesman. "A lot of REO headquarters are in Dallas and that's because of the Texas oil bust back in the late '80s," he said.
Companies like Freddie and others that had large exposures to those crises set up shop in North Texas to be close to where their REO inventories was located. As time went on, the region turned into "a reasonable central location for dealing with national REO," German said.
Thanks in part to tighter state regulations and economic diversification that came out of the 1980s downturn, Texas remained relatively healthy during the Great Recession and wasn't a particularly large market for REO properties during the most recent downturn.
"There are many attractions of being in Texas," said Walsh. "There is no income tax, relatively speaking, and fewer business regulations. There's a skilled and diverse labor force, an availability of space, and it's central to the East and West coasts."
Even servicers and servicing-related companies not based in Dallas tend to do a fair amount of business there.
Chicago-based Fay Servicing opened an office in North Texas last May, citing opportunities to recruit default servicing talent looking for work as a result of downsizing by other firms.
And Baltimore-based servicing technology provider IndiSoft estimates that roughly 25% of its revenue comes from companies with representation in the Dallas area. CEO Sanjeev Dahiwadkar said efforts by government entities within both the state and North Texas region to promote business development have contributed to the concentration of servicing industry firms there.
"Even at municipal level, they are attracting companies with aggressive marketing," he said.
But relative costs of doing business in one area over another also are a factor when it comes to where servicing hubs develop, he added.
The Dallas area has a relatively low cost of living, and that helps counterbalance the ebbs and flows of servicing as a cyclical business, said Fletcher.
Servicing hubs have shifted over time. It's more notable that California isn't more of a servicing hub than that Texas is one, said Howard Hill, a Connecticut-based industry veteran who worked on Wall Street during securitization's early days and has authored a book on the 2007-2008 downturn's roots.
California has been a big servicing hub, but has changed to some extent over time because of rising costs there, said Dahiwadkar.
Besides the favorable cost of living, business incentives, concentration of mortgage expertise and its central location nationally, North Texas has relatively few natural disaster or weather concerns compared to other servicing hubs, said Kirkham. All of this has helped solidify the region's place in the servicing industry and will make it difficult to dislodge.
"I don't know if one particular thing is the reason that the Dallas area is a mecca of servicing, but we do all recognize that it is," said Fletcher. "For it to change it would probably require some drastic maneuvers or issues within each of the various shops. That's not to say that it could never change, but I do think it would take some time."