Retail Originators Finding Partners Looking for Growth
The tough times in the mortgage industry have created a class of loan originators, managers and even companies that are looking for an organization they feel can support their needs as a retail operation.
On the other hand, many companies that fund loans through the retail channel are looking for new partners that can enable them to continue to grow and meet their capacity needs.
For example, Alpine Mortgage LLC, Manchester, N.H., has joined Inlanta Mortgage, Brookfield, Wis., giving the latter company its first presence in New England.
Scott Reid, who had been the managing partner at Alpine Mortgage, said in an interview his firm’s primary reason for joining Inlanta was that it gained tremendous operational efficiencies in a consolidating mortgage industry.
Reid, who is now a regional vice president for Inlanta, explained this transaction was not structured as an acquisition as no cash changed hands and certain liabilities were not assumed. This partnership brings two offices in New Hampshire and two in Maine under the Inlanta banner, as well as 20 mortgage consultants and seven support staffers.
Reid said he met Nicholas DelTorto (who was subsequently promoted to president at Inlanta) at a Lenders One conference earlier this year. He had no plans for looking to join another organization, but it soon became apparent to him that such a move would allow Alpine to offer a higher level of customer service, as well as control its own destiny. Besides the operational advantages, another consideration was today’s risk environment.
Inlanta increases his organization’s competitiveness tremendously and brought it three to five years into the future in terms of its business plan.
Besides Maine and New Hampshire, Alpine is licensed in Massachusetts. License applications are pending in Vermont, Connecticut and Rhode Island. Reid said Inlanta would use the Alpine platform to expand its presence in New England.
Residential Finance Corp. is a relatively new player to the retail branching end, with a little over one year’s experience. Daniel Jacobs serves as president of retail branching for the Columbus, Ohio-based company.
“The market has really welcomed this model and we’ve experienced significant growth with highly qualified mortgage professionals nationwide,” he said. And while the diminishing number of wholesale investors has resulted in mortgage brokers seeking to be a part of retail funding sources, that might not be the sole driver for RFC’s growth.
Jacobs said RFC is seeing a lot of independent small mortgage bankers who in today’s environment are feeling weighed down by the burden of their back office. These people would rather concentrate on the originations side of the business rather than worrying about compliance, secondary marketing and the like.
Another group looking to join RFC to operate a branch are those loan officers who are seeing long turn-times and are unhappy with their internal service levels. This makes it difficult for these LOs to meet the needs of their referral sources. “So they are looking for a better platform,” he said.
The industry has switched from people making a flight to stability in seeking a retail operation to affiliate with, to one which is the right home, that meshes philosophically, that supports their growth and professional development, Jacobs continued.
Barry Habib, a well-known industry figure who is RFC’s chief market strategist, said the company is both recruiting new branches and seeing branches that are seeking it to affiliate with.
He joined RFC earlier in 2012 and since that time, the company has added 21 branches. His group’s affiliating with the company has created some buzz and interest among other originators, to “at least kick the tires.”
There aren’t many options out there, Habib said, for originators looking for things as basic as internal service levels through things as the ability to fund the loan and timeliness in compensation.
Jacobs added most of the industry is starting to focus on when mortgage interest rates start to rise again. “Everyone recognizes that we all have to dig in and gain purchase market share right now, so as the market shifts those of us who want to survive and thrive in the next cycle, we need to be prepared in advance.
“So part of our focus has been to grow our retail platform with purchase-focused branches. I thought that was going to be a difficult thing to do. In fact, it is turning out to be far easier than expected.
“When you’re purchase focused, it necessarily means you are service focused as an originators, as a branch manager.” He explained that refinancings are not as time-sensitive as purchases, whose timetable is often mandated by the house sales contract and the needs of the buyer, seller and Realtor.
Companies are reluctant to or are having trouble growing their back-office staff, resulting in service issues and dissatisfied branches.
Jacobs said RFC “overstaffed” in anticipation of its growth and so it is able to provide internal service level agreements to its branches.
Both are long-term veterans of the branching business. The model in the go-go days was an affiliation model, where the operator largely operated independent. Also, the Internet wasn’t the presence it is today, so there was less reputational risk.
Today, Jacobs said, companies like RFC are focused on consistency of the brand and reputational risk. Every manager and employee needs to manage the company brand. Furthermore, there is a focus on loan risk and making sure originators are not in it just to make a buck; every loan has to be a performing loan “or we all suffer,” he continued.
Habib added it is a very different business than it was even five years ago because of the regulatory environment. The business requires adaptation. It hasn’t changed much in the end, but the way to get to the end of the process has changed.
Newport, R.I.’s Embrace Home Loans named Randy Johnson for the newly formed position of senior vice president of corporate development. In the job, he is responsible for the company’s acquisition program of independent mortgage lenders with originations between $1 billion and $3 billion. Embrace itself is on pace to do between $1.7 billion and $1.8 billion this year in its retail offices and a total of $3.5 billion including its direct-to-consumer channel.
Since he joined Embrace three years ago, Johnson has been instrumental in developing the company’s retail expansion, including the acquisition of Mason Dixon Funding, based in Rockville, Md., in 2009.
Along with offices acquired one at a time, Embrace has added 16 retail branches, all in the Southeast and mid-Atlantic states.
Johnson said the company wants to leverage its “sizable balance sheet” to find other opportunities where it could be complementary to a company that needs additional staffing and resources in the tighter regulatory and competitive environments.
One example he gave for a possible company to partner with is one that is looking to become a Ginnie Mae issuer, which Embrace already is.
These mortgage bankers need to pump more capital into their operations to meet regulatory and secondary approvals but don’t have it available.
It is a big step for these firms, beyond hiring a few extra people or opening a new office, Johnson said.
“We’re thinking that there’s going to be situations out there where there are companies that would rather partner with someone that has that already rather than go it alone,” he continued.
For both parties, it gives economies of scale. It has already made the investment in systems and dealing with the regulatory environment, Johnson said. Embrace has the support they are looking for, while these possible targets have the volume Embrace is looking for.