A term being passed round lately about many lenders is sustainability. Businesses need to have a strategy in order to survive long-term. Looking back at a list of the top 30 originators from 2001 shows that 19 of those companies are no longer in business, either having shut their doors or merged with other entities.
The companies below are looking to create a sustainable business, by growing their production channels and in some cases, their servicing platforms. But as past experience shows, making the wrong call can result in business failure.
Peter Norden, chief executive of Real Estate Mortgage Network, River Edge, N.J., said the company is working on “aggressively” expanding its loan production operations. It is projecting $4.5 billion in volume in 2012, up from approximately $3 billion in 2011.
“Most of that increase in volume is coming from both an aggressive hiring spree of sales people (for the retail channel) and account executives on the wholesale side, as well as the merger of numerous mortgage companies who do not have the capital to survive the current environment and are looking for strategic transactions whereby they can still participate in an earnings stream,” he said.
Not only is REMN recruiting sales staff, Norden said his company is “being recruited pretty aggressively by a number of top sales people throughout the country.”
Meanwhile, the company is building up its mortgage servicing rights portfolio as well. In early December, REMN had a portfolio of slightly under $2 billion. But in 24 months it looks to have over $5 billion.
The company plans to retain much of the servicing rights its origination platform generates going forward, Norden said. This is a result of the large aggregators either leaving the business, or because they are dropping what they are willing to pay for MSRs to a level that does not make economic sense for REMN to continue to sell to them.
New capital requirements for banks have resulted in this pull back or pull out from the third-party channels. The result, he said, has dropped prices “to levels that I have never seen in the business—and I have been in this business for 34 years. It is almost to the point where you’re giving away the servicing rights for free.”
Given the low coupon and tighter underwriting of the loans being produced today, it is creating such quality servicing rights that those who have the capital are looking to keep them if they are not going to be getting a higher price for selling those MSRs.
But he is concerned that there are companies out there that do not have the sufficient amount of liquidity needed to retain MSRs. “I believe a lot of originators that are out there that do not have a tremendous amount of capital are starting to retain servicing rights.
“But they really don’t realize the extent of the advances (to secondary market investors) that are required to be made on the 14th of the month, every month, on every single loan where a payment has not been made yet, as well as all of the taxes and insurance that also have not been paid due to delinquencies,” he said. For example, for that $2 billion portfolio, REMN had to advance $6.5 million in cash to the investors on Nov. 14.
Foundation Financial Group, Jacksonville, Fla., is coming off a second consecutive year where it has seen a 14% year-over-year increase in volume, said its chief executive Mark Boyer. It is looking to “springboard” off that in 2012.
The success of its first five retail branches launched in August is leading Foundation to expand that initiative this year. Boyer said the company is looking to add 20 more retail branches by the end of the year.
“We are trying to get that brand presence across the country. Right now, we’re really strongly held in the east coast and want to spread that across the midwest through out 2012,” he said.
On the call center front, after adding two in 2011, there are no plans to open more. But, he said, they will add personnel to existing call centers.
Foundation is already a Fannie Mae/Freddie Mac seller/servicer and is seeking approval with Ginnie Mae.
Like other originators, Foundation is putting more focus into GSE production, Boyer said.
“There are a lot of changes in the servicing world going on right now, which makes it an interesting market.
“It is really a better opportunity for people who are just getting in, because we can set things up with a lot of the new changes. That is necessary with the changes in the correspondent market,” he noted.
With Bank of America exiting the correspondent channel, it affected all players. Turn times right now are so poor, at levels Boyer said he has never seen.
That filters into the warehouse side and places capacity constraints on lenders.
“You can’t say that outlet is always going to be there,” he said.
United Wholesale Mortgage of Birmingham, Mich., is taking a different approach to growth in 2012. The company is pushing its jumbo mortgage product, The Big and Easy.
It is available with loan amounts up to $2.5 million and loan-to-value ratio’s up to 80%.
Other options include a 30-year fixed, 15-year fixed, 10-year ARM and also a 5-year ARM. This program accepts FICO scores as low as 720.
Eligible property types for The Big and Easy include primary residences, second homes, condominiums, planned unit developments and double units.
UWM president Mat Ishbia said the market landscape for the jumbo product has been limited the last few years, and what few banks are doing them are originating short duration adjustable rate mortgages for their own portfolio.
The longer-term jumbo offerings from UWM are what set it apart, he said. The programs are for the “best borrowers in the country.
“We think that The Big and Easy is going to be a huge program for us, not only from the rates perspective, but also the program guidelines and ability to close,” Ishbia continued. “It is very clear guidelines, very simple for our brokers to follow. We underwrite and close in house, and handled fast.
“We’re closing those in less than two weeks,” and UWM doesn’t even offer locks longer than 30 days on the product.
