Changes in the Federal Housing Administration program, today's conservative underwriting and recent evidence of the wholesale channel's profitability could make it and the third-party origination business in general more attractive to some players—as it has for Fairway Independent Mortgage Corp., Sun Prairie, Wis.
At least three players—Fairway, Ally (the former GMAC) and Total Mortgage Services—have entered the business recently and there have been no major defections in the past year.
Fairway is looking to acquire loans from select banks, credit unions and mortgage brokers.
Dan Cutaia, president of capital markets and risk management, said the opportunity to enter the channel exists as the number of people willing to be in wholesale contracts.
Furthermore, over the past couple of years, it has proven to be a profitable channel, he said. Then there are the changes in the FHA program regarding correspondent approvals, which also adds to the opportunity. "Also, we feel loan quality, regardless of channel, has improved significantly" in recent months, Cutaia said.
Most of the business will be table funded, but Fairway will have what it calls a mini-correspondent business, where it buys a closed loan from banks and credit unions after the seller uses its own funds to close. Fairway will still underwrite these loans, he explained.
Even though this is Fairway's first foray into wholesale, senior management consists of industry veterans.
Cutaia founded and managed the wholesale channel at Waterfield Mortgage Corp., where he worked for close to two decades in various senior executive roles. Immediately prior to joining Fairway, Cutaia was founder /president of Aucita Mortgage Capital, which specialized in the purchase of defective residential mortgage loans. A lot of the Fairway wholesale group comes from Waterfield, as well as from Mid-America Bank in Illinois, he noted. While Fairway intends to purchase conforming loans through the channel, its target mix, he said, is 70% FHA/VA/USDA with the rest being agency product.
"We have deep and real expertise in all of those government-insured products and that is really where we see we can make a difference," Cutaia said, adding it is looking to serve those banks, credit unions and select mortgage brokers that do not have any expertise in the government product nor are they looking to develop it. With the changes in the FHA approval structure, it makes it easier for banks and credit unions which are not already supervised mortgagees to get involved, because it will work the same way as a conventional loan, with originator approval coming from the wholesale investor, he said.
Those originators that had been FHA correspondents under the previous approval scheme "are not going to need high-touch service, they are not going to need our expertise because they already have it," he continued. "We're really looking at those banks and credit unions that maybe have not wanted to be in the FHA business for one reason or another and see this as a way for them to easily get involved and have a good partner that will care of their customers the right way."
Another potential client are those banks which have very small FHA volume, are considering leaving the business, but do not want to sell the loan to a larger competitor.
All of the operations and underwriting for the channel will be centralized in Naperville, Ill. But the account executives for the most part will be working from their homes in their territories. To start, Fairway will be in Texas, Oklahoma, Indiana, Illinois, Ohio and Louisiana, along with California, Washington and Utah. "Our goals are relatively modest," Cutaia said.
