"The changes that have happened from the regulatory side I think were, overall, good. The world has changed, and for good reason," said Tom Wind, president of U.S. Bank Home Mortgage.
"The changes that have happened from the regulatory side I think were, overall, good. The world has changed, and for good reason," said Tom Wind, president of U.S. Bank Home Mortgage.

Tom Wind, the new president of U.S. Bank Home Mortgage, comes to the top-five mortgage lender at a time when large bank lenders face numerous challenges, including greater regulation in the wake of settlements and regulatory changes, increased competition from nondepositories and rising costs that have prompted some banks to pullback from mortgages — not to mention a prolonged cycle of low interest rates.

The path Wind is taking the bank down is striking in that it aims to account for regulatory and operational costs in the mortgage area without protest, and forge ahead without being bogged down by them.

Why Pay (for) Retail?

In addition to prioritizing purchase mortgage business, U.S. Bank plans to increase its focus on the retail channel. It's an area where other banks have backed off due to its costs, but which can go further toward serving consumers who do other business with the bank and can contribute to volumes that help with economies of scale.

"We do a lot of correspondent, wholesale and broker business and that's good, but we believe that retail solidifies the business relationship. By investing in the retail side of the business with more mortgage loan officers, with our over 3,000 branches, we can get in front of more people," said Kent Stone, vice chairman and head of U.S. Bank Consumer Banking Sales and Support, who was responsible for hiring Wind and is his boss.

U.S. Bank's mortgage loan officers don't open other consumer banking accounts, so Wind said the kind of problems Wells Fargo had with the creation of fake account isn't an issue.

"The majority of our retail loans are taken out by existing customers at the bank," said Stone.

U.S. Bank has branches in 28 states, but through its other mortgage channels reaches all 50. Wind said he doesn't think there will be conflict between loan channels in bolstering retail.

"I don't see those [third-party and retail origination channels] as a matter of one or the other. I think you're stronger with both platforms. Really, our goal is to serve that customer in the way they want to be served. For a lot of people, particularly in the purchase market, they're looking for the opportunity to connect with somebody locally," Wind said.

As other lenders' decisions to leave retail recently suggest, costs are a concern. But if it generates sufficient volume or other income, it could pay for itself.

"If you have enough volume, then the business is going to make good returns," said Justin Fuller, a senior director in Fitch Ratings' financial institutions group.

But even when volumes are pretty strong, making mortgages profitable has been tougher than it was a decade ago because of the business' relatively higher expenses.

"The regulatory costs are higher than they were pre-financial crisis," said Fuller.

Cutting Costs, Not Compliance or Customers

While some mortgage executives have railed against regulatory liabilities and costs, Wind does not.

"The changes that have happened from the regulatory side I think were, overall, good," he said. "The world has changed, and for good reason."

There are broad lender liability concerns that exist related to the representations and warranties the government-sponsored enterprises require lenders to agree to and the Federal Housing Administration's indemnification agreements but Wind said he thinks the concerns are diminishing.

"There's been a lot of progress made with the agencies. FHA has done some work as well. They haven't quite gotten as far as the agencies have. It would be nice to see them continue to make progress," he said.

FHA liability remains a greater concern than the liability for GSE loans, so much so that some lenders have shied away from FHA lending in favor of agency and private-market alternatives. But Wind said U.S. Bank needs the FHA program to serve its borrowers.

"We want to be sure we have the products to serve our diverse set of customers and those products are important, particularly in that first-time homebuyer group," he said, which includes the demographically attractive millennials.

U.S. Bank hasn't been completely immune to liabilities related to government oversight or actions. In its mortgage servicing business — a division that Wind coordinates with, but does not oversee — U.S. Bank agreed to a $13.5 million settlement with the Los Angeles city attorney to resolve allegations that it failed to maintain foreclosed or vacant properties. However, U.S. Bank contends that it is the trustee for loan pools related to the properties, not the servicer responsible for maintaining the homes.

Still, U.S. Bank has a better record than other large lenders and servicers. "They (U.S. Bank's managers) were in a position of relative strength while others were dealing with legacy problems," said Fuller.

From Wind's perspective, regulation has not only been helpful in terms of assuring that the documentation lapses of the precrisis era don't recur, it has also led to transparency in the mortgage business that didn't exist previously.

"There is a real focus around process management, governance and controls that can be very positive in terms of producing very consistent results on an ongoing basis and having great visibility into what's going on in an organization," he said.

"The quality of the business is fantastic, but the process is a very cumbersome, lengthy process to go through. So we want to figure out how to keep the quality and how we do that in a much more customer-friendly way, and I think technology holds the key to that."

There are ways to get back to the precrisis focus on introducing technological efficiencies that could both streamline the origination process and make it easier and more attractive for borrowers without compromising that transparency, Wind said.

He cited as examples ongoing improvements in technologies that make document and data collection used in underwriting faster and easier for borrowers, without making it any less accurate, transparent or compliant.

"So instead of a process where you are asking people to please go get all these documents, I think what you are going to see is the mortgage business transitioning to a way that we can help people access their data, validate it and show them how we get to the numbers," Wind said.

In general, there has been skepticism among some lenders as to whether process re-engineering offers enough reduction in regulatory costs to justify the expense. But more recently, there's been some hope that compliance costs could be leveling off because most major regulatory reforms have been implemented, potentially freeing up resources to invest in automation.

Wind said there are still a fair amount of additional compliance-related costs to account for going forward, including the Consumer Financial Protection Bureau's overhaul of Home Mortgage Disclosure Act reporting and updates to the uniform residential loan application. But Wind said those added compliance expenses shouldn't preclude investment in more customer-friendly and efficient technologies.

"I don't see the CFPB coming out and saying something that really streamlines the process, I think it's really up to the lenders to figure out a better way to do this."