Pipeline: Mortgage Production News and Trend
by Jody Shenn
American Banker - April 20, 2006
Going Commercial
With wider product menus and increased borrower sophistication, sales of home loans through financial advisers have appeared to be on the upswing in recent years.
EverBank Financial Corp., which has a unit focused on providing banking products through independent investment brokerages, sees signs that some advisers also want to be more involved in commercial real estate loans.
In the past few months, the privately held Jacksonville, Fla., thrift
company has slowly rolled out a program through which advisers can offer the loans on its behalf. And, this month the program became available to all of the 105 advisory firms through which EverBank sells financial products.
Kevin O'Hanlon, the executive vice president of EverBank's adviser services group, said in an interview that the program was developed in response to numerous requests from advisers. Many of the wealthy individuals they work for invest in commercial properties, or are entrepreneurs who need such loans for their small businesses, he said.
According to Mr. O'Hanlon, most of the major wire houses do not provide such loans to investment clients - or have little interest in making the smaller-balance loans that many of the clients need. (EverBank has made small loans a specialty since getting into commercial mortgages last year; it makes them as small as $500,000.)
So, the program can give advisers a leg up in terms of offering breadth, and they also can keep the community banks or others that might otherwise fund their clients' loans - and then poach their clients - "out of their relationship," he said.
Another incentive: EverBank will pay a 25-basis-point commission on the loans. Mr. O'Hanlon would not say how much volume EverBank expects to generate through the program. However, he indicated it has modest goals. "It's really a niche type of product that's going to be very attractive to certain advisers, and not really attractive to others."
He called the loans "one more product that help us cement our relationship with the advisers, and the client's relationship with them." Mr. O'Hanlon joined EverBank in 2004 after working for 22 years with Merrill Lynch & Co.'s Merrill Lynch Credit Corp. lending unit, most recently as its chairman and chief executive. He joined EverBank about a year after it began ramping up adviser offerings, some of which are private-label. The firms it now works with have about 25,000 advisers, he said.
Last year EverBank about doubled its mortgage originations through them, to $150 million, Mr. Hanlon said. He expects such originations to double again this year.
On the residential side, where anti-kickback and other laws and regulations complicate compensation to third parties, EverBank has a unique model for meeting compliance needs, Mr. Hanlon said.
First, it hires the advisers as part-time employees, so federal preemption can allow them to avoid getting the mortgage broker licenses required in many states, he said. Then it requires the advisers to use a technology platform - which it patented last year - that tracks the work they need to do to make the payments legal, such as giving disclosures or scheduling closings.
Tool Time
Michael Bykhovsky, the CEO and founder of the San Francisco securities analytics and modeling firm Applied Financial Technology Inc., has a lot of contrarian ideas.
Servicing values? They're jacked up beyond any reasonable point, because servicers' origination arms are under "enormous competitive pressure" on loan pricing, he says.
The recent housing boom's effect on prepayment speeds? It's basically zilch, Mr. Bykhovsky says. Modeling shows that almost no one who refinanced in recent years did so because of a potential to take out cash that would not have been available with more normal appreciation, he said
His company also has a tool for mortgage companies, investors, and traders looking for a different way to view things. The prepayment propensity scoring tool that Applied Financial introduced in 2004 - and updated this month by starting to handle nonagency securities - is intended to give quick answers, in the form of FICO-like scores, to questions about how relatively sensitive a mortgage bond is to factors causing prepayments.
Three hedge funds, three broker-dealers, and two mortgage businesses are using the tool, Mr. Bykhovsky said. Applied Financial also has a "very big pipeline," with nearly two dozen potential clients testing it out in recent months.
Hedge funds and broker-dealers use the scores mainly for arbitrage trades, he said. One of the main ways mortgage companies use it is "cherry pick" the best servicing rights to keep, so they will be relatively better off when it comes to the integrity of their servicing valuations.
Start It Up
Global Energy Resources Inc. has added retail lending to its financial division's mortgage services operations.
GERI, which has its headquarters in Irvine, Calif., and is incorporated in Delaware, is a publicly traded company set up to incubate businesses in a variety of industries, also including energy, transportation, and entertainment.
GERI said that it now does both wholesale and retail lending, with commercial, residential, construction, and timeshare loans, as a mortgage bank utilizing a warehouse line of credit.
It funded only $10 million in the fourth quarter but in recent months has said two origination shops, Camden Mortgage Co. and American Guardian Mortgage Co., have agreed to deliver $32 million a month into its warehouse line.
Quotable
"Although rates on fixed-rate mortgages remained historically low, some ratcheting up of rates on adjustable-rate mortgages was seen as a factor weighing to some degree on the housing market."
From Federal Open Market Committee's March meeting minutes.
