Magazine article Mortgage Banking

Boardroom View

Magazine article Mortgage Banking

Boardroom View

Article excerpt

Industry averages can be pretty meaningless sometimes. And certainly it would be a mistake to jump to any conclusions about a mortgage company's performance simply because its numbers compared poorly to industry averages. This is particularly true in mortgage banking because there are so many companies out there with different strategies occupying different niches, and the performance numbers for everybody lumped together just reflect the varying results of a lot of different business plans.

This month we looked at three companies doing business in three completely distinct niches and they all reported doing very well this year, thanks to an extremely benevolent interest rate environment. The variety of these companies and their strategies illustrates why round holes or industry averages don't accommodate all the square, octagonal, rectangular or other types of pegs that are out there thriving.

Pioneer Mortgage Corporation is on track to make 50 percent more in profits this year than budgeted. That's according to Edwin Jones, president of the small Shreveport, Louisiana-based mortgage company, a subsidiary of Pioneer Bank & Trust Co. Jones says that in a normal year his origination volume would be around $30 million, while in the last 12 months it has been around $102 million.

Pioneer got rid of all of its branch offices to control production costs and Jones said his company is probably one of the few mortgage companies that has made money on its origination operation for the last 35 years. He says he does it in part by closely overseeing the processing of loans at a central location--30 feet from his desk. Pioneer also has a smaller processing office with two additional staff roughly five miles away. He says Pioneer can make money on its originations by keeping its average per-loan origination cost to about $750, with the average loan size being $65,000.

By keeping origination costs to a minimum, Pioneer has been able to keep the servicing on 90 percent of its originations, according to Jones. That has allowed the small mortgage company to be in the enviable position of building a servicing portfolio, which now totals $344 million. Servicing runoff has not been that much of a problem either, with payoffs running at $4 million to $5 million per month and new production coming in at roughly $8 million a month, Jones said.

While Pioneer's production costs are good, its servicing statistics do not compare that well to industry benchmarks. Pioneer's number of loans serviced per employee, for example, is only 350 to 400.

But here is where the niche thinking comes into play. Jones says he knows his servicing productivity numbers don't stack up that well, but he notes Pioneer is a local servicer and "people walk in and make the payments and talk to us and it's time-consuming and expensive." But he adds that some customers are now sending in their grandchildren to get loans and his company now accounts for "40 percent of the loan business in this territory." So, he says he will live with the lower productivity number, saying, "It's very bad, but I don't want to cut that service down."

Another mortgage company that is getting a strong boost from today's low rates is MortgageAmerica, Inc., Birmingham. John Johnson, MortgageAmerica president, says his company is 133 percent ahead of budget in origination volume for the fiscal year, which ends September 30. The privately held mortgage company has five offices throughout Alabama and two in Florida. …

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