When Thomas Goldstein became chairman and chief executive officer of Chicago-based ABN AMRO Mortgage Group Inc. (AAMG) in February 2005, the company was seriously limping. [??] The former high-flying mortgage banking firm stumbled badly in 2003, and two years later was a shadow of its former self. The parent bank holding company, LaSalle Bank Corporation, also based in Chicago and a subsidiary of Netherlands-based financial giant ABN AMRO Bank N.V., could have sold off the mortgage unit. But when Goldstein looked around his domain, he still saw fire in the eyes of his employees and, more important, marketplace strengths that could be building blocks for the future. [??] Goldstein decided he was going to bring AAMG back to center stage. When the company was peaking in terms of origination back in 2002, it owned approximately 5 percent of the national market. That's now Goldstein's goal. "We can get back there," he says with firm commitment. "We are determined to get back there." Of course, some people might say Goldstein's a bit too ambitious, maybe even crazy, because the mortgage business has made a cyclical turn south. "When we started this, people said you cannot turn around a business in a declining market, but we are defying the skeptics," he says.
One of the key points in Goldstein's playbook of turnarounds is an improvement in profitability--a tough objective in a competitive, declining market, yet it is one of the first goals AAMG seems to have attained. "Profitability is much stronger this year than it was a year ago," he says. "It has steadily improved every quarter, and has continued to improve in this down market."
Two intangibles that have worked for AAMG are loyal customers and creditworthy loans. Suzanne D'Angelo has worked with AAMG for about 12 years, the past seven after she formed her own mortgage brokerage firm, Family Mortgage Network Inc., Rocky Point, New York.
"As soon as I opened my own firm, ABN AMRO was the first bank I wanted to get with," says D'Angelo. "[It is] an incredible bank, very innovative." Today, Family Mortgage does 25 percent of its origination business with AAMG, she reports. "If I ever had to work for a bank, this would be the one," says D'Angelo.
The other thing that has worked for AAMG in these leaner times is that it traditionally sold its product into the more stable end of the credit spectrum.
"If you look at where we are positioned," notes William Newman, AAMG's executive vice president of business development and president of InterFirst Wholesale Mortgage Lending, Ann Arbor, Michigan, a unit of AAMG. "We have been in the prime credit space, and we haven't layered on some of the risks--in particular, segments where repurchase risk has become more prevalent, which the market has yet to fully account for."
Newman proved an accurate pundit. By the summer of 2006, repurchase problems in the industry began to surface.
Kansas City, Missouri-based H & R Block Inc. reported a big hit on its balance sheet for the fiscal quarter ending Aug. 31, 2006, because of increases in mortgage loan repurchases at its Irvine, California-based Option One Mortgage Corporation subsidiary. According to the company, the first-quarter numbers included a provision for losses of $102.1 million, reflecting the estimated recourse liability recorded by Option One for loan repurchases and premium-recapture reserves.
"We've modified our operating procedures and loan products to improve loan performance and profitability," noted Mark Ernst, H & R Block's chairman and chief executive officer, in a prepared statement. "We have tightened underwriting criteria and pricing guidelines while continuing to reduce origination costs."
In one sense, AAMG and the rest of the mortgage industry have been going in different directions for the past four years. While the industry continued to post record origination numbers until this year, AAMG floundered. …