No Sign of Slowdown in Mortgage Outsourcing
Jackson, Ben, American Banker
During the refinancing boom, many small commercial banks that otherwise made few home loans signed on with outsourcers to get in on the action.
It is hard to say how many did, but anecdotal evidence suggests that more banks are following their lead. Such partnerships help banks maintain relationships with valuable customers and enable them to collect referral fees.
And though the boom seems to be over, mortgage outsourcing ties have not been broken, bankers and outsourcers say. In fact, they say, more of them are likely - and more banks with mortgage operations will farm out some functions.
Banks have seen that outsourcing can bring them fee income without a lot of overhead, said Hal Oswalt, the president and chief executive of the Brintech Inc. consulting firm in New Smyrna Beach, Fla.
"We've evolved from a time when banks would book loans and put them in their portfolio," Mr. Oswalt said. "It probably would behoove every bank that is in the mortgage business to really look at the true profitability" and consider outsourcing part of the job.
Banks have quit originating mortgages for different reasons over the years.
* This April the $40 billion-asset Northern Trust Corp. of Chicago outsourced its mortgage operations to Cendant Mortgage to focus on private banking and trust services and cut costs. Cendant is a unit of Cendant Corp. of New York.
* In July the $3.4 billion-asset Sterling Bancshares Inc. of Houston sold its mortgage operations for about $100 million to Royal Bank of Canada's RBC Mortgage Co. of Chicago. Sterling said mortgages did not fit with its focus on business lending.
Meanwhile, however, banks that traditionally did little or no mortgage lending have been getting into the game - partly so customers do not go elsewhere.
It now makes no sense, bankers say, to refer commercial customers to thrifts for mortgages, since thrifts have started competing in commercial lending. Banks also see mortgages as help in competing with other kinds of lenders that are now offering them - such as credit unions and captive finance companies.
Banks outsource mortgage business in various ways and to different degrees. Some make the loans and use an outside company to sell them in the secondary market. Others refer would-be mortgage borrowers to a partner's Web site or phone number. Still others take and process applications but outsource the credit decision.
ICBA Mortgage Corp. in Arlington, Va., a subsidiary of the Independent Community Bankers of America, provides various programs for banks that want to bear different shares of the mortgage lending burden.
The unit opened for business in 1991. At the time, said Michael Hindman, its president and chief executive officer, only 8% of the trade group's member banks sold mortgages directly in the secondary market. Ten years later the figure was still only 9%.
More ICBA members now sell indirectly, through mortgage brokers, Mr. Hindman said. About 1,400 banks use ICBA Mortgage - including 350 that have signed up in the past 18 months - and he expects more next year. They pay a one-time enrollment fee of $500 to $1,500, depending on asset size, to farm out some aspect of their home lending.
Among ICBA Mortgage's customers is the $401 million-asset MidSouth Bancorp Inc. of Lafayette, La.
MidSouth, which traditionally made commercial and industrial loans, entered the home mortgage business because thrifts were beginning to make more commercial loans, said C.R. "Rusty" Cloutier, its president and CEO.
"We just didn't want our C&I customers walking across the street and getting their home loan from a thrift that is now doing the same thing we are," Mr. Cloutier said.
Though MidSouth wanted to offer mortgages, it did not want to set up back-room operations to make and service them. So about three years ago it decided to use ICBA Mortgage to handle its home loans. …