Friday Funding is a HousingWire web series that profiles the lending segment in depth, while highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with Jeff Seabold, president of the residential lending division with Banc of California, to see how the lender diversifies its business by operating across all origination channels.
HousingWire: Who is your target customer and why are they a good fit for your business model?
Seabold: Our target customers are regional and community banks, credit unions and mortgage bankers that want to leverage our product expertise and robust mortgage platform to grow. As a Fannie Mae, Freddie Mac and Ginnie Mae approved seller/servicer, our guidelines have little to no overlays, and therefore we are able to underwrite loans for our customers that they would otherwise have to turn down. From a service level perspective, our customers have access to our Deal Desk that responds promptly to underwriting or guideline questions. I also oversee our warehouse lending group, and many of our non-bank customers are attracted to the efficiencies of using the same warehouse provider and loan investor, as it reduces the amount of relationships that the originators need to manage, eliminates the loan hair-cut and reduces the amount of time the loans sit on the line prior to being purchased, which frees up all-important capital.
HW: How does lending fit into your overall business strategy? In other words, what other lending divisions do you have, i.e. warehouse, wholesale, etc.?
Seabold: Correspondent lending is a great complement to our overall residential lending strategy, which includes traditional retail, consumer direct and wholesale lending, as it provides product and geographic diversification, allows us to leverage our infrastructure and excess lending capacity to acquire MSRs at a lower cost, and provides a cross-sell opportunity for our warehouse lending business.
HW: What do you see as the greatest challenge(s) your clients face today?
Seabold: The greatest challenge our clients face today is threefold: (i) remaining price competitive in their respective markets as margins compress and (ii) how to aggressively reduce costs to offset lower production due to the increase in interest rates over the past 6 months, and (iii) how to transition to a purchase market, all at the same time.
HW: What made your firm decide to ramp up its correspondent division?
Seabold: Strategically, we believe it is prudent to be originating in all the origination channels to take advantage of continued regulatory and market changes, that we believe will cause continued consolidation in the industry, which will cause our target customer base to grow.
HW: How broad of a market do you serve today and what does the next 12 months look like from an expansion standpoint?
Seabold: As a federally chartered bank, our correspondent division can purchase loans in all 50 states, and our web-based interface portal enables our customers to upload, lock and see the status of each loan at any time, so we can do business anywhere. Strategically, and from an excess capacity standpoint, the company is a net MSR aggregator and positioned for continued growth in this channel.
HW: There have been a lot of new entrants into the correspondent market over the last 12 months, what is going to be the key that helps your firm rise above the rest?
Seabold: As a company, we have made tremendous progress in 2013 building a robust and sustainable lending platform. We’ve added strong, experienced and tenured talent to the executive and operations management teams, upgraded our loan origination systems, improved our quality control and governance policies and procedures, and increased our lending capacity. These enhancements, along with effective leadership, will ensure we are able to be a nimble and agile company that can operate and innovate in the future.
HW: With the increased competition in the correspondent arena, what do you think is the single most common mistake you see other correspondents making?
Seabold: Strategically, many lenders make the mistake of relying too heavily on the channel for loan production. When interest rates rise and loan originations fall, like they have in the last 6 months, the correspondent business is especially vulnerable to heavy earnings volatility as competitors reduce margins to “buy” market share to offset the decrease in loan production. This is not a sustainable strategy, which results in many lenders exiting the business.
HW: Tell us about the team you are building and who sits at the core of the operation?
Seabold: The correspondent team is led by Michael Falce and Larry Maitlin, who combined have more than 40 years of mortgage banking experience. Michael manages the division out of our headquarters in Irvine, Calif., and Larry is responsible for overseeing the sales efforts on a national scale. Both executives make themselves available to customers 24/7, and this level of commitment is making the difference to our customers.
HW: What do you see happening to spreads over the next 12 months and how will the potential for rising rates impact your business?
Seabold: Over the next 12 months the margin compression will slow and the industry will stabilize. The companies that are properly structured with strong leadership, while also originating quality-focused, balanced loan production and remaining technologically advanced and well-capitalized will find 2014 to be the year they excel versus their peers.
HW: Finally, how will new compliance rules impact your business? What are you doing to stay on top of compliance, i.e. technology, new software, etc.?
Seabold: As a bank, we already are required to operate our business with a higher level of compliance and controls. In the past, the non-bank lending platforms had a competitive advantage because they didn’t have the additional costs of bank regulation. With the enactment of Dodd-Frank, the CFPB and other new regulations, it is now a level playing field. In fact, I would argue that the bank lending platforms have the compliance and technology advantage. This is especially true at our company, as the culture and costs of these disciplines are already embedded within the organization.