Correspondent lending is proving it may still have a heartbeat, as smaller lenders are lining up to enter the space in an effort to grab business that some larger commercial banks have recently decided they don't want.
Many commercial banking institutions have been abandoning the correspondent lending market as of late. Yet, at the same time, companies such as Irvine, Calif.-based Impac Mortgage Holdings are entering.
Larry Maitlin, a former capital markets executive at Credit-Based Asset Servicing and Securitization, and Michael Falce, a former a capital markets and sales executive at Aurora Loan Services, are building a correspondent lending division at Impac ($11.25 -0.0099%).
Impac was a major player in the Alt-A loan business before the financial crisis. It built its business on a variety of stated and no-documentation products. The company says its balance sheet has since recovered from the turmoil of the financial crisis, and as a result has "gone back on offense the last 18 months, building out retail and wholesale," Maitlin tells HousingWire. Correspondent lending is the third leg of the company's revamped lending platform.
Impac exited correspondent lending in 2007. But now, like many other smaller correspondents, it sees an opportunity to grow their business by offering lenders a faster turn time on loan purchases. While Maitlin acknowledges the pricing model is not as aggressive as what banks can offer, he thinks the quicker turn times are an attractive feature.
"We can't compete with Wells on price head-to-head because of their huge balance sheet, but we can wow lenders with customer service, getting loans off their lines quickly and getting back to the basics of business," Maitlin says.
Bank of America ($13.46 -0.05%), after trying to sell its correspondent channel, closed it toward the end of 2011. The bank's 1,200 correspondent lending associates moved to other departments. The legacy asset division is grappling with $1 trillion in soured mortgages and securities written prior to the 2008 acquisition of Countrywide.
Ally Financial ($25.63 0.01%) also pulled out of correspondent lending at the end of 2011. And Citigroup ($51.79 0.19%) told correspondent lenders in January of this year that it will no longer purchase "medium or high-risk" loans that could result in buyback requests from Fannie Mae or Freddie Mac.
"I think their plates are just too full," Maitlin says. "I'm speculating they don't want the contingent liability with third parties. They have an inflated balance sheet [because] of either servicing or loans that are originated by others... It's an allocation of resource issue with these big shops."
Maitlin joined Impac in October to build its correspondent lending division with Falce. They began to fund loans in December, and, he says, they've been doing well. Impac will release fourth-quarter earnings on March 30.
"It's just going to grow from here," Maitlin says. "It's good quality loans, it's all agency-deliverable product."
Several other opportunistic companies like Impac are capturing market share where the others are retrenching.
PennyMac Mortgage Investment Trust ($22.86 -0.3%) saw its fourth-quarter profit rise as its correspondent lending business surged. In the quarter, PennyMac's fundings in the correspondent lending side of the business hit $991 million.
North Texas banking and financial services firm NexBank launched a correspondent lending group in 2011 to accommodate changing conditions of mortgage regulation reform. First Guaranty in 2011 also expanded niche offerings for correspondent lenders. And Quicken Loans Mortgage Services introduced a correspondent lending platform of its own in May 2011, as well.
Despite larger banks exiting correspondent channels, Maitlin says there is ample opportunity for lenders like Impac to fill in the gaps. "(As a lender), if you get a $40 million warehouse line and you're doing $60 million of business, you can't wait 30 days for loans to get funded," he says. "You'll have to tell your loan officers to slow down."
That's where niche players like Impac see opportunity. "We can step in and fund loans in five days, so we don't have to have the best price," Maitlin says. "It's about customer service."
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