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Boardroom view.

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.

The growth in his servicing portfolio is also ahead of budget in spite of runoff. Johnson says the runoff to his portfolio has been minimal because "the servicing on our books is relatively new servicing."

The company started the fiscal year with a servicing portfolio of about $115 million and the budget called for growing it to $165 million. But by late July, it was already at $195 million. Johnson says his company typically will do a few bulk sales of its servicing every year and has already sold one $25 million package. He contemplates doing another before the fiscal year concludes.

This company is yet another example of a company that is profitably operating in its niche, while defying some of the industry's conventional wisdom. Johnson says, "There are people who say you can't profitably service less than $1 billion in loans or a portfolio of less than 10,000 or 5,000 loans. That simply isn't true." He says his company was profitably servicing $30 million in loans when its portfolio was that small.

Johnson notes that his average, per loan, direct cost of servicing is roughly $115. He notes that the big servicers quote numbers closer to $70 to $80 per loan and he agrees that unquestionably there are economies of scale at work in servicing. And while he says he is not making the per-loan profit of someone servicing 100,000 loans, he is still making a profit. As far as his servicing costs go, he says, "I'm sitting here servicing 2,500 loans, and I think $115 is pretty darn good on that basis."

Yet another mortgage company in another end of the size spectrum is also thriving in today's rate environment after having gone public in the spring of this year. Wesav Mortgage Corporation is a subsidiary of First Western Corporation, Scottsdale, Arizona. Robert Stallings, chairman and chief executive officer, says that part of the money raised in the stock market will be used to acquire servicing portfolios and mortgage companies with servicing.

Stallings said his company made a strategic decision to operate as a public company because he and his management believe that "over the next five years there will be great consolidation in this industry." By belong a public company, Wesav will continue to have efficient access to capital, Stallings said, and that "will allow us to be a beneficiary of those exiting the sector."

Wesav, a wholesale originator that specializes in working with mortgage brokers, has already invested some of its stock market proceeds by buying the production business of Beverly Hills Securities Company, Encino, California, earlier this year. Stallings said the added production volume, due to the acquisition, has kept his servicing portfolio from shrinking from the runoff. Wesav has a servicing portfolio of $1.97 billion, he said, and in July the payoff activity hit $33 million, while new loan closings reached $105 million for the month. The July closings coming from the former Beverly Hills Securities production operation accounted for roughly $75 million, Stallings said.

Wesav's primary production markets are in Las Vegas, Scottsdale, Albuquerque and Dallas. Stallings says his firm is focused on serving mortgage brokers and competes strongly on both price and service to that client base. He says Wesav targets the geographic markets where there is a major concentration of market share in the hands of large companies.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:performance of mortgage companies
Author:Hewitt, Janet Reilley
Publication:Mortgage Banking
Article Type:Editorial
Date:Aug 1, 1992
Previous Article:Secondary market.
Next Article:Is big always better?

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