Printer Friendly

Boardroom view.


Texas mortgage companies continue to occupy the headlines, as whole companies and their servicing portfolios change hands courtesy of the RTC's marketing team. We caught up with two Texas companies that appear to have found opportunities in the wake of this upheaval in the Lone Star state-once home to many of mortgage banking's who's who.

If you are outside the web of Texas savings institutions and their mortgage companies that the RTC is currently unraveling, there are some benefits to being a mortgage banker in Texas in the wake of the thrift crisis. "The loss of the savings and loans has caused ARM business to pretty much go away in Texas," according to Richard Gillen, president, Harbor Financial Mortgage Corporation, Houston. Prior to their closing by the RTC, capital-starved thrifts represented tough competition by offering sharply discounted ARM loans-something that not too long ago was the bane of secondary market lenders' existence. Now, Gillen says, the absence of such overly aggressive thrifts is very notable in Houston-Harbor's key market-where "S&Ls are practically nonexistent."

Gillen's mortgage company is the product of a 1987 leveraged buyout from its parent S&L, a Pennsylvania-based thrift. Harbor still sees pricing competition in its major market of Houston, as well as in its second tier markets of Dallas, San Antonio and Austin. But now the prime pricing competition comes from "small, non-servicing originators" or in other words mortgage brokers and mortgage bankers selling servicing released. What is the preferred form of competition to this mortgage executive? "I'd much rather have a mortgage banker as a competitor. They don't have a shelf they can hide it [teaser rate product] on."

Harbor has posted a notable increase in origination market share, particularly in Houston, as a result of the demise of area thrifts. But Gillen notes that much of the reduced competition produced by the closing of insolvent institutions has been offset by stepped-up competition from the mortgage operations of commercial banks-particularly NCNB, headquartered in Charlotte, North Carolina. Gillen says Harbor's market share in Houston is roughly 5 percent of originations. He says that NCNB's market share appears as approximately 3 percent, but Gillen says that figure is understated because NCNB buys "so much broker product."

Harbor has clearly picked up market share during the period marked by the disappearance of the insolvent thrifts in Texas. Gillen observed that about three years ago before the start of the thrift exodus, Harbor had about a 3 percent market share in Houston, now its share has jumped by almost 2 percentage points.

But another plus to being a survivor in the Texas marketplace is the big buying opportunities in Texas servicing that abound in RTC's warehouse of reclaimed S&L assets. Gillen's company has purchased six small servicing packages for what he called an "extremely good price." All six packages together amount to only $66 million in agency servicing. But Gillen says the small packages are what his company prefers. Harbor is looking to buy more from the RTC and is focusing its bidding on servicing packages of $20 million and less. Gillen says the company wants to buy Texas-based servicing where the company knows the market and can keep the due-diligence costs at a controllable level.

Gillen says there was very little bidding competition for the RTC packages his company bought. He adds that there are "not many banks left that understand Texas." Furthermore, the "acquisition credit is virtually non-existent" for buying the servicing he is bidding on.

There is no specific dollar amount of servicing Harbor is looking to buy from the RTC. Rather, the company is looking at "one package at a time," Gillen said. The executive said that the smaller packages tend to have come from "more conservative" savings and loans and that by buying the smaller lots, Harbor can control the risk better by spreading it over a lot of small packages. Even so, Gillen says, RTC-purchased servicing has to be "put in intensive care" once it's acquired. He adds, "Typically, it's badly neglected servicing by the time you get it."

Harbor tries to maintain its production volume at a steady $220 million a year, to operate at optimal levels for its staffing. Gillen said that the servicing portfolio is currently $600 million in size. Harbor sells servicing after it has accumulated sufficient quantities to sell to help reduce its LBO debt. Gillen confirms that the current prices for servicing have been dramatically eroded since the RTC put its growing inventory up for sale. Prices across-the-board are "probably 25 percent less than [what they were at the] peak before RTC flooded the market."

Another large Texas servicer that is in a buying mode for servicing and will be looking at what the RTC has to sell, is Associates National Mortgage Corp., Irving, Texas. Associates sold its retail production operation to Independence One effective March 1, but is still managing a $5.5 billion servicing portfolio with an eye toward growing it even larger, according to Norton Wells, senior vice president.

Wells said that he believes the RTC servicing for sale will include both high-quality product as well as low-quality servicing. Associates has looked at a number of portfolios that RTC is offering, he said, and the product the company wants to buy is non-recourse, standard Fannie Mae and Freddie Mac servicing. Wells says that "there is plenty of that product out there" both in the hands of the RTC and elsewhere. He adds that the RTC has a lot of it due to its possession of the portfolios like that of Murray Mortgage and other substantial Texas mortgage companies.

The mortgage executive stressed that his company is not buying GMMA servicing because of factors such as the ongoing problem with VA no-bids. Wells said that Associates sold $1 billion in strictly GNMA servicing last year and turned around and bought roughly $600 million in conventional servicing. Associates' preference for conventional, non-GNMA servicing is due to a sense on the company's part that the rules of the game have appeared to change mid-course when servicing government loans. Wells says, "FHA and VA have too many retroactive rules that change after you have the portfolio. I hate to get to the 18th hole and be told that the the high scores are going to win that day. You don't encounter that in conventional loans."

Wells said the size of Associates' servicing portfolio is a "pretty active number" because the company has been doing a lot of buying and selling of servicing. He said that last year the dollar value of servicing brought in and out of Associates' portfolio totaled $4.35 billion. The Associates executive said that the mode of operation for 1990 will be "definitely [one of] acquiring" servicing. He added that Associates has "no intention of selling any blocks of servicing out of our existing portfolio." He said that the current market value of GNMA servicing has plunged so much that it has fallen below "its economic value" or the value it produces for the holder of the asset. Wells said that prices for GNMA servicing have gone down by 25 percent. As a result of softening market prices for GNMA servicing, Associates will keep the remaining GNMA servicing it has in portfolio, he said.
COPYRIGHT 1990 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:profiles of two Texas mortgage companies, Harbor Financial Mortgage Corp. and Associates National Mortgage Corp.
Author:Hewitt, Janet Reilley
Publication:Mortgage Banking
Date:Jul 1, 1990
Previous Article:Economic trends.
Next Article:The great financing drought: regulators turned off the funding spigot for developers and the commercial property markets are now trying to adjust.

Related Articles
Who's who in wholesale: the big players are pulling in large amounts of new business.
Boardroom view.
West Residential Lenders--Top 30. (Marketrac[R]).
West residential lenders--top 30.
West residential lenders--top 30.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters