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Sculpting a new service company.

Now, with its own servicing portfolio and wholesale operation, GE has quietly become a multiproduct mortgage powerhouse that is tailoring its services to whatever its customers need. The one-time mortgage insurer is focusing on building strategic partnerships with customers who can take advantage of its large and unique menu of services.

ON THESE PAGES TWO YEARS ago, GE Capital Mortgage Corporation laid out its vision of the 1990s in the mortgage industry as one where successful companies form alliances to provide customer service with a greater range of quality products and services. GE Capital Mortgage had just completed the acquisition of the Travelers Mortgage Services, Inc.--a purchase that few in the industry had anticipated. It transformed us from a single-product leader (as a private mortgage insurer) in the mortgage industry into a multidimensional corporation.

The purchase of Travelers Mortgage and the subsequent acquisition of an asset-management company caused many in the industry to raise questions about GE's strategic direction. How were we going to organize and approach the marketplace? What segment of the market was to be our primary focus? And were we going to operate as individual companies, or were we going to leverage the diverse resources of all our companies to benefit our customers?

Before we expanded our business, we first had to answer these fundamental questions for ourselves. Since that time, we have worked hard to convey our business intentions to our customers.

GE Capital Mortgage's management team recognized the significant issues that our industry was facing. The industry as a whole needed to improve its overall capital position, efficiency and profitability, quality standards and risk-management systems. To address these issues we approached the market using all our resources to attempt to benefit our customers.

This is a different strategic approach than has been chosen by many other companies. GE Capital Mortgage has taken this approach because the combined critical mass of mortgage insurance, mortgage services, asset management, second mortgage and mortgage-processing businesses provides maximum value for customers, while producing profits for us.

We believe that successful mortgage banking in the 1990s will rely on building strong bonds with customers, whether the bond is built on a single-product need or multiple products. To achieve that success, a company must first evaluate and understand its own strengths and then match these with the needs of its customers.

Historically, GE has been a leading source of quality mortgage insurance. We will continue to provide mortgage insurance as a major part of our expanded product offerings. But our overall objective is to build long-term relationships, focusing on midsize to large companies that can use our strengths and realize the value of strategic alliances.

This does not mean our long-time customer who has a single need for dealing with us is no longer important. Some of GE's new strategic partners may currently have a need for only one of our products. Our goal, however, is to build alliances that best utilize our multiple services and capabilities to help meet the customer's current and future needs. As we add to our multiple services and continue to expand our delivery systems, our aim is to increase the number of companies that will utilize these efficiencies to help them achieve their business goals.

The first step of our new strategy was to sell the former Travelers' mortgage origination branches and reshape our wholesale correspondent network--reducing it by one-third. We supported those correspondents who did not meet our volume requirements by helping them find new homes for their products, and we parted company with those sellers whose loan quality did not meet our standards. As we consolidated, we improved our geographic dispersion, which was concentrated in the Northeast, and we focused on sellers with quality expertise and the need for a mandatory jumbo forward commitment program.

Our second step in carrying out our strategy was to shift the wholesale business from low-documentation products in a single region, which is largely what it had been under Travelers Mortgage, to long-term strategic partners across the country. Prior to the acquisition, Travelers Mortgage concentrated on traditional wholesale business in the Northeast. With our new strategy in place, we set out to provide bulk and flow servicing transactions, building a niche in nonconforming loans by tailoring each transaction to meet the needs of our customers.

Business and regulatory

Building on the positive resources and expertise of Travelers Mortgage, we redirected our business to see if we could better serve the needs of the marketplace. As our market evolved, we had to listen to our partners and become more flexible in responding to their changing needs. It was clear that understanding our customers' businesses and regulatory environment had to be one of our primary focuses if our new chosen niche was to work.

When we entered the mortgage banking business in 1990, too much servicing was on the market. Prices had dropped significantly as the consolidation of thrifts made more portfolios available. The Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC) were adding to the inventory with assets from failed institutions. GE responded to this situation by developing a servicing acquisition program. This infusion of capital helped support a higher volume of servicing in the midst of a market flooded with product for sale.

The continued consolidation of insured depository institutions, the need to meet risk-based capital requirements, rulings by the Financial Accounting Standards Board (FASB) and an overall need to more actively manage capital and balance sheets have been key reasons GE's customers have found it attractive to have a financially strong, committed partner.

In two short years, the economic environment has evolved rapidly, and there is no doubt that it will continue to change. Successful companies will have to create innovative ways to meet the challenges of the future. The mortgage industry is seeking a wider variety of services than ever before, and with our multiple-business approach, we are positioned to meet those needs in a kind of one-stop-shop approach. GE offers customers financial strength, a solid reputation for managing risk and proven expertise in mortgage insurance, asset acquisition, processing and underwriting, securitization, servicing, asset management and second mortgages. Perhaps even more importantly, we are flexible in responding to customer needs, and committed to the development and application of technology to speed and simplify the mortgage process. While we are not the only mortgage company that offers mortgage insurance, our alliance is unique in the breadth of its business and service opportunities.

The crucial partnerships

Our services are driven by both the demands of the market and our customers. By listening to customers, we can design and deliver the services they need instead of trying to push a product into the market. In the past two years, we have learned some valuable lessons about how to tailor our products to the individual needs of our customers, and we are constantly working to identify customer needs as they change.

To better serve the customers who can use a variety of GE Capital's products, a corporate-level function was developed to give better access to resources across our different businesses. This function is carried out by our corporate relations managers, who have the knowledge and ability to respond to customers with multiple needs. To these strategic partners, our corporate relations managers are GE. They assist customers with products, services and guidance. At the same time, GE regards these individuals as our customers' advocates, providing insight into their specific needs and markets. Although this function is not needed in every relationship, it is an important element of our unified approach to the market.

One of the first companies to test our new business approach was Margaretten & Company, Inc., Perth Amboy, New Jersey.

"We had used GE's mortgage insurance in the past," says Felix M. Beck, chairman and chief executive officer of Margaretten, "but with the company's new capabilities, I challenged our people to see how GE's resources could further serve us. We began by utilizing Mortgage Services, which developed an individualized approach to fit our needs, and we have since expanded our use of their products. The system has served us well." GE's mortgage services division purchases servicing on a bulk and flow basis to serve the company's strategic partners.

One of GE's major strengths as a result of the acquisition of Travelers is its mortgage servicing capabilities. In the past two years, GE has acquired $16.9 billion in servicing from customers and in the process supplied them with working capital and help in managing their balance sheets.

One of our customers who wanted to take advantage of us as an outlet to sell servicing began a relationship with GE by selling us a large portion of its production in the form of servicing. The lender originated and closed the loans, executed the trade and then transferred the servicing to us quarterly. The transaction provided more than $40 million in working capital in the first two years. As our relationship expanded, we signed a forward commitment to purchase, over a 12-month period, $200 million of jumbo loan production. The mortgages were then pooled with other GE-purchased jumbo loan production and sold in an AAA-rated security. The AAA rating was achieved by using GE's pool insurance. Our regular execution and our securitization expertise gave us the ability to offer a competitive price, and our risk-management capabilities allowed for local underwriting through the mortgage insurance company.

North American Mortgage Company,|R~ Santa Rosa, California, is another mortgage banking firm with which we have formed a strong strategic partnership. The company was an existing client of GE's mortgage insurance business and is now a major user of our mortgage services products, as well.

"During the past 18 months, we have sold a substantial amount of flow servicing to GE," says Terrance G. Hodel, president and chief operating officer of North American Mortgage Company. "Their innovative delivery structure has provided us with a guaranteed market for that portion of our servicing."

In addition, GE has recently begun purchasing jumbo loans on a whole loan basis from the North American Mortgage Company. In the meantime, the mortgage banking firm has increased the amount of mortgage insurance business it sends to GE tenfold since we began our strategic partnership in 1988.

"The combination of products and services offered by GE has made it a very attractive partner for a company such as ours," says John F. Farrell, Jr., chairman and chief executive officer of North American Mortgage Company.

Using the synergies of our mortgage services and mortgage insurance businesses to obtain fast turnaround also has been one of GE's strengths. At the request of a California savings institution, we negotiated a forward commitment to purchase $100 million in jumbo loans. The deal provided the lender with an outlet for loans it chose not to keep--and at a competitive price. The customer benefited from streamlined purchasing, using GE Capital Mortgage Insurance pool certificate underwriting. We were able to fund the loans, on average, in 48 hours. Of 133 loans submitted in one month during the refinance crunch, we funded 113 in 24 hours.

The lender filled the commitment in two-and-a-half months and immediately began working on an additional commitment. This type of solution to our customers' needs has led to the completion of several billions of dollars worth of commitments since we entered the business two years ago.

Our asset-management unit recently served a strategic partner by purchasing 44 previously delinquent loans with an unpaid principal balance of $14 million. The collateral for the loans was mostly in California. The purchase helped this major mortgage insurance customer to liquidate some of its nonperforming loans.

Our second mortgage division, which was a part of the Travelers Mortgage acquisition, has taken on a new focus to serve our strategic partners. One large national lender, for example, has recently signed a contract with GE Capital Mortgage to sell us its "A" paper and retain its "B" and "C" paper to get higher returns. This customer met the goal of expanding product line by adding second mortgages to the menu.

Our securitization unit provides special programs that offer attractive forward commitment structures to originators and privately placed, rated securities to institutional investors. In all of our securitizing programs, we have learned to manage risk differently and more effectively. With analysis, evaluation and good-sense underwriting, we have significant risk-management control of both individual loans and large portfolios. In addition to securitizing first mortgages, we did a very successful securitization of second mortgages in 1991 that should open the door for more in the future.

Customers' special needs

Serving strategic partners calls for greater attention to their specialized needs. Niche offerings benefit different mortgage segments and provide opportunities for growth and market extension.

In today's business environment, some of our customers are considering going public. We have helped several of these institutions achieve their desire to expand, and now they are coming back to use other services we offer.

We can match customers with targeted acquisitions, correspondents, talented people and the right technology. We understand where our customers are headed and respond to their needs, even if that means going outside the bounds of our normal product offering.

"There's no question that GE has kept its ear to the ground in listening to its customers," Hodel says. "They have become more focused and have developed the people and the systems to meet the changing needs of a large company such as ours," he adds.

The future

We know that just having financial staying power is not going to be enough in the future--and the future is as near as tomorrow. Customers want more than reliability. Competence means faster service and more productive results. Our industry is paper and labor intensive, and the production process is slow. As is often observed, it is considerably easier to buy, finance and drive away in an expensive sports car than it is to get a mortgage on a house. This is ironic, because the house represents good equity and is certainly a less risky investment than a high-performance automobile. In our vision of the future, securing a quality home will be almost as easy as buying a new car.

High technology will revolutionize the housing finance industry. From our multibusiness perspective, we envision a broader and more interactive technology base with a greater emphasis on the development of new systems and processes. We are committed to both the development and application of new technology, and we have the people, the patience and the capital to see it through. Technology will provide speed and reliability, and it will enhance our ability to provide greater service, while achieving customer satisfaction. Now we need our customers to complete the equation by helping us identify ways our technology can better serve them.

Hugh B. Haston III is executive vice president of corporate relations for GE Capital Mortgage Corporation, Raleigh, North Carolina.


Businesses need a vision to succeed in today's mortgage finance environment. At GE Capital Mortgage Corporation, our vision is a simpler, more responsive, cost-effective homebuying process that allows American families to quickly and easily buy homes they can afford and that allows investors to lend with the confidence that they will be repaid.

To support this vision, we have focused on five key strengths:

* Quality customer service--It is clearly a necessity for successful participants in the industry. We want to give unsurpassable customer service, driving a customer-focused culture throughout every area of our business.

* Sophisticated risk management--GE has established itself as a market leader with true risk-management expertise, and we will continue to refine our skills as the industry changes. Our most recent focus on risk is our newly formed Risk Management Board, composed of individuals from our various mortgage-related businesses, as well as from the corporate risk function. The board serves as an advisory committee to our corporate risk-management department by helping identify and resolve key risk issues in our businesses. This expertise carries over to benefit our strategic partners.

* Leading-edge productivity--One way we are enhancing productivity is through a process we call "workout." A concept developed by General Electric Company, workout means taking the unnecessary work out of a particular project or process. We shun antiquated bureaucratic practices that hinder the process. Technology also enhances productivity by improving the process. One of our major initiatives involved looking at ways to streamline and automate our processing and underwriting operations.

Not long ago one of our strategic partners saw the need to work on its employee teamwork. We knew that a GE division in Kansas had been very successful with a new teamwork concept, so we took that customer to Kansas to see, firsthand, how it works. We are improving productivity in a variety of ways, and by listening to our customers' needs and sharing our innovations with them, we are helping our strategic partners become more successful.

* Capital strength--Our capital provides a competitive advantage in the marketplace, and we are constantly investigating new ways to use capital.

* Talented employees--Skilled people with high morale are vital to success in today's environment. By providing extensive training, promoting cultural awareness, empowering employees and rewarding them for their efforts, we have built a productive work force of highly skilled people who understand and recognize the corporation's vision.

With these five core competencies, the ability to embrace change and an understanding of industry dynamics, we believe we are positioned to provide customers with the quality products and services they demand.
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.

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Title Annotation:includes related article; GE Capital Mortgage Services Inc.
Author:Haston, Hugh B.
Publication:Mortgage Banking
Article Type:Cover Story
Date:Nov 1, 1992
Previous Article:High profile.
Next Article:Marketing mortgages on MARS.

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