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Who's who in wholesale: the big players are pulling in large amounts of new business.


Wholesale mortgage banking is approaching adolescence and with minimal fanfare. So little, in fact, that our company, Asset Backed Capital Research, Inc. (ABCR) decided to create a monthly journal to chronicle the important developments and trends occurring within this somewhat neglected but booming sector of mortgage finance.

Wholesale mortgage banking, nonetheless, deserves recognition and will likely be among the few sectors of the mortgage market to flourish in the years ahead. The reasons for this are due to the new economics of mortgage banking. Mortgage Banking has reported extensively on the reasons behind this metamorphosis, so we will avoid a protracted discussion of the seemingly intractable forces now at work. Suffice it to say that industry segmentation, combined with cost pressures and the realization that the economies of scale in servicing, and the tax benefits derived from purchasing servicing, have altered the cost curve, thereby making wholesaling more profitable. At the same time, the old network of financial intermediaries is breaking down and being replaced by a new, lower cost structure in the primary market.

In this examination of the world of wholesaling, we will start with a few definitions so that we are in accord regarding terminology. Next, we will explore the rationale for this newest form of mortgage banking, discuss the various types of programs, and study the market's phenomenal growth.

The beginning

One of the major mortgage banking developments of the 1980s was the birth and growth of wholesale, or correspondent, mortgage banking. Not long ago, SMR Research, Budd Lake, New Jersey, aptly defined wholesale/correspondent mortgage banking as "a purchase, placement or referral transaction in which there is no direct contact with the borrower."

Wholesaling began in response to the need for alternative forms of gathering mortgages. New methods of generating business were made necessary by the stiff competition for and the high cost of direct mortgage originations. Innovative origination methods were deemed necessary in order to produce mortgage loans at the lowest possible cost, while simultaneously increasing revenue and income.

To accomplish this, mortgage lenders established programs to purchase loans from other originators. The programs borrow much of their structure from the models established by Fannie Mae and Freddie Mac, as well as from the private-sector conduits, such as Residential Funding Corporation, Bloomington, Minnesota, and Sears Mortgage Corporation, Riverwoods, Illinois.

Types of programs

There are four types of wholesale programs: broker, correspondent, bulk and servicing. Broker programs employ mortgage brokers to originate the mortgages. These originators take the applications and process the loans. But the loans are underwritten, closed and funded by the wholesaler, thus the wholesaler assumes the liability. A correspondent program differs from a broker program in that the originators are financial institutions, such as commercial banks, thrifts and mortgage companies. Under both broker and correspondent programs, loans are purchased on a loan-by-loan basis. Loans can also be purchased on a bulk basis in a correspondent program.

In a bulk-purchase program, the wholesaler buys a group or portfolio of closed mortgage loans. Bulk purchases are made on either a servicing-released or servicing-retained basis.

The final type of wholesale program is for the purchase of servicing. In a servicing transaction, the wholesaler purchases only the rights to service the loan, not the mortgage itself. (The wholesaler administers the borrower's monthly remittance and assumes complete responsibility for timely payment to the ultimate holder or investor of the loan or security.)

Countrywide Funding Corporation, Pasadena, California, for example, has both broker and correspondent programs. Countrywide refers to its broker program as its "wholesale" operation or division. By comparison, The Huntington Mortgage Company, Columbus, Ohio has only a correspondent program. Huntington does not deal with licensed mortgage brokers. The type of originator that a wholesaler does business with is the distinguishing characteristic between a broker and a correspondent program. Dollar Mortgage Corporation, LaMesa, California; Diamond Mortgage Corporation, Charlotte, North Carolina; and IMCO Realty Services, Santa Rosa, California, are examples of companies that deal almost exclusively with brokers. Who wholesalers do business with is largely determined by management and appears to be heavily influenced by the company's location.

In addition to these differences in type of originators and programs, products purchased also may vary. Some wholesalers purchase only government loans, others buy only conventionals. Still others buy both. What and how wholesalers buy, along with the services they provide the originator, is what differentiates one wholesaler from another.

Major players

This article will focus on some of the major players in the wholesale mortgage banking market. Exhibit 1 lists 58 of the wholesale lenders monitored by Wholesale Access, the monthly journal of wholesale mortgage banking. (Editor's note: Mortgage Banking wishes to clarify that the list of wholesalers tracked by Wholesale Access for the purpose of producing its rankings is not an all-inclusive one. There are other companies in the wholesale mortgage banking industry that are not included in the lists accompanying this article. At the time this article was written, the wholesalers tracked by Wholesale Access numbered 58. As of February, an additional 21 companies were added to the active wholesalers monitored by the publication.)

Table : EXHIBIT 1 Actual and Projected Purchase Volumes (In millions of dollars)
Company 1988 1989 1990p
America's Mortgage Co. $ 515 $ 1,450 $ 3,150
ARCS Mortgage, Inc. 30 160 250
Associates National Mortgage Corp. 1,600 1,200 1,700
BancBoston Mortgage Corp. 1,100 2,600 3,000
Boston Five Savings Bank 195 457 625
Caprock Mortgage Co. 95 265 575
Centerbank 52 61 90
CenTrust Mortgage 309 425 662
Chase Home Mortgage Corp. 554 1,040 1,210
Chemical Mortgage Co. 500 900 1,500
Citicorp Mortgage, Inc. 966 3,100 *
Commonwealth Mortgage Co. 220 495 700
Coreast Savings Bank 20 10 100
Countrywide Funding 2,020 2,060 2,000
Covino & Co. 0 58 250
Crestar Mortgage Corp. 0 60 180
Diamond Mortgage Corp. 0 105 125
Dominion Bankshares Mortgage Corp. 275 750 1,000
Empire of America Realty Credit Corp. 700 1,200 1,300
FBS Mortgage Corp. 650 800 800
First American Mortgage Corp. 74 181 310
First Federal S&L of Rochester 187 300 300
First National Mortgage Corp. 110 120 150
First Nationwide Bank 1,500 400 600
First NH Mortgage Corp. 160 365 450
First Union Mortgage Corp. 800 1,500 1,500
Fleet Mortgage Corporation 1,660 4,030 3,800
Fleet Real Estate Funding Corp. 1,400 2,550 3,500
Greentree Mortgage Corp. 300 450 550
Greenwich Capital Financial, Inc. 511 1,150 2,000
Gulf States Mortgage Co., Inc. 75 81 70
Hamilton Savings Bank 532 953 *
Home Owners Fed 375 1,200 1,600
Household Mortgage Services 650 1,600 2,100
The Huntington Mortgage Co. 157 325 600
Independence One Mortgage Corp. 165 775 1,200
Jersey Shore Savings & Loan Assoc. 26 85 200
Landmark Savings Association 98 160 400
The Leader Mortgage Co. 65 70 100
Marine Midland Mortgage Corp. 2,800 6,000 6,600
Merchants Mortgage Corp. 160 340 250
Metropolitan Financial Mortgage Corp. 115 131 153
North American Mortgage Co. 713 500 800
Northeastern Mortgage Co. 0 175 200
Norwest Mortgage, Inc. 1,000 1,700 3,000
Pacific First Mortgage 180 200 250
Prudential Home Mortgage Co. 2,080 2,618 4,200
Republic Mortgage Services Co. 0 350 1,080
Sears Mortgage Corp. 520 650 1,000
Security Pacific National Bank 200 500 650
Shawmut Mortgage Co. 205 225 225
Sovran Mortgage Corp. 236 460 700
Suncoast Funding Corp. 300 500 600
Talman Home Mortgage Corp. 39 105 150
Travelers Mortgage Services 682 2,300 3,300
TRUSTBANK Savings 270 332 300
United California Savings Bank 376 330 *
United Mortgage Co. 0 75 120
TOTAL $28,522 $50,982 $62,225

(*) Not Disclosed Source: Wholesale Access, February 1990

The data, which we compiled with the assistance of those surveyed, identifies the companies as well as their purchase volumes for 1988 and 1989, and lists their projections for 1990 purchases. Total volume rose from $28.5 billion in 1988 to $51 billion last year. In 1990, projected purchase volume is expected to total $62.2 billion. Note that six companies which were active in 1989 did not purchase loans at all in 1988. These new wholesalers included Covino & Co., Purchase, New York; Crestar Mortgage Corporation, Richmond, Virginia; Diamond Mortgage; NorthEastern Mortgage Company, Inc., Cambridge, Massachusetts; Republic Mortgage Services Company, Columbia, South Carolina; and United Mortgage Company, Denver.

Two major wholesalers, Lincoln Service Corporation, Owensboro, Kentucky, and Fireman's Fund Mortgage Corporation, Farmington Hills, Michigan, refused to disclose their purchases, as did several smaller companies, including N.A. Bancorp Mortgage, Inc., Covina, California; Kislak Mortgage Services Corporation, Miami Lakes, Florida; Imperial Savings Association, San Diego; and Goldome Realty Credit Corp., Williamsville, New York. (Farragut Mortgage Co., Inc., Waltham, Massachusetts, is not listed because it was purchased by Huntington Mortgage late last year.) The figures include only whole loans purchased, either in bulk form or loan-by-loan, but not retail originations. Servicing transactions were also excluded from the purchase figures.

Exhibit 2 lists the top 25 wholesalers for 1988 in a ranking prepared by Wholesale Access. Combined, we calculated that they accounted for 86 percent of total wholesale purchases. Annual purchase volumes ranged from $309 million at CenTrust Mortgage Corporation, Deerfield Beach, Florida to $2.8 billion for Marine Midland Mortgage Corporation, Buffalo, New York. Three companies, Marine Midland Mortgage, Prudential Home Mortgage, Gaithersburg, Maryland, and Countrywide Funding, purchased in excess of $2 billion of mortgages and six others exceed $1 billion.

There were about a dozen wholesalers who were active market participants in 1988 but who are not listed because they later ceased operations. Because their purchases are excluded, total activity is understated. This partially explains why volume rose so rapidly in 1989.

Table : EXHIBIT 2 Largest Purchase Volumes 1988 (in millions of dollars)

Marine Midland Mortgage Corp. $ 2,800
Prudential Home Mortgage Co. 2,080
Countrywide Funding 2,020
Fleet Mortgage Corporation 1,660
Associates National Mortgage Corp. 1,600
First Nationwide Bank 1,500
Fleet Real Estate Funding Corp. 1,400
BancBoston Mortgage Corp. 1,100
Norwest Mortgage, Inc. 1,000
Citicorp Mortgage, Inc. 966
First Union Mortgage Corp. 800
North American Mortgage Co. 713
Empire of America Realty Credit Corp. 700
Travelers Mortgage Services 682
FBS Mortgage Corp. 650
Household Mortgage Services 650
Chase Home Mortgage Corp. 554
Hamilton Savings Bank 532
Sears Mortgage Corp. 520
America's Mortgage Co. 515
Greenwich Capital Financial, Inc. 511
Chemical Mortgage Co. 500
United California Savings Bank 376
Home Owners Fed 375
CenTrust Mortgage 309
TOTAL $24,513

Source: Wholesale Access, February 1990

Large, fast-growing

Exhibit 3 provides Wholesale Access' ranking of 1989's 25 largest wholesalers. At least three new companies joined the ranks of the top 25: Independence One Mortgage Corporation, Southfield, Michigan; Dominion Bankshares Mortgage Corporation, McLean, Virginia; and Security Pacific National Bank, Cypress, California. Two others, First Nationwide Bank, San Francisco, and United California Savings Bank, Santa Ana, California, dropped out of the group. Annual purchase volumes ranged from a high of $6 billion at Marine Midland Mortgage to $500 million at North American Mortgage Company, Houston; Security Pacific National Bank; and Suncoast Funding Corporation, Methuen, Massachusetts. For this group, purchase activity totaled $42 billion, approximately $20 billion more than the aggregate from the top 25 in 1988. EXHIBIT 3 Purchase Volumes 1989 (In millions of dollars)

Marine Midland Mortgage Corp. $6,000
Fleet Mortgage Corporation 4,030
Citicorp Mortgage, Inc. 3,100
Prudential Home Mortgage Co. 2,618
BancBoston Mortgage Corp. 2,600
Fleet Real Estate Funding Corp. 2,550
Travelers Mortgage Services 2,300
Countrywide Funding 2,060
Norwest Mortgage, Inc. 1,700
Household Mortgage Services 1,600
First Union Mortgage Corp. 1,500
America's Mortgage Co. 1,450
Associates National Mortgage Corp. 1,200

Empire of America Realty Credit Corp. 1,200
Home Owners Fed 1,200
Greenwich Capital Financial, Inc. 1,150
Chase Home Mortgage Corp. 1,040
Hamilton Savings Bank 953
Chemical Mortgage Co. 900
FBS Mortgage Corp. 800
Independence One Mortgage Corp. 775
Dominion Bankshares Mortgage Corp. 750
Sears Mortgage Corp. 650
North American Mortgage Co. 500
Security Pacific National Bank 500
Suncoast Funding Corp. 500
TOTAL $43,126

Source: Wholesale Access, February 1990

Seventeen companies, according to our data, purchased $1 billion or more in mortgage loans compared with eight, one year earlier. In 1989, 13 of the companies buying $500 million or more were owned by commercial banks, three were owned by insurance companies, five had thrift institution parents, and five had parent companies that were neither banks, insurance companies or thrifts.

Exhibit 4 lists the 25 fastest growing companies identified by Wholesale Access based on increased wholesale activity from 1988 to 1989. Among these lenders, increases in purchases ranged from 87.5 percent at First Union Mortgage Corporation, Charlotte, North Carolina, to 433.3 percent at ARCS Mortgage Inc., Calabasas, California. Eleven companies we followed increased their activity by 150 percent or more. Four of the fastest growing companies did so from extremely small bases; their purchase volumes totaled $200 million or less in the prior year.

Table : EXHIBIT 4 Fastest Growing Wholesalers 1989 (In millions of dollars)
Company 1988 1989 1988
ARCS Mortgage, Inc. $ 30 160 433.3
Independence One Mortgage Corp. 165 775 369.7
Travelers Mortgage Services 682 2,300 237.2
Jersey Shore Savings & Loan Assoc. 26 85 226.9
Citicorp Mortgage, Inc. 966 3,100 220.9
Home Owners Fed 375 1,200 220.0
America's Mortgage Co. 515 1,450 181.6
Caprock Mortgage Co. 95 265 178.9
Dominion Bankshares Mortgage Corp. 275 750 172.7
Security Pacific National Bank 200 500 150.0
Household Mortgage Services 650 1,600 146.2
First American Mortgage Corp. 74 181 144.6
Fleet Mortgage Corp. 1,660 4,030 142.8
BancBoston Mortgage Corp. 1,100 2,600 136.4
Boston Five Savings Bank 195 457 134.4
First NH Mortgage Corp. 160 365 128.1
Greenwich Capital Financial, Inc. 511 1,150 125.0
Commonwealth Mortgage Co. 220 495 125.0
Marine Midland Mortgage Corp. 2,800 6,000 114.3
Merchants Mortgage Corp. 160 340 112.5
The Huntington Mortgage Co. 157 325 107.0
Sovran Mortgage Corp. 236 460 94.9
Chase Home Mortgage Corp. 554 1,040 87.7
First Union Mortgage Corp. 800 1,500 87.5
TOTAL $12,606 $31,128 146.9

Source: Wholesale Access, February 1990

Exhibit 5 shows the top 25 wholesalers according to Wholesale Access' ranking based on activity levels anticipated for 1990. (The three companies with asterisks by their names established purchase ranges. In all instances, we cited the high-end of the projected range.) To be among those companies listed, projections for purchase volume would have to exceed $700 million. Indeed, all but four of the companies on the list expect to do $1 billion or more in business. Eleven of the companies forecast volume of at least $2 billion. The top 25 project total purchases of $52.7 billion, 85 percent of the $62.2 billion projected by all wholesalers we identified for 1990. Two of the companies listed in this exhibit, Fleet Mortgage Corporation, Milwaukee, Wisconsin, and Countrywide Funding, anticipate modest rollbacks in activity compared with 1989. Two others, First Union Mortgage and FBS Mortgage Corporation, St. Paul, Minnesota, project no change in their level of activity.

Table : EXHIBIT 5

Projected Volumes 1990 (In millions of dollars)
 % change
Company 1990 1989
*Marine Midland Mortgage Corp. $ 6,600 10.0
*Prudential Home Mortgage Co. 4,200 60.4
Fleet Mortgage Corporation 3,800 (5.7)
Fleet Real Estate Funding Corp. 3,500 37.3
Travelers Mortgage Services 3,300 43.5
America's Mortgage Co. 3,150 117.2
BancBoston Mortgage Corp. 3,000 15.4
Norwest Mortgage, Inc. 3,000 76.5
Household Mortgage Services 2,100 31.3
Countrywide Funding 2,000 (2.9)
Greenwich Capital Financial, Inc. 2,000 73.9
Associates National Mortgage Corp. 1,700 41.7
Home Owners Fed 1,600 33.3
Chemical Mortgage Co. 1,500 66.7
First Union Mortgage Corp. 1,500 0.0
Empire of America Realty Credit Corp. 1,300 8.3
Chase Home Mortgage Corp. 1,210 16.3
Independence One Mortgage Corp. 1,200 54.8
Republic Mortgage Services Co. 1,080 208.6
Dominion Bankshares Mortgage Corp. 1,000 33.3
Sears Mortgage Corp. 1,000 53.8
FBS Mortgage Corp. 800 0.0
North American Mortgage Co. 800 60.0
*Commonwealth Mortgage Co. 700 41.4
Sovran Mortgage Corp. 700 52.2
TOTAL $52,740 32.3

Source: Wholesale Access, February 1990

Of the 21 companies on the ranking that anticipate growth, individual percentages of growth range from a low of 8.3 percent at Empire of America Realty Credit Corp., Buffalo, New York, to a high of 208.6 percent at Republic Mortgage Services. America's Mortgage Company, Springfield, Illinois, is the only company in addition to Republic that expects to double volume from the prior year's level.

Exhibit 6 lists the 22 companies identified by Wholesale Access that expect to increase volume in 1990 from the previous year by 50 percent or more. Except for America's Mortgage, all of the other seven companies looking to increase volume two-fold or better are relatively small companies. However, six of the remaining fourteen companies project purchase volumes of 50 percent or greater than 1989 levels. These companies are Prudential Home Mortgage, Norwest Mortgage Co., Inc., Flanders, New Jersey; Greenwich Capital Financial Inc., Irving, Texas; Chemical Mortgage Company, Columbus, Ohio; Independence One Mortgage and Sears Mortgage.

Table : EXHIBIT 6

Fastest Growing Companies Based on Projected Growth
 % change
Company over 1989
Coreast Savings Bank 900.0
Covino & Co. 331.0
Republic Mortgage Services Co. 208.6
Crestar Mortgage Corp. 200.0
Landmark Savings Association 150.0

Jersey Shore Savings & Loan Assoc. 135.3
America's Mortgage Co. 117.2
Caprock Mortgage Co. 117.0
The Huntington Mortgage Co. 84.6
Norwest Mortgage, Inc. 76.5
Greenwich Capital Financial, Inc. 73.9
First American Mortgage Corp. 71.3
Chemical Mortgage Co. 66.7
Prudential Home Mortgage Co. 60.4
North American Mortgage Co. 60.0
United Mortgage Co. 60.0
ARCS Mortgage, Inc. 56.2
CenTrust Mortgage 55.8
Independence One Mortgage Corp. 54.8
Sears Mortgage Corp. 53.8
Sovran Mortgage Corp. 52.2
First Nationwide Bank 50.0
TOTAL 79.3

Source: Wholesale Access, February 1990

Growth of market

As the aggregate data indicates, wholesale activity increased nearly 80 percent in 1989 compared with 1988. Current projections suggest market participants anticipate an additional 22 percent increase during 1990. At $51 billion plus, wholesale production accounted for approximately 18.5 percent of all first mortgage loans originated in 1989.

One must ask why the wholesale market is growing so quickly. Certainly other investor arenas, such as the agency market, are not expanding anywhere near as rapidly.

Reasons for growth

Phenomenal growth of wholesale activity in recent years is due to eight factors. The growth is occurring primarily because wholesale production: * Supplements retail originations by

leveling out the production flow in

the back office; * Aids lenders in building large servicing

portfolios quickly; * Decreases the geographic concentration

that results from the local

and branch locations most lenders

have in place; * Allows for sufficient production volumes

so that hedging and

secondary market sales become

more cost efficient; * Does not require large, new fixed

expenditures to be incurred for personnel

or branches; * Allows lenders to take advantage of

accounting and regulatory changes,

such as FASB 65, FASB 91 and the

new risk-based capital requirements

that favor wholesale lending; * Allows lenders to take advantage of

structural changes in the mortgage

market, such as industry consolidation

and the advent of the extensive,

new broker/originator market; and * Provides what many view as a less

costly, more efficient means of producing


Wholesale production's many benefits will allow it to continue flourishing through its adolescence. The new economics of mortgage banking are likely to keep this industry segment thriving into a full and prosperous adulthood.
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Title Annotation:wholesale mortgage banking
Author:LaMalfa, Thomas S.
Publication:Mortgage Banking
Date:Apr 1, 1990
Previous Article:Automation.
Next Article:Having Fitts at FHA.

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