Industry Professionals Share Input on State of Mortgage Market

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A little over a week ago Garrett, Watts & Co held its annual client appreciation dinner in San Francisco. The event took place at the Palace Hotel.  A diverse group of industry professionals were in attendance including bankers, independent mortgage originators, warehouse lenders, loan investors and various third party service providers. This year we conducted a round table discussion on various issues facing our industry.  Discussion topics included:

  • Loan officer Compensation
  • Non-Agency LoanSecuritization
  • Warehouse Lending Capacity
  • Retaining Loan Servicing
  • Internet Originations
  • Merger and Acquisitions

Here is a recap of the feedback we received...

Loan Officer Compensation
Several participants went to the recent MBA conference in hopes of grasping a better understanding of new originator compensation regs.  Most walked away with a better understanding of the new regulations but little information on how to implement and manage them.  Some of our guests stated they were going to wait until the large bank owned mortgage companies roll out their loan officer comp plans. Rather than trying to establish a practice now, it might be better to wait for the largest lenders to release their guidance. 

Non-Agency Loan Securitization
Mike McHahon of Redwood Trust  discussed the pool of jumbo loans they recently issued and sold.  He stated the secondary market is still recovering from the subprime meltdown, but their issue was oversubscribed. The loan paper in the pool was pristine and attracted a great deal of investor interest.  Mike further stated that 90% of the mortgage related securities today are backed by the US government, but the industry needs a viable private mortgage security market. 

Warehouse Lending
We had several representatives from the major warehouse lenders in attendance. Gary Ort from Texas Capital and others stated they were actively looking to add customers.  It is a different world than it was 18 months ago.

Retaining Loan Servicing
More mortgage bankers are retaining loan servicing.  They are selling loans directly to the GSEs or issuing their own securities.  Some said they are very close to being approved through GNMA to issue their own securities backed by FHA and VA loans.  We believe it is important to retain some servicing with rates near historic lows. 

Internet Originations
Several mortgage bankers were originating loans through the internet and booking impressive profits in the process.  They all said the key to success is having best technology to recruit the best sales people with call center experience. Others added it was necessary to develop granular metrics to measure lead to loan conversion ratios. 

Mergers & Acquisitions
We’ve had a flurry of questions about mortgage company valuations and the price a buyer might pay for a profitable mortgage operation.  One of the attorneys who joined the dinner commented that most deals he’s seen have been done at book value with an earn out component for the seller.  Many investors today are worried about trailing risk and not inclined to pay much premium for a company.

We hope to have an East Coast Diner sometime in the spring of 2011.  We’ll keep you posted on the schedule.