Since Ted Tozer took the helm as president of Ginnie Mae in February 2010, he has witnessed a sweeping transition in the mortgage market--going from one dominated by large banks to one dominated by non-bank independent mortgage bankers. [paragraph] Prior to coming to Ginnie Mae, Tozer served for 20 years as senior vice president of capital markets at National City Mortgage Company, Cleveland, which was acquired by Pittsburgh-based PNC Financial Services in 2008. At National City, his responsibilities included pipeline hedging, pricing, loan sales, loan delivery and credit guideline exceptions. [paragraph] From 1986 to 1989, Tozer was vice president and chief financial officer of BancOhio National Bank, Cleveland, where he was in charge of overseeing loan delivery, pipeline hedging, pricing, corporate accounting, servicing investor reporting and product development. From 1979 to 1986, he served at BancOhio as vice president and investment operations manager, and was responsible for all operational support functions of the bank's bond portfolio and securities dealer. [paragraph] From 2002 to 2004, Tozer served as chairman of the Mortgage Bankers Association's (MBA's) Capital Markets Committee. While chairman, he successfully worked with Ginnie Mae to change the structure of the Ginnie Mae II security.
Tozer has a Bachelor of Science degree in accounting and finance from Indiana University. He became a certified public accountant in 1980 and a certified management accountant in 1984. Mortgage Banking caught up with him recently at his office in Washington, D.C.
Q: There is a broad shift in the mortgage origination market toward non-banks. This seems to be more pronounced when you look at the composition of issuers of Ginnie Mae securities.
A: Correct. If you turn the clock back four years, about 18 percent of our guaranteed securities were put together by non-banks. Right now around 65 percent of our securities we're guaranteeing are from non-banks. So, it's a pretty dramatic change. For bank originations, we've gone from 82 percent down to the mid-30 percent range. So it's a pretty pronounced shift. Most of the shift has occurred in the last 18 months.
Q: What's driving it?
A: About 15 years ago, banks tended to do mortgages as a way to obtain bank customers and to support their retail banking sector. But what happened during the 2000s is that because of economies of scale, banks started building servicing as a profit center. And I think what's happening now is that banks have gone back to the original model of really supporting the retail bank operation, and it's not so much the case of just acquiring servicing for servicing's sake.
Banks have all these other areas of the organization where they can make money--car loans, credit cards and so on. They are shifting their capital to areas that are more profitable than the mortgage banking side.
On the non-bank side, these are monoline businesses that have built their models around this low-margin business because they don't have any other product and they're specializing in mortgages. Because of that specialization, they are able to do business a little bit cheaper than ... the banks.
So what you're seeing, I think, is a kind of back to the future--where banks are going back to supporting their retail banks while non-depositories are filling in the void. Because of Basel III [bank capital standards limiting mortgage...