A new survey shows subprime lenders see a big future for the retail nonconforming loan business.
The promise of increased profit margins, the ease of entry into the business and a warm reception from Wall Street have attracted a lot of fanfare to the B & C lending industry lately. These forces together are prompting a stampede of new participants into the nonconforming mortgage business, also known as subprime.
A flood of market entrants, new technologies and deployment systems all seem geared at grabbing a greater share of consumers' business, much the way that conforming lenders increasingly are going directly after consumers for business. An emphasis on customer convenience, simpler and shorter process cycles and one-stop shopping are transforming the origination business. More and more conforming lenders realize that the real customer in the mortgage lending business is the borrower. B & C lenders, such as The Money Store, Sacramento, California, initially formed and still operate their organizations with this same core philosophy serving the consumer.
Just like the conforming mortgage business, there are three predominant distribution channels serving B & C lending - wholesale, correspondent and retail. This article examines some of the strategies, practices, efficiencies and compensation levels of today's industry leaders in the retail channel. The information is derived from the 1996 Nonconforming Retail Compensation Survey conducted by the author and supplemented by interviews with senior executives at the industry's leading firms.
The retail channel of B & C lending is characterized by the direct-to-consumer or borrower approach. The typical retail origination vehicles used by lenders to reach the consumer include telemarketing, direct mail, radio, television and print advertising, as well as internal retention systems for existing customers. These approaches also were examined in the survey.
To provide some insight into the nonconforming retail channel, interviews were done with 12 of the nation's leading nonconforming retail lenders. The survey gathered data on compensation practices for two of the more generic production positions within the nonconforming retail channel branch managers and multibranch regional managers, called area managers or direct managers by some participants. The survey also explored additional areas of interest including products, primary niches, lead-generation systems and operations. Surveys were sent to 17 firms; 12 participated.
Nonconforming retail study
Twelve of the nation's leading nonconforming (A-D paper) retail mortgage lenders contributed data for the study. Included were each of the top five, and eight of the top 11 of the nation's leading nonconforming originators, according to rankings appearing in the 1997 edition of Home Equity Lending Directory by Faulkner & Gray. (The directory's publisher, however, notes at the bottom of the rankings that not all lenders participated and thus rankings may not reflect actual industry performance and relative size of market participants.) Nevertheless, these participants are a representative sampling of today's nonconforming industry players.
Lenders that participated in the survey were:
* Aames Financial Corporation, Los Angeles
* Advanta Mortgage Corporation, Fort Washington, Pennsylvania
* The Associates (Ford Consumer Financial Co.), Irving, Texas
* Banc One Financial Services, Indianapolis
* Beneficial Management Corporation, Peapack, New Jersey
* Emergent Mortgage Corporation (Home Gold), Pickins, South Carolina
* Green Tree Financial Corporation, St. Paul, Minnesota
* Household Financial Services, Elmhurst, Illinois
* IMC Mortgage Company, Tampa, Florida
* The Money Store, Incorporated, Sacramento, California
* Transamerica Financial Services, San Francisco
* United Companies Financial Corp. (UC Lending), Baton Rouge, Louisiana
Retail nonconforming production volume