In many towns Principal Residential Mortgage would be the biggest player in the mortgage banking field. But in Des Moines its operation is dwarfed by Norwest Corp.'s giant mortgage unit.
The anonymity doesn't bother Principal's president and chief executive officer Paul F. Bognanno.
"One of the things that's characterized our organization over the years is relative modesty," said Mr. Bognanno. "In some cases that benefits us, and others it hurts us."
Norwest's operation, with $50 billion of originations in 1996 and a $200 billion-plus servicing portfolio, dwarfs most rivals. Neighboring Principal, a unit of Principal Financial Group, originated more than $6 billion last year, and its servicing portfolio stands at about $27.4 billion-substantial totals.
But some industry observers said that for a company of its size, Principal has almost been too quiet.
Brenda White, a managing director for UBS Securities, said that Principal rarely bids on large servicing portfolios and has never, to her knowledge, bid for an entire mortgage company.
Mr. Bognanno says that the company doesn't need to acquire other mortgage companies or giant servicing portfolios in order to grow.
"The expansion we're focusing on is to more fully penetrate the markets in which we currently operate," he said.
Principal has more than 30 retail offices in 14 states. Its correspondent division purchases loans from other lenders nationwide and provides the bulk of Principal's origination volume.
Mr. Bognanno said that although it is a subsidiary of one of the nation's largest insurance companies, Principal Residential is not that different from a bank-run mortgage company.
He said the company has had success in selling insurance products to the customers in its portfolio. And Principal has recently formed a telemarketing division to further cross-selling efforts. The telemarketing operation also serves as a way to increase loan volume by targeting customers for refinancing or second mortgages.
Several large lenders saw first half volume declines of more than 10% due to higher interest rates in the spring. But Mr. Bognanno said that because of volume from the telemarketing division and an increase in correspondent lending, Principal's first half volume declined only slightly.
The company also has not embraced subprime lending with the same enthusiasm that other conventional lenders have. Principal makes some B and C loans but has not created a division to cater to borrowers with subpar credit.
Mr. Bognanno said so many companies are now in the subprime field that it won't be long before margins thin significantly.
Principal's steady-as-she-goes approach to the business shouldn't come as any surprise. Unlike some mortgage companies, where executive turnover is commonplace, Principal has management stability.
Mr. Bognanno has spent his entire mortgage banking career with Principal Residential. He joined the company in 1973 as a loan officer trainee and took the helm of the mortgage division 20 years later.
And Mr. Bognanno says his tenure is the rule, not the exception. "It is not uncommon to have people here with over 20 year tenures. Longevity is not unusual with Principal Residential," he said. "Frankly, I think that's a company strength." u
