PNC Mortgage has hired a veteran credit officer to help wring more profits from loans.
Ron Gaither, who joined the unit of PNC Bank Corp. this month in the new position of senior vice president of credit policy, will focus on risk- based pricing.
The approach-in which loans are priced according to fine gradations in credit quality-"will help us be on the front end of an evolution taking place in the mortgage industry," said Saiyid T. Naqvi, chief executive of PNC Mortgage, Vernon Hills, Ill.
Credit card issuers have long used risk-based pricing. But the method, which sets prices on a loan-by-loan basis depending on credit score, collateral value, and loan type, is just finding its way onto the mortgage field. The system veers from the mortgage industry's tradition of setting similar prices for many borrowers and is expected to help lenders as they venture down the credit spectrum in search of wider margins.
The company is opening new loan offices across the country and has outfitted sales representatives with laptops.
PNC wants to boost origination volume that, at $5.6 billion last year, ranked it 22d in the industry.
Risk-based pricing is "a tool for more focused underwriting and credit assessment," Mr. Gaither said.
By using more precise measures, PNC can better demonstrate the value of its loans, he said.
Mr. Gaither spent more than a decade analyzing credit risk for Prudential Home Mortgage and mortgage insurer Amerin Corp.
At PNC, he will use automated underwriting, loan scoring, and other tools to help originate more loans.
He also said PNC will apply techniques to loans to demonstrate they often perform better than industry averages and could be priced to reflect that.
Risk-based pricing creates the kinds of efficiencies sought by Wall Street and other buyers of mortgage loans, said Andrew B. Jones, mortgage group vice president at Duff & Phelps Credit Rating Co.
A few companies, including Norwest Mortgage, are starting to take the approach, but most mortgage companies still rely on old formulas that don't make fine distinctions, he said.
"The mortgage industry is moving more toward risk-based pricing," Mr. Jones said, "but there is still a lot of work to be done."
