A tiny mortgage bank in California used its quarterly earnings release to vent about aggressive pricing by the Goliaths of the mortgage banking world.
First Mortgage Corp., based in Diamond Bar, is seeing a squeeze on its profit margins and cites the main culprit as competition from large commercial banks.
In the company's latest earnings report, chairman and chief executive Clement Ziroli said that pricing was "cutthroat" at both the wholesale and retail levels. He added that "several of the major banks appear to be engaged in a virtual price war for mortgages."
Mr. Ziroli said large banking companies, such as BankAmerica Corp., Chase Manhattan Corp., and Norwest Corp., are setting the tempo for pricing. He added that the price competition had been going on for the last year or two, but that it had intensified recently.
For First Mortgage, loan origination volume for the nine months ended Dec. 31, was $274.64 million, a 14% increase from the same period in 1995. But net income was only $916,000, down 64%.
In a phone interview, Mr. Ziroli said the price competition was intense in just about every region in California, and that conventional loans, the mainstay of many mortgage companies, are where the most pressure is.
"The conforming, vanilla type of loan is where we're getting murdered," he said.
Mr. Ziroli noted that there had been more pricing pressure on the wholesale side since the banks were relying more on brokers for their originations. He added that the commercial banks were trying to originate more so they could feed their large portfolios.
A spokesman for BankAmerica, which has the largest share of mortgages in California, said the company does not comment about pricing strategies for any of its products.
But Dan Hanson, senior vice president and division manager for Norwest Mortgage Inc. in Riverside, Calif., said the main reason larger national entities like Norwest are able to price at lower rates is because they can originate loans at a lower cost than some of the smaller mortgage banks like First Mortgage.
Norwest, the nation's largest producer and servicer of mortgages, originates loans through its Norwest Mortgage franchise as well as through Towne Mortgage, a joint venture with Wells Fargo & Co.
Mr. Hanson said the pricing environment was also affected by the fact that there is an overabundance of mortgage originators in California.
So what is a smaller originator like First Mortgage to do to compete with the big guns in the business?
Mr. Ziroli said his company has had to sell more servicing than it would like to offset the lower margins on the origination side.
