In another instance of a big home lender retrenching from a third-party origination channel, Bank of America Corp. has decided to shut down its wholesale mortgage business by yearend.
Floyd Robinson, the president of the $1.6 trillion-asset company’s home loan business, said in an interview Thursday that the move is driven by an assessment of the “competitive advantages we had in the direct-to-consumer environment compared to, quite honestly, not having a competitive advantage on the wholesale side.”
B of A’s ability to offer its flagship no-fee mortgage product, which it introduced in April, is based in part on the cost advantages of direct sales channels such as bank branches, retail mortgage offices, call centers, and the Internet, he said. Hence, making loans through brokers does not fit the product approaches B of A has pursued.
It is the company’s “long-term strategy to be No. 1 in direct-to-consumer — more so than maybe being No. 1 in the market,” Mr. Robinson said.
A number of lenders have stopped funding loans through brokers or buying them from correspondents this year.
For example, this week, National City Corp. shut down its correspondent channel, which had 100 employees.
Closing B of A’s wholesale channel will require 700 job cuts, or about 5.4% of its consumer real estate work force. The cuts were part of the 3,000 companywide layoffs announced Wednesday.
Most of the layoffs resulted from a review of the corporate and investment banking unit, which was shaken during the third quarter by severe trading losses and asset markdowns. But Kenneth Lewis, B of A’s chief executive, has said that some of the reductions “have been contemplated for a number of months as we looked at how we could operate more effectively.”
In its second-quarter filing with the Securities and Exchange Commission, Bank of America said it had relationships with 7,000 mortgage brokers. The wholesale channel currently accounts for about one-quarter of the company’s mortgage production, and Mr. Robinson acknowledged that shutting down the business will cause a drop in volume. “But our intent would be to grow our direct-to-consumer activities at a pace that would continue to allow us to be the No. 1 direct-to-consumer lender,” he said.
Some lenders that stopped originating loans through third parties this year — such as HSBC Finance Corp., a North American unit of London’s $2.15 trillion-asset HSBC Holdings PLC — have said that direct sales provide better control over loan quality.
But Mr. Robinson said the credit performance of Bank of America’s wholesale production was the same as that of its retail production.
B of A’s mortgage originations in the quarter fell 7.7% from the second quarter but rose 26.9% from a year earlier, to $26.9 billion. The company said the year-over-year rise was propelled by a 60% jump in sales from its branches.
For some time the company has avowed a preference for direct mortgage sales.
“We have said unequivocally that our strategy” in mortgages “is one of organic growth, and it’s centered around selling direct to the consumer,” Mr. Lewis said in February. “We’ve said that we’re not particularly interested in the wholesale or correspondent business. We have said that we like the product but not the business.”
Bank of America quit correspondent lending in 2001. But in mid-2005, in an environment of fierce price competition and rapid changes in mortgage design, the company said it planned to reenter the business. At the time, Mr. Robinson called the correspondent channel “another lever” that B of A could use “to react to what’s going on in the marketplace.”
But on Thursday Mr. Robinson said Bank of America has had no correspondent mortgage volume since he took over the home lending unit in September 2004.
“We have a small group of associates that actually have not been active on the correspondent side,” he said.
B of A’s no-fee mortgage allows for loan-to-value ratios of up to 95% without mortgage insurance and does not charge a wide array of up-front closing fees. Amid projections of continuing home price declines, Mr. Robinson said the offering’s loan-to-value limit is “something that we always are paying attention to, and if we have to make adjustments relative to that, we’ll make those adjustments.”
