Carrington Mortgage Services has won Ginnie Mae approval to securitize government-backed home loans, a major step in the company's evolution from a side business at a hedge fund into a full-fledged lender.
Its new status as a Ginnie Mae issuer should fuel the company's originations of loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs. Carrington will now be able to bypass middlemen and quickly raise cash by selling pools of these loans directly to investors.
The mortgage outfit, based in Santa Ana, Calif., is a unit of Carrington Holding Co. LLC, an investment manager in Greenwich, Conn., founded by Salomon Brothers veteran Bruce Rose.
"What excites us about the Ginnie Mae approval is that it allows us to go direct to Ginnie as opposed to capital markets middlemen," says Steve Patton, executive vice president for Carrington Mortgage Services' lending division.
"FHA and VA is about 40 to 50% of our current production, so having the ability to deliver directly to Ginnie provides us with a competitive advantage to continue to grow our platform."
Patton said that Carrington currently sources a majority of its loans from real estate agents and brokers. With its move into wholesale lending, it is hoping to add significant growth working through loan brokers. At the same time, Carrington has been expanding its retail business and has 25 retail branches throughout the U.S. and a call center in Southern California.
Carrington went through an extensive vetting process to become a Ginnie Mae lender, Patton says. "In addition to the standard application there is a financial review of the company, an on-site review, as well as a review of your credit quality," he says, "And they did a review of the servicing platform because we are a servicer-seller."
The approval from the federal agency officially known as the Government National Mortgage Association is a vote of confidence in a company that has seen its share of controversy.
Carrington reached a settlement in May with the Ohio Attorney General's Office and the state's Department of Commerce. The settlement, under which Carrington did not admit guilt, resolved a 2009 lawsuit that alleged it had violated the state's consumer protection laws by wrongfully handling loan modifications. Carrington agreed to a series of loan modifications and mortgage servicing standards for all in-state loans as part of the settlement.
"Combining the effort and resources of CMS and the state of Ohio to further the goal of assisting Ohio homeowners makes great sense," said Dave Gordon, the chief operating officer of Carrington Holding in a May 23 press release.
"Instead of focusing our energies on litigation, we will be working together to continue what we have been accomplishing for our consumers all across the country: offering best-in-class servicing and providing a loan modification and loss mitigation process that is as simple and seamless as possible."
The company has also drawn fire for its substantial holdings of junior tranches in private-label mortgage-backed securities. Critics say this creates conflicts of interest in the servicing operations.
