Four years after it got out of the mortgage business, PNC Financial Services Group Inc. says it needs to get back in to be competitive in consumer banking.
On Wednesday the Pittsburgh banking company announced a venture with Wells Fargo & Co.'s home finance unit that will soon be lending in all of PNC's markets.
"The first mortgage is a big driver of the consumer business," said James Burzotta, a senior vice president and the consumer-lending manager of PNC Bank, in a brief interview.
The venture, PNC Mortgage LLC, will sell some of the loans it makes to Wells, some to third parties, and some (mostly loans to low- and moderate-income borrowers) to PNC, he said. But "I wouldn't call it an asset play. I would call it a customer play."
PNC was comfortable making that play in partnership with Wells, the type of effective cross-seller that mortgage executives say it can be dangerous to expose customers to, even with contractual barriers. Wells will service the loans; however, analysts pointed out that Wells' and PNC's banking markets do not overlap much, if at all. And Mr. Burzotta said, "I can tell you there is some fairly robust language in the agreement that under no terms can Wells cross-sell anything to these customers."
PNC's return to the business comes amid dwindling margins industrywide caused by raging competition and widespread talk about frothy home prices in several major markets.
The company sold a large mortgage unit to Washington Mutual Inc. in 2001, after the previous refinancing boom had petered out. It now joins other large banking companies - including Bank of America Corp. and Wachovia Corp. - in refocusing on the business.
They view mortgages as necessary to be a one-stop shop for increasingly important retail customers, some analysts say. "If you don't have access to a residential mortgage product, you're tying one hand behind your back when you're competing against banks that do," said Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets.
Jennifer A. Thompson of Oppenheimer & Co. Inc. agreed with that assessment. Having a strong mortgage menu "makes sense if you want to win wallet-share," she said. "Almost everybody needs a mortgage."
Still, until recent years most banks viewed the business as quite apart from banking relationships because of its competitive nature and often stressful experiences for borrowers.
Mr. Cassidy said the fact that a lot of home equity lending is being done by first-mortgage originators - often in place of down payments or mortgage insurance - is one change drawing mortgages closer to the core of retail banking. Mr. Burzotta cited this opportunity.
PNC Mortgage will open for business with sales operations in the Washington-area market where PNC gained a foothold with its May purchase of Riggs National Corp., and expand in the next few months into the rest of its markets.
Riggs also gave PNC a small mortgage platform. The venture's Washington-area operations will get seven loan officers and three sales assistants from Riggs and is expected to expand over time.
Mortgage applications by PNC Bank's customers will be taken through its branch network, PNC Advisors offices, and a call center. Customers seeking mortgages have been referred to PHH Corp.'s call centers, in a co-branded relationship with the big home loan outsourcer.
PNC's last mortgage unit was built on the back of Sears Mortgage Corp., which it bought from Sears, Roebuck and Co. in 1993. In 2000, the year before it was sold, the Vernon Hills, Ill., lender was the eighth largest originator of residential mortgages, according to National Mortgage News.
After the sale, PNC initially agreed to refer other customers to Wamu for mortgages, but later ended up using PHH's mortgage unit, which was then known as Cendant Mortgage Corp. (Cendant Corp. spun off what is now PHH in January.)
FleetBoston Financial Corp. - which sold its mortgage unit to Wamu the same year as PNC - also later backed out of an arrangement to sell new mortgages it made to the Seattle thrift. Wamu was moving into its markets, and Fleet cited concerns about customer poaching as well as Wamu's refusal to offer private-label servicing for its customers. Fleet ended up working with PHH as well.
PHH, of Mount Laurel, N.J., lost two big private-label clients in the past year: Fleet, which B of A bought, and USAA Federal Savings Bank, which started in-house operations.
It also recently lost some of the business of MetLife, which over the next 18 months plans to get into originating loans through a Web site and a handful of insurance offices.
The president of MetLife Bank said last month that the relationship is "not being dissolved." Without giving specifics, she said MetLife would not initially get involved in servicing, and so was talking to PHH about that area.
On Wednesday a MetLife spokesman said it is still in negotiations over servicing but would not say with whom. A spokeswoman for PHH said it usually leaves it up to clients to talk about relationships and had no other comment by press time.
