Fleet Mortgage Group, long one of the most respected companies in the business, surprised Wall Street last month by announcing a $35.4 million loss for the second quarter. The results reflected heavy prepayments of loans amid the refinancing boom.
Andrew D. Woodward Jr., chief executive, discussed the boom and other topics in an interview with Phil Roosevelt of the American Banker.
Q.: Would you like to see the refinancing boom go away?
WOODWARD: The refinancing boom has clearly been a good news/bad news story. It has been great for loan production. But if you're a large servicer, it has led to accelerated prepayments in your portfolio.
Given the fact that we were the largest servicer at the time the refi story started, it's been kind of a balanced story for us.
Q.: What have you done to head off more big hits?
WOODWARD: We've adopted a more conservative valuation approach for our servicing assets, and we're exploring hedging those, assets with financial instruments. There are a multitude of products available, like prepayment caps and Treasury options.
Q.: What about boosting originations - wouldn't that take some of the pressure off the servicing side of the business?
WOODWARD: We already have boosted originations, principally in our retail branches.
In 1991, we produced $3.2 billion of loans in our retail branch network, and in 1992 we did $7.9 billion. This year we're at a running rate of $8.8 billion.
Q.: How did you manage to do that?
WOODWARD: We've significantly increased the staffing in our retail network and significantly increased our efficiency.
We have fewer branches today than we had a year and a half ago - we're down from 108 to 91. We've consolidated some of our smaller offices into larger ones with regional processing.
Q.: You buy a lot of loans from banks and mortgage companies. Why not follow your competitors' example by also using mortgage brokers?
WOODWARD: We're looking at that. We're not saying that it can't be a good business - but you have to build the infrastructure to ensure that the credit quality and the handling - of loans is in conformity with your standards.