Taylor Capital Group Inc.'s return to the home mortgage business after eight years illustrates that sometimes it's who you know - and what they know.

In early December, the Rosemont, Ill., company hired William Newman and two dozen other veterans of what used to be ABN Amro Mortgage Group Inc. to start a home loan unit. The $4.5 billion-asset parent of Cole Taylor Bank said it wants to generate fee income and rely less on commercial and industrial and residential real estate development loans, where delinquencies are mounting.

Mark Hoppe, the president of Cole Taylor Bank, says the company wouldn't have picked consumer mortgages as the place to branch out were it not so familiar with the hires. "It is key that it's Willie and this team of people that we've known for some time," Hoppe says. "It would be difficult for us to make this foray otherwise."

The plan is contrarian, not only because the Mortgage Bankers Association forecasts originations to drop 40 percent to 60 percent in 2010. Newman's group will be originating loans through mortgage brokers (as well as Cole Taylor branches and retail mortgage offices).

Brokered loans have fallen out of favor in recent years because of higher default rates and the perception they have higher incidences of fraud. Taylor, Bean & Whitaker Mortgage Corp., once the second-largest wholesale lender, went bankrupt this year.

Brokers' share of loan originations has sunk from a peak of nearly 70 percent in 2006 and is now closer to 20 percent, according to David Olson, a managing director at Access Mortgage Research and Consulting Inc. in Columbia, Md. But Hoppe says the recruits' expertise would help Cole Taylor succeed in a channel where a number of major lenders have thrown in the towel - including Citigroup Inc., which shuttered its wholesale operations in 2008, the year after it bought ABN Amro Mortgage. 'The ABN Amro Mortgage model made substantial use of brokers among other methods of origination," Hoppe says. "While there are legendary stories of bad brokers, there are many very honest, good ones as well."

Hoppe and other Cole Taylor colleagues know Newman and his crew from when they all worked under the umbrella of Chicago-based LaSalle Bank Corp. when it was owned by ABN Amro, the Dutch banking giant. (LaSalle was sold to Bank of America in 2007.)

Newman is the former president of the wholesale arm of ABN Amro Mortgage, which was based in Ann Arbor, Mich. At its height in 2003, the unit was the nation's No. 6 originator. He most recently was head of mortgage banking at Equity Services Inc., a small independent lender in Raleigh. Hoppe had been the CEO of LaSalle Bank Midwest, in Troy, Mich., before he joined Cole Taylor in January 2008. He drew a parallel between the unit Newman is starting and Cole Taylor's foray last year into asset-based lending.

For that venture, Cole Taylor hired another veteran executive from LaSalle, Michael Sharkey. The asset-based lending business booked $250 million of new loans in its first year with just six salespeople in core markets including Chicago, Houston and Atlanta. In both cases, Cole Taylor is "going with recognized leaders in their niche that have a national footprint," Hoppe says.

The mortgage unit will originate prime loans beginning in the first quarter that will be sold to Fannie Mae and Freddie Mac. Cole Taylor has also applied to the Department of Housing and Urban Development for approval as a Federal Housing Administration lender. It also will originate jumbo loans when it gains secondary market commitments. Cole Taylor plans to sell the servicing rights for the mortgages it originates at least for the first year, he said.

Cole Taylor quit residential mortgages in 2001 when the bank's previous management team determined it was not a strategic business. In retrospect it was a smart move, since a few years later underwriting standards dramatically loosened, leaving many lenders and servicers stuck today with stockpiles of delinquent mortgages and repossessed homes. "That bullet was effectively dodged," Hoppe says. "Now it feels pretty strategic to us. We're not going to become a mortgage bank. It will just be a piece of what we are."

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