KeyCorp is ready to fully embrace mortgage lending again.
Timing is important for the Cleveland company as it looks to cross-sell more products and to capitalize on a market that has shifted away from refinancing in favor of home purchases. KeyCorp also feels more comfortable with the regulatory landscape now that most postcrisis rule changes have taken effect.
"Buying a home is the largest financial decision that most of our clients will make," E.J. Burke, co-president of the company's Key Community Bank unit and immediate past-chairman of the Mortgage Bankers Association. "If you're going to be the partner of your clients you really need to be strong in residential mortgage."
KeyCorp has been emphasizing a strategy that aims to offer customers "ease, value and expertise," Burke said. Residential mortgages fit the philosophy, and the recent hiring of a former Citigroup executive, Mark Danahy, as president of its mortgage operations is the initial step toward incorporating the business into KeyCorp's broader strategy, Burke said.
Burke's background is heavily steeped in commercial lending, so the bank looked to hire someone like Danahy with extensive experience in residential lending. It is now evaluating the best way to work mortgages into the broader mix, Burke said.
Wading in and out of the mortgage business is nothing new for KeyCorp. It initially became a major mortgage player in 1991 when it bought Goldome after the Buffalo company was seized by regulators. Nearly four years later, KeyCorp sold its $25 billion mortgage-servicing rights portfolio and platform to a Bank of America predecessor.
KeyCorp returned to the mortgage business when it bought Champion Mortgage, a subprime lender in New Jersey, in 1997. The company, however, sold its subprime loan portfolio in late 2006; it unloaded its origination business a few months later.
Several factors encouraged KeyCorp to return to mortgage lending again, Burke said. Since the financial crisis, it has become one of the best capitalized regional banking companies. It has also improved branch productivity and its cross-selling capabilities.
The mortgage business has also evolved significantly in recent years. "If you came to me in 2008 or 2009, I would say there are too many uncertainties around the business for me to go to our board and say, 'Hey, we should be upping our game here.' "
The regulatory environment has become "much more manageable," even when considering new rules from the Consumer Financial Protection Bureau, Burke said. Compliance tools from outside vendors are also helping to bring more certainty, he said.
KeyCorp plans to lend to current or prospective customers in its existing markets Alaska , Colorado, Idaho, Indiana, Ohio, Oregon, Maine, Michigan, New York, Vermont, Washington and Utah rather than operate a standalone business. The market's shift toward purchases also plays nicely into KeyCorp's relationship-driven strategy.
The company's existing loan officers have some real estate agent relationships, though plans are in place to increase the number of mortgage lenders. KeyCorp, which is in the early stages of identifying lending officers, will work with Danahy to create a mortgage strategy, including an evaluation of other consumer-direct origination channels, Burke said.
The company remained active in home equity lending even after it scaled back its mortgage dealings. KeyCorp's first-mortgage production volume totaled $800 million last year.
Its private bank originates jumbo mortgages and conforming mortgages. The company could also enhance an existing low-to moderate-income product already offered through its branches, Burke added.
KeyCorp, which services its mortgages, sells a number of its conforming loans to PHH. Burke said that relationship is not expected to change in the immediate future. Danahy, meanwhile, is a former chief executive of PHH Mortgage, having resigned in May 2010 before joining Citigroup.
"If growing [the mortgage business] most effectively means we continue with our PHH relationship, we will do that," Burke said. "They've been great partners, but if we determine that it's better for us to become our own seller/servicer, we will do that. It is just too early to tell."
Banks should be providing strong, competitive and convenient real estate finance solutions to their clients, Burke said.
"It is more around stepping back and looking where we are at today and what we have capacity to do, then looking at the industry and [asking] do we believe we can control the risks and that we compete and make money?" he said.