Even as it continues to staff up to meet surging demand for refinancings, Bank of America (BAC)is laying the groundwork for a return to traditional mortgage lending when the refi boom ends.
Matt Vernon, B of A’s top mortgage lending executive, says the company has hired roughly 1,000 mortgage specialists so far this year to keep pace with refi demand, which he expects to remain strong through most of next year due to low interest rates, the Federal Reserve’s latest round of quantitative easing, and a government program that allows “underwater” homeowners with high loan-to-value ratios to refinance.
At the same time, Vernon is looking ahead to 2014 and beyond, when purchases are likely to drive mortgage lending activity. Key to keeping the momentum going, he says, will be convincing more of its 58 million of its retail customers to get their mortgage through B of A – a strategy that is not as simple as it seems. After a major management shake-up last year that realigned the bank around a “customer-centered” approach, Vernon admits that its cross-selling initiative is still a work in progress.
Following are excerpts from an interview this week:
How sustainable is the refinancing boom and how much hiring have you done in the past year?MATT VERNON: We’ve been growing loan officers for the last eight months, and we’ve brought on 1,000 sales associates year-to-date and we are continuing to aggressively build our capacity.
The Home Affordable Refinance Program runs through next year, and with QE3 and the rhetoric from Treasury, we think [interest] rates will maintain where they are today through 2013 and that it’s sustainable.
Part of our strategy in 2013 is to prepare for a transition to the purchase market as we head into 2014 and 2015 when refinancing will be less of the total market. That outlook is based on interest rates and the current forecast for mortgage originations. If that were to move, the outlook would change.
There is a lot of talk about how hard it is to get a mortgage and that banks have pulled back on credit. Is that true?
This is the question that I get from the real estate community whenever I’m on the road. Credit is available. I think what’s different is it’s a documentation-heavy environment. Customers who purchased a home five or six years ago, we’re now asking them, as are our peers, to supply us with a lot of documentation.
Documenting income and having good credit is what is required. So when we deliver loans to investors, we mitigate our risk from a representation and warranty perspective.
You’ve been working on a plan on giving incentives to existing retail customers that get a mortgage. How is that going?
One of the things that we will do strategically is utilize our balance sheet to help support customers, meaning that for great credit customers, we will develop a program to reduce documentation that may make that document-gathering less intrusive.
We have a small pilot program for conforming loans that kicked off recently where we offer customers with great credit some recognition of that. We’re still in the learning stage of the pilot so we’re looking at what we get from that to inform what we do next year.
B of A had a management shake-up a year ago and part of the strategy has been to cross-sell more mortgages to existing customers. How’s that working out?
From the CEO down, our strategy now is clearly to deepen relationships with our existing customers and that spans the entire company. If you think about what B of A has built over the last decade, since acquisitions are no longer what we’re looking at, it’s about taking advantage of the customer base.
We have paired up our banking centers with mortgage loan officers in a model with small business and investment. So we now have loan officers, small-business specialists and investment specialists that are in about 2,500 [branches]. That’s not a strategy we had in the past. In essence we have three specialists supporting those stores in addition to branch staff. We call it internally a “one-team” approach.
A year ago, 86% of B of A’s retail bank customers bought a home or refinanced with another lender. Has that number changed?
The past year was about getting that strategy up and running, which was based on an exit from wholesale and correspondent lending. We’re right around the same number today. Our expectation now through 2013, 2014 and 2015 is to aggressively grow that number beyond 14%.
How do you mine the data on existing B of A customers for mortgage leads?
It’s probably a couple of ways. We know our customers in the mortgage business and we know where [interest] rates are, so we target market to those customers and drive them to our distribution channels.
How do you win business from Realtors?
The best way to win the Realtor business is to close on time, have great communication, and have loan officer’s respond to the Realtor’s timetable. You have to execute.
We just met with the National Association of Realtors and we’ve answered that complaining voice of the Realtor with an education platform. That’s what’s needed on the default side, an understanding about short sales and on first mortgages, how they can better prepare the customer to come to a bank and get a loan. That’s a big platform for us. You have a lot of Realtors that came into the industry in the past five to seven years and they don’t understand how to prepare their customers. Mostly it has to do with increased documentation issues.