Hungry for internal growth, Bank of America Corp. aims to become the nation's No. 1 retail mortgage originator.
To accomplish that, the Charlotte company, which in the third quarter ranked fourth in retail originations and sixth in overall originations, has been shifting the retooling of its mortgage operations into high gear.
That project began two years ago, when Bank of America merged its home equity and mortgage operations into one consumer real estate division and named Kevin Shannon, a 19-year veteran of the $660 billion-asset company and its predecessors, as its head.
It plans to devote more than half of this year's $100 million-plus advertising budget to the revamped business. Officials said it would be the biggest ad campaign ever by a home lender.
In addition, Mr. Shannon intends to double his division's team of mortgage sales specialists to 4,000 by the end of next year. Last year he hired 500.
"We are focused on reinventing our mortgage business from the customers' point of view," he said in an interview two weeks ago.
Under Mr. Shannon the division exited subprime and correspondent lending; developed a mortgage-lending process that executives said reduces paperwork by 80%; and created a Web system designed to let Bank of America's 10,000 bank branch officers originate home loans.
Mr. Shannon, whose title is president of consumer real estate, previously worked in the government card services unit in Washington. He said Bank of America is devoting ample resources to reinventing its mortgage operations because it wants to be less reliant on mergers and acquisitions for profit growth. Rather, it aims to better its bottom line by seizing cross-selling opportunities presented by the forging of solid customer relationships.
"You don't have to be too bright to figure out that building relationships is an important thing to do in this business," Mr. Shannon said. "Winning in the end will be highly correlated to those companies that can earn their customers' business from the start and deliver a great experience in obtaining a mortgage and servicing that mortgage going forward."
Bank of America implemented the changes in his division with that goal in mind, he said. For example, it made the "hard decision" to get out of the correspondent business in mid-2001 -- hard because management knew some market share would be lost in the short term. Buying closed loans from other banks did not foster good customer relationships, he said.
"What we really saw in the correspondent business is that it was very, very difficult to develop very broad relationships with those customers," because they tend not to develop long-term connections with correspondent lenders, Mr. Shannon said. "It really didn't provide the final returns that we were looking for."
This same flaw led to the unraveling last month of FleetBoston Financial Corp.'s correspondent arrangement with Washington Mutual Inc. Fleet executives told American Banker at the time that they could not track their customers.
Mr. Shannon said a similar problem led to Bank of America's decision to exit subprime two years ago. "Subprime had too much volatility in it. It was going to be very difficult to for us to deliver the right customer experience and wouldn't play well to our relationships strategy."
Since subprime borrowers are riskier by definition and have a harder time making their mortgage payments, Bank of America does not want to increase its exposure to them.
That is a different view than expressed recently by a former colleague, Daniel Hellams, who was the president of Bank of America Mortgage reporting to Mr. Shannon until he left in May. Now a managing director in charge of client relationships at Residential Funding, a unit of General Motors Corp., Mr. Hellams told American Banker last month that he believed the future of mortgage lending was in subprime and other niche businesses.
Mr. Shannon said that Bank of America executives eagerly adopted some tenets of the Six Sigma service philosophy, espoused by former General Electric Co. chairman Jack Welch. Mr. Shannon said that one of the practices they pursued most vigorously was plumbing data and internal surveys to find out exactly what customers want.
An expedited mortgage process was high on customers' list, he said, so Bank of America negotiated with secondary-market investors to come up with one. Now B of A applicants need only provide the standard 1003 mortgage form - its competitors' applicants have to provide that form plus tax and bank account information.
"The majority of our customers now go through the '80%-less paperwork' process," Mr. Shannon said.
To capitalize on the streamlining, Bank of America developed loansolutions.com, an origination system being rolled out to all branch officers. As a result, Mr. Shannon said, a mortgage shopper can apply for a loan from almost any branch.
"Loansolutions has allowed the more than 10,000 account executives that work out of banking centers to serve our customers' mortgage needs," he said. That can help the company translate its "dominant" general banking presence in the top 25 metropolitan areas into a leading position in mortgages, he added.
Finally, to get the word out, Bank of America will follow up on its 2002 campaign with an even bigger and more expensive media blitz this year. Aside from promoting the mortgage operation and its fine-tuned application process, it will focus on minority markets.
"I'm not sure that any other company in the business has so aggressively advertised as we did in 2002, and our commitment in 2003 is for more of the same - actually our focus on the mortgage products will be stronger," Mr. Shannon said.
Bank of America's mortgage banking division had fourth-quarter earnings of $206 million, up 23%.
