First Interstate Bancorp, in a bid to squeeze more business out of its customer base, is forming a joint venture with PHH Corp. to market home loans by telephone.
The marketing will begin in the fourth quarter and will cover the bank's 13-state territory.
About 450 employees of Los Angeles-based First Interstate will be displaced by the deal. The bank said some would be offered comparable jobs with the new venture, while others may be transferred within First Interstate, placed with PHH, or offered severance packages.
PHH, based in Mount Laurel, N.J., specializes in telemarketing of mortgages on behalf of membership organizations and other affinity groups. It has been experiencing rapid growth in recent months and is also one of the bidders for the originations business of Prudential Home Mortgage.
The new venture will be known as First Interstate Residential Mortgage.
Industry sources said the venture, which will use outside resources to tap existing opportunities rather than merely cut costs, is a new direction in banking and could become a significant trend.
"They want to create a relationship-building machine at First Interstate," said David Partridge, director of the financial institutions practice at Towers Perrin, the consulting firm. "It's customer-focused. A lot of large banking houses have big market potential but are not tapping into it."
He emphasized that the First Interstate venture was an effort to make the most of the customer base, rather than a retreat from a segment of the business.
Another Towers Perrin executive, Paul Johnson, said, "This is a real plus for First Interstate. The key is, they want to enhance their alternative delivery structures, improve service, and reduce operating costs."
Campbell Chaney, an analyst with Rodman & Renshaw, San Francisco, said he expects more banks to take the same direction, adding that it makes sense for lenders to use outside resources. "Why build your own infrastructure? Why not throw in with the experts," he said.
First Interstate took pains to emphasize that the venture would not result in its abandoning low-income areas. According to the announcement, the venture's origination capability "will be augmented by field loan officers dedicated to First Interstate's low-to-moderate-income communities and its private banking customers." PHH will service the mortgages originated by the venture.
William E.B. Siart, First Interstate's chairman and chief executive, said one reason for the deal "was the ability to offer customers the convenience of telephone loan origination, the delivery system of choice for a growing number of customers and an area in which PHH is the industry leader."