A little over a year ago, Hamilton Financial Services Corp. took the unusual step of surrendering its thrift charter and becoming a nonregulated mortgage bank. The maneuver, which required selling both deposits and assets, cost the San Francisco company about $7 million, or 30% of its capital. But chairman William Kirschenbaum says he has no regrets.
Q.: How does it feel to be a mortgage bank?
KIRSCHENBAUM: Just great. We're able to run our business today in a more rational, orderly form, and we've been able to grow enormously well. We originated $879 million of mortgages in the first half of this year, up 35% from a year earlier, and we expect growth in the second half to far surpass that.
Q.: What's been the biggest change?
KIRSCHENBAUM: As a mortgage company, we're allowed to run our business according to the rules of generally accepted accounting practices and of sound business principles. As a thrift, we also had to follow the rules of the various regulatory bodies. Those rules are constantly changing and sometimes seem arbitrary and contradictory.
Q.: When Hamilton was a thrift, it operated much like a mortgage bank, originating loans and selling them on the secondary market. Which regulations hampered that strategy?
KIRSCHENBAUM: The capital requirements for thrifts are based on month-end numbers, but at month-end we often had this big portfolio of loans that had been sold, but not yet delivered, to the secondary-market agencies. Those loans required capital.
In periods like today, when business is very good, those numbers can be huge. That forced us to do intra-month trades that were uneconomical simply to reduce our holdings by the end of the month.
Q.: Do you miss having access to deposits to fund lending?
KIRSCHENBAUM: You have to go to the banks and get a warehouse line of credit. In a normal environment, however, that isn't any more expensive than a thrift's all-in cost of funds, including the costs of branches and the costs to be in the system.
Q.: Are warehouse lines plentiful these days?
KIRSCHENBAUM: We have Bank of New York and First Chicago leading, and they've both been terrific. We've had no problem getting the necessary warehouse lines. We do hear that smaller mortgage bankers have some problems.