With profits increasingly elusive, some mortgage lenders have been calling on Joe K. Pickett for advice.
Mr. Pickett is chief executive officer of HomeSide Inc., a unique joint venture formed about a year ago by BankBoston Corp. and Barnett Banks Inc. The results have been encouraging, and the callers are wondering whether a joint venture might work for them.
"A number of financial institutions think that this is still a very appealing structure," Mr. Pickett said. But he warned that HomeSide may be hard to copy.
The joint venture lets banks sell loans originated in their branches to a servicing company with better economies of scale than either bank could have managed on its own.
The Jacksonville, Fla., company went public this year but each bank still owns about a 27% stake. The servicing portfolio has shown strong growth, and in its first two earnings reports, the company has exceeded analysts' expectations handily.
Most mortgage originators are struggling to make profits. And mortgage servicing is a scale business that is becoming increasingly dominated by large entities with more than $100 billion in portfolio.
HomeSide is approaching the $100 billion mark-it was servicing $92.6 billion as of the end of May. It costs HomeSide less than $40 annually to service a loan, one of the lowest figures in the industry. And with the company converting to a new system, analysts think the cost to service can fall even more.
The structure has been examined by many mortgage companies, including some of the largest banks, one investment banker said.
In April, Fleet Mortgage chairman H. Jay Sarles said the bank has looked at strategic alliances as a way of remaining a major force in the industry. Fleet is the fourth-largest originator and servicer of loans.
So why haven't other mortgage banks taken the leap yet?
Mr. Pickett noted the complexity of the financial structure. Two banks looking to merge their mortgage operations would need to find other investors. HomeSide was formed initially among BankBoston and the venture capital firms, Thomas H. Lee & Co. and Madison Dearborn Partners.
"The industry is continuing to consolidate, and to stay among the leaders, it takes a great amount of capital," Mr. Pickett said.
Some industry observers are skeptical that there will ever be another HomeSide. Several pointed out that BankBoston and Barnett's servicing operations were both in Jacksonville, making the consolidation easier than it would be for most companies.
And because HomeSide was first formed by BankBoston, many of HomeSide's senior executives-including Mr. Pickett and chief operating officer Hugh Harris-were executives of BankBoston Mortgage.
"The structure that we have in place today is one that clearly fit the needs of BankBoston and Barnett Banks," Mr. Pickett said.
Barnett sold its servicing to HomeSide, but still originates loans through its bank branches and a separate wholesale company, Loan America. But investment banking sources have said Barnett has discussed selling Loan America to HomeSide, which originates more than 90% of its loans through wholesale channels.
Mr. Pickett said HomeSide would like to continue growing by buying more servicing and entering into production agreements with other lenders.
But Mr. Pickett isn't ruling out bringing on another equity partner either. "If the right entity came along, we are positioned to accommodate that," Mr. Pickett said.