Joe Pickett has been keeping unusual hours lately. He often finds himself padding around his Australian home in the middle of the night taking urgent calls about servicing, originations, and other mortgage banking matters.
Such is the lot of a truly global mortgage banker. Although based in Melbourne, Australia, he runs HomeSide Lending, a top mortgage bank half a world away in Jacksonville. The time zone difference can be a full 16 hours, depending on the time of year.
His mission: to create the world's first international mortgage company. HomeSide, now a part of National Australia Bank, is trying to replicate its successful formula in Australia-and hopes to enter Asian and European markets eventually.
"It's more difficult managing on a global basis than it is on a domestic basis," said Mr. Pickett, 53, while he was in Florida this week.
HomeSide's chief executive moved Down Under in late April, shortly after National Australia completed its acquisition of HomeSide, the fourth- largest originator and sixth-largest servicer in the United States.
HomeSide plans to do for National Australia what it has already done in the United Statesfor its "preferred" partners, BankBoston and Banc One. Those banking companies originate loans through their retail networks, and HomeSide processes and services the loans.
That formula allowed the banks to "offload a commodity business they don't want to be in," said Kevin Race, HomeSide's chief financial officer. And it gave HomeSide access to retail customers without having to build its own branch network-a strategy it believes will let it operate profitably even if interest rates rise.
Competitors and observers said using the preferred partners as a surrogate for a retail network makes sense, though it means less control.
"They're entirely dependent on the financial relationship they've developed with their partner banks," said William Schenck, chief executive officer of Fleet Mortgage Co. "Chances are it is a higher-margin business than the typical correspondent business. Their retail costs are variable."
"They don't have overhead to feed, and they're not subject to the downsizing costs necessary for people with huge originations networks," said Robert Swanton, an analyst at Standard & Poor's. "But they don't control their destiny to the same degree."
Still, HomeSide says it has faith that its business model will work, at home and abroad. "We're not going down to Australia or to Europe with a concept, hoping it will work," Mr. Pickett said. "We're exporting something that we already use today."
Mr. Pickett expects HomeSide to begin processing and servicing loans for National Australia Bank in the next two to three years. The bank has a mortgage portfolio of $40 billion Australian, or about $25 billion in U.S. currency.
The next step will be to replicate the HomeSide formula in New Zealand and Southeast Asia and, after that, Europe.
In some respects these overseas markets are primitive compared with the United States. Larry Swedroe, a former managing director at Prudential Home Mortgage, recalled that as recently as the mid-1990s, "the overseas market was in the prehistoric ages compared to U.S. markets in terms of sophistication, securitization, origination processes, etc. Those markets were dominated by big banks that have no competition."
Australia, for example, has nothing like Fannie Mae; securitization there is strictly private-label.
Mr. Pickett said this will change. "As the demand for housing increases, the pressures on banks to be competitive and the shrinking margins in banking around the world are going to force other countries to look at the advantages of securitizing," he said. "The rest of the world is going to follow the model" of the United States.
But he recognized that not every mortgage innovation was made in the United States. In Australia he has come across two indigenous mortgage products that he says are "really quite attractive."
One lets homeowners borrow against the equity in their homes without taking out a second mortgage; they simply redraw the balance of the first mortgage up to the original amount for which they were approved.
Mr. Pickett is busy modifying HomeSide's systems to better fit the peculiarities of the Australian mortgage market. Many Australian mortgages are portable. Borrowers can move to another part of the country and have their existing loan applied against their new house rather than having to start from scratch, eliminating some of the stimulus for prepayments, Mr. Pickett said.
Australia is also beginning to develop a mortgage broker market, said Mr. Pickett. "A number of companies have been springing up in recent years."
Another difference is that most loans in Australia are adjustable-rate. Mr. Pickett said, "When they talk about fixed product down there, they're talking one-, two-, three-year fixed-rates as opposed to a 30-year term like you have here."