Instead of robbing PHH Mortgage Corp. of a sizable referral source, MetLife Inc.’s desire to get into mortgages has actually resulted in an expanded relationship between the two.
The three-year outsourcing deal that the companies signed last month is the first significant private-label deal for the Mt. Laurel, N.J., mortgage outsourcer since Cendant Corp. spun off the mortgage business and a fleet management business as PHH Corp. in January.
Last week MetLife took its first handful of mortgage applications and began “using PHH as our back office,” Donnalee DeMaio, the president of MetLife Bank of Bridgewater, N.J., said in an interview this week.
In August, Ms. DeMaio began to talk publicly about an 18-month plan to offer home loans through bank loan officers in MetLife’s field offices, as well as through direct sales channels.
For the previous two years PHH had been taking telephone and online mortgage applications from MetLife customers in a cobranded program, and MetLife’s ambitions appeared to hurt PHH, which had been funding the loans.
However, to support its move into a new business line, MetLife Bank hired PHH for several types of mortgage outsourcing work.
MetLife’s loan officers will use PHH-developed point-of-sale software on their laptops, and PHH employees will do all the processing work on a private-label basis. (The bank’s salespeople will remain involved with customers after the handoff for processing, Ms. DeMaio stressed.) PHH will also take clients’ applications directly, through a call center and a Web site, both of which will carry the MetLife brand.
MetLife is already doing a small amount of advertising for its mortgage line, she said.
As part of its plan, MetLife recently started hiring loan officers to work alongside its insurance agents and other sales representatives in major markets, Ms. DeMaio said. It also expects to hire some loan officers elsewhere and make them responsible for several offices. The hirings will be made on both coasts, and in big cities in between them.
MetLife expects the plan, which it began formulating two years ago, to give it a fully developed sales staff by 2007, she said.
The mortgages will be funded by MetLife, which will keep some and sell others through PHH, which will service all the loans under the MetLife name. “It was critical to us, in selling the loans, that we don’t sell the [customer] relationship,” Ms. DeMaio said.
At one point MetLife had considered hiring its own staff to do processing work, she said, but it decided against doing so, because it wanted to avoid adding fixed costs, and “it takes a lot to build an infrastructure to provide the level” of customer service that it would require.
“Protecting MetLife’s name” was a big consideration, she said. MetLife talked with five companies — three seriously, and none of which it worries about as a competitive threat — before choosing PHH to do the back-office and direct sales outsourcing, she said.
“They have an excellent reputation for service to their customers, and that’s something that’s very important to us,” Ms. DeMaio said. Like other deals with PHH, MetLife’s agreement requires the outsourcer to maintain certain service levels in areas such as responsiveness, she said. “It’s important to us how long somebody has to wait for an answer.”
PHH does mortgage work for several other big financial services companies, including American Express Co., Merrill Lynch & Co., Charles Schwab Corp., American International Group Inc., Mellon Financial Corp., Independence Community Bank Corp., and Northern Trust Corp.
This year PHH executives have said that uncertainty about its status last year, when rumors circulated about a possible sale to Countrywide Financial Corp., made it tougher to sign up clients. (Before announcing the spinoff plan, Cendant acknowledged that it was in talks with someone.)
But in quarterly calls the executives have also repeatedly claimed they have been making progress in talks with potential customers. It has kept its staff and space in offices to allow for new relationships, though the expenses have hurt earnings.
In the interview, Sharon Fuller, a senior vice president at PHH Mortgage, said it that has gotten as far as letters of intent with several other possible clients, but it is still working through long sales cycles.
“We’re pretty excited about the direction that we’re going,” she said. “There’s a lot of activity.”
This month PHH announced that it had signed a letter of intent to buy the assets of CUNA Mortgage Group, which works with credit unions and services $10 billion of loans for them, from CUNA Mutual Group.
MetLife entered the banking business in 2001, when it bought New Jersey’s Grand Bank of Kingston, which had one branch and assets of $80 million. (MetLife Bank still has only one branch.)
Ms. DeMaio said again this week that MetLife’s goals in mortgages are to take advantage of cross-selling opportunities and build broader retail banking relationships with consumers. In August she mentioned a desire to acquire variable-rate assets to be funded from the bank’s deposit base.
Homeowner’s insurance would be a “natural” cross-sell, Ms. DeMaio said. Also, “because buying a house is really a life event,” sales of unrelated products, such as life insurance, look promising.
“There’s a lot of other financial planning that can go around buying your first home,” she said.
