Most financial services companies wouldn't consider themselves "lucky" to have bought two mortgage providers last year amid a wicked housing slump. Then again, maybe they didn't have MetLife Inc.'s ulterior motives.
"Our timing really couldn't have been any better," said Donnalee A. DeMaio, the president of MetLife Bank and a member of its board of directors. "Our mortgage business has really taken off," particularly refinancings, she said.
Along with its mortgage business has come the opportunities for MetLife to cross-sell its insurance products and services.
MetLife Bank opened more than 200 mortgage offices nationally in the past year, reporting $41.1 million in first-quarter net income while originating about $1.5 billion in monthly loans.
MetLife Bank made two acquisitions last year to establish its lending business. In May 2008 it bought EverBank Reverse Mortgage LLC and a month later bought First Horizon Home Loans, a Dallas mortgage originator, from First Tennessee Bank. That acquisition made MetLife the 15th-largest mortgage originator nationally.
DeMaio said in an interview last week that MetLife Bank had the advantage of learning from the mistakes of competitors left saddled with bad loans after buying lending businesses.
In the First Horizon deal, MetLife bought the company's origination and servicing capabilities but did not buy any existing loans. With Everbank, DeMaio said MetLife bought a reverse mortgages business "in its infancy" that did not have a large book of business.
"We were able to buy all of the capabilities that we needed in order to grow," she said. "Now our plan is to grow organically."
DeMaio, who spent 18 years at PricewaterhouseCoopers before joining MetLife Bank in 2002, described MetLife Bank's cross-selling strategy: "There is a natural opportunity when someone is getting a mortgage for us to offer them homeowner's insurance. We are looking for ways to seamlessly make referrals from one line of business to another. When someone is buying a home, it is a natural opportunity to discuss homeowner's and life insurance. Ultimately, our objective is to create a customer for life."
DeMaio said MetLife Bank also wants to gather deposits. "We want customers to know we are not just a mortgage company, we are a bank. By offering mortgages, it just gives us another avenue to look at our customers' entire financial picture."
Analysts say MetLife may have a blueprint for how an insurer can thrive as a bank holding company. "MetLife clearly has a strategy where it wants to use its banking and mortgage services as a way to offer cradle-to-grave services to its customers," said Carmen Effron, an analyst with C.F. Effron Co. LLC in Weston, Conn. "It can get in the door with lending and deposit services, and then work on how to invest and what insurance products to use later."
Burton Greenwald of BJ Greenwald Associates in Philadelphia said MetLife — which got a banking charter in 2001, but kept its banking unit below 100 employees until the deal with First Tennessee — has distanced itself from insurers that became banking holding companies for federal aid.
"MetLife didn't become a bank holding company to get … [Troubled Asset Relief Program] money," Effron said. "It didn't race in and start lending. MetLife started a bank and waited six or seven years, and it knew it was better off buying a shell and building a business on its own."
DeMaio said MetLife isn't looking to create a banking model that works for anyone but MetLife. "There certainly are other banks owned by insurers, and they each have their own missions, some of which are probably like MetLife Bank's, and some of which may be different," she said. "But you'd really have to talk to them to get their strategy. An insurer-owned bank certainly could pursue a share-of-wallet strategy as much as a brand-promise strategy, but each organization will have to do what is most in line with its goals."
Analysts said MetLife Bank's first-quarter results are a bit misleading. They said it generated healthy profits in the quarter because of a "boom in refinancing," as one analyst put it, but they said it could be difficult to maintain such strong results.
DeMaio said she expects lending conditions to "remain volatile," but she thinks MetLife has the pieces in place to build and maintain a strong mortgage business. She said mortgage origination is expected to remain solid as long as rates remain low. "We know that refis will slow down," she said. "When you really look at it, the government is involved in the economy, and that has kept the rates low. But we have seen strong growth and we are excited."
MetLife Bank does not need more lending deals, she said, but it will be opportunistic. She said the company has MetLife Home Loan offices in 95% of markets where it wanted offices.
In the next five to 10 years, she said she thinks MetLife Bank will be able to contribute 10% of MetLife Inc.'s profits annually. When the mortgage market "normalizes, it will be more of a challenge to keep volumes up," she said, but she remains confident in its strategy. "We are going to emerge from, whatever you want to call this economic environment, a different type of financial services industry," she said. "Lending is going to go back to basics. People are going to need down payments and a good loan-to-value. We are going to go back to lending like it was meant to be, and strong companies will survive. Without the baggage of bad loans, we can look forward."