Macquarie Bank Ltd., the Australian investment bank, has largely confined its U.S. activities to specialized institutional businesses like selling shares of Asia-Pacific companies and advising on mergers and acquisitions in the oil and gas industry.
The exception is a unit that has made home loans through intermediaries since 2002. Now that unit, Macquarie Mortgages USA, plans to expand into direct-to-consumer lending.
The unit, whose chief executive, Linda P. Henley, used to run correspondent lending at Chase Home Finance, has also been trying to better acquaint American consumers with products that have been successful Down Under, particularly a first-lien home equity line of credit called the Macquarie Asset Manager.
Recently a big U.S. lender, Countrywide Financial Corp., announced an interest in capitalizing on what it sees as untapped demand for similar loans.
As in Australia, the first-lien HELOCs are marketed here mainly as a way to save on interest payments. Borrowers are advised to use their entire paycheck to pay down the loan balance and then draw money from the line as they need it.
Even if borrowers withdraw everything but what they would normally pay, the small savings on the interest they would have paid on the amount drawn can add up. British "offset" mortgages work in a similar way, by crediting borrowers for funds in a deposit account with the lender. Pacific Trust Bank of Chula Vista, Calif., introduced such a program last year.
At an March 30 investor conference, Stan Kurland, Countrywide's president, said that he was "excited" about its plans to introduce reverse mortgages this year - its first public admission that it will do so - and "Aussie-style mortgages."
Mr. Kurland's description actually made the version that Countrywide, the nation's top home lender, will offer sound more like the U.K. version. He said that Countrywide would make use of the technology it had developed to handle the loans in its British joint venture with Barclays Bank PLC.
Macquarie Mortgages currently offers loans in 35 states but plans to be in all 50 by July. That month it will begin pilot testing the retail-channel offering in Florida. The test will last 90 to 120 days. After that the retail channel will be rolled out in New York, New Jersey, Connecticut, Illinois, California, and the District of Columbia.
Its retail lending will be done strictly online (at least at first), because the lender believes the U.S. population is now sufficiently comfortable with the Web, Ms. Henley, who joined Macquarie last year, said in an interview last month.
Her unit also intends to establish affinity relationships with large corporations to offer products to their employees.
At a time when "consolidation" is a buzzword around the mortgage market, Macquarie is set on growing organically, she said. Rather than taking advantage of market fragmentation to expand through acquisitions, Macquarie intends to "invest in people and technology in down markets."
Last year it originated $1 billion of mortgages, and three to five years from now it expects to fund that much a month, Ms. Henley said. By then it expects to be getting about 65% of its business through correspondents, 25% through brokers, and the rest through the retail channel, she said.
Her unit currently has about 125 employees and is recruiting for all three of its channels.
Macquarie is setting up a call center in Memphis and needs to hire a head for its retail channel, as well as four regional retail managers. It is also "aggressively recruiting" wholesale account executives and hopes to double the dozen it has today, she said.
In a crowded mortgage market - and one where volume is widely expected to drop significantly this year - Macquarie is seeking to appeal to savvy borrowers with what Ms. Henley called a "private banking approach."
In terms of product offerings, the retail channel will focus on the Macquarie Asset Manager, which offers interest-only payments for the first 10 years of a 30-year term. Like most HELOCs, the product has no restrictions on the number of checks written. However, there is no minimum redraw amount, either - a less common feature.
Ms. Henley said the product lets borrowers "access equity throughout the life of the loan without the cost of refinancing incurred with standard 30-year fixed" loans.
In the underwriting process, Macquarie makes sure borrowers could handle an interest rate 2 percentage points above the starting rate. She said that 98% of its loans are priced below the prime rate published in The Wall Street Journal, while comparable products on the market are priced above it.
The product is aimed at high-end borrowers - the average FICO score is 740. Ms. Henley said the average would not change as Macquarie moves into retail.
Because of the product's complexity, borrowers will tend to have a certain business acumen, as well as a solid financial history, she said. The Macquarie Asset Manager "appeals to the experienced borrower who understands cash-flow management and wants to use their mortgage as an asset."
Keith Gumbinger, a vice president with the mortgage research firm HSH Associates, said at least two lenders introduced similar products in California last year, including CMG Financial Services of San Ramon, Calif. (Many lenders, including Countrywide and Wells Fargo & Co., offer first-lien HELOCs without emphasizing their potential for interest savings.)
To believers, such programs look like no-brainers. Hans Ganz, Pacific Trust's CEO, told American Banker last year, "Customers can save thousands of dollars in interest rate charges, build equity in their home, and pay off their loan faster with [its] Green Account." However, they do usually come with variable rates, which, as borrowers have learned recently, carry downsides.
According to Mr. Gumbinger, selling such products to the public is a challenge. It is "so phenomenally difficult to do the amortization" on hybrid products, he said. "I can't imagine trying to explain this to the average consumer just walking in the door."
Ms. Henley said Macquarie has developed a CD-ROM to educate would-be borrowers about its products, and it is designing an interactive online program.
Macquarie is still hammering out how to get customers to walk through its virtual door. This month it hopes to decide on its mix of advertising media, she said.
The unit's Australian parent, which has roughly $89 billion of assets under management, believes in investing in down markets, particularly in technology and people, according to Ms. Henley. "We have as recently as last year invested quite a bit in technology," including Web technology, "and we're intending to do that again this year," she said. "We don't have broad staff reductions that other places do."
Coming from JPMorgan Chase & Co., which was built through the acquisition of numerous lenders, Ms. Henley said she was happy to start from scratch. Without legacy systems, Macquarie could build an origination process that minimizes the number of people touching a loan file. From the very beginning of its U.S. operations, it has accepted loan documents electronically.
Though it uses Dovenmuehle Mortgage Inc. of Schaumburg, Ill., for subservicing, Macquarie handles consumer service in-house. "No one takes care of the customer better than we do," Ms. Henley said.
John LaRose, the chief executive of CompuLink Corp., a Lansing, Mich., subservicer, which does business as CeLink, said he has never seen such an arrangement in his 20 years in the business.
Because of the logistical difficulties in separating customer service from other servicing duties, "the contract language would have to be carefully crafted," he said. (Dovenmuehle did not return calls.)
Macquarie has also been interested in offering here another product popular in Australia, portable mortgages, but Ms. Henley said it has not been able to navigate the different disclosure and regulatory requirements in each state.
According to Mr. Gumbinger, Chase Manhattan Corp. introduced the portable mortgage here back in 1987. E-Trade Financial Corp. launched its "Mortgage on the Move" in 2003. Such products are wrought with headaches for servicers, due to the paperwork and the open-ended nature, he said.
Portable mortgages never gained much popularity among U.S. borrowers but generated good publicity for the lenders that offered them, Mr. Gumbinger said. "I bet you'll find … [E-Trade] did five of those things, but they got $50 million in free ink." (E-Trade would not say how many of the loans it has made.)
Macquarie Mortgages is currently headquartered in Memphis but said that it would move to Jacksonville, Fla., next quarter. The new headquarters will house about 50 employees within the next few years, Ms. Henley said.
As far as establishing storefronts for the retail operations, she said, "We're always open to the right way to do things. If … [bricks and mortar] turns out to be the best way to reach consumers, that's something we'll explore."
