Mortgage niche showed promise for Michigan bank. Then coronavirus hit.

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University Bancorp in Ann Arbor, Mich., shuttered its wholesale mortgage division a year after its launch when the pandemic made it virtually impossible to hire and train people.

The $392 million-asset company created Midwest Loan Solutions in June 2019 to develop a network of third-party mortgage loan officers. The business broke even earlier this year, then saw business surge after the Federal Reserve’s emergency rate cuts.

University’s first-quarter mortgage originations more than doubled year over year, to $404 million. April’s volume was $236 million, or nearly triple that of a year earlier.

But the company was struggling to interview and hire the staff needed to support its in-house and third-party lenders, so it decided to shut down the business, said Stephen Lange Ranzini, University's president and CEO.

“We haven’t been good at hiring and training remotely,” Ranzini said. “It’s a new skill set we are trying to learn.”

In the midst of a health care emergency — Michigan has nearly 55,000 coronavirus cases, based on data from the Centers for Disease Control and Prevention — and with most of his staff working from home, Ranzini ruled out hiring a large group of new employees.

The virus “is not a theoretical risk,” he said.

Banks that are recruiting talent have increased their use of conferencing software to vet those candidates.

Hiring “may look a little different as we've started using a lot more technology to allow proper social distancing,” Truist Financial spokesman Kyle Tarrance said in a recent interview. “This includes more virtual interviews and digital onboarding.”

Still, the process can be challenging because lags and missed cues can affect the interview process, industry observers said.

Instead of expanding or leaning heavily on technology, University narrowed its scope to focus on in-house originations.

The decision was difficult because Midwest Loan Solutions “did everything we asked them to do,” Ranzini said.

“We were receiving applications daily equal to 100% of our total combined back-office capacity from both retail and wholesale channels. We couldn’t do both,” he said. “We tried every trick we knew to slow down [originations] without damaging customer relationships, but we couldn’t do it.”

Closing the division took a toll on University’s bottom line in the first quarter, contributing to a $453,000 loss. Expenses associated with Midwest Loan Solutions totaled $1.1 million in the quarter.

University still expects to benefit from increased mortgage activity. The company’s net income in April was $3.2 million, or nearly 90% of what it earned for all of 2019.

Overall mortgage originations are expected to remain strong.

The Mortgage Bankers Association is projecting that second-quarter volume will increase by 58% from a year earlier. While refinancing has accounted for more than half of the originations, new home purchases are expected to rise as more states reopen their economies.

“We do believe that unrealized pent-up demand is being released as states start to reopen and expect that heading into the summer, more prospective homebuyers will gradually return to the market,” the association wrote in a May 20 release.

For Ranzini, the most unexpected discovery from University’s experience has been the productivity of employees working from home. He said he was reluctant to embrace the setup before the pandemic.

“There’s been zero loss of productivity,” Ranzini said.

“I never thought we could be this productive working remotely,” he added. “It’s been eye-opening. Thirty-two years of experience of what I thought I knew as the manager of this organization went out the window.”

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