Chilled by a federal loan-bias case against Long Beach Mortgage's wholesale business, Huntington Mortgage Co. is backing away from using independent brokers to book loans.
By relying primarily on retail sales from in-house loan officers, "we are making very sure of who we're doing business with," said R. Frederick Taylor, president of Huntington Mortgage Co.
The lender, a unit of Huntington Bancshares, Columbus, Ohio, expects the move to tip the scale in favor of retail originations for the first time in years. Its in-house sales force will now account for 70% of volume, up from about 35% during most of this decade, Mr. Taylor said. Huntington Mortgage originates about $1.5 billion of mortgages annually.
Huntington Mortgage believes the shift can eliminate the chance of an incident like the one that rocked California's Long Beach Mortgage this year, Mr. Taylor said.
In that case, affiliated brokers were accused of gouging minorities by saddling them with higher interest rates. Long Beach Mortgage lender settled with the U.S. Justice Department in September by agreeing to pay $3 million to minorities allegedly overcharged and $1 million for education programs.
Though the episode prompted many lenders to say they would monitor outside brokers more closely, Huntington appears to be the first mortgage company to sound a retreat as a result.
In recent weeks it has dropped more than 50 brokerage agreements. Now, on the wholesale side, Huntington will work primarily with correspondent banks, Mr. Taylor said. It will work with brokers only on a very select basis, he said.
Mr. Taylor said the move away from wholesalers has benefits from a tax standpoint because a new accounting rule - FAS 122 - has removed lenders' impetus to work with outsiders and purchase servicing rights that accompany loans.
However, a lender's decision to focus on retail, though allowing more monitoring of operations, does have risks, industry observers said.
Wholesale programs give lenders broad geographic reach with very little overhead, and also provide flexibility to downsize easily when markets sour.
Huntington Mortgage may be somewhat insulated from the drawbacks because its retail operation is an innovative user of technology, said William O. Adcock, chairman of Synergistics Research Corp., Atlanta.
The lender has "so much in place in terms of remote delivery through personal computers and telephone systems," Mr. Adcock said.