Some mortgage bankers are continuing to sell more of the loans they originate in order to shrink their servicing portfolios. But one of those lenders may be having a change of heart.
In a conference call with analysts on Friday, North American Mortgage Co.'s chairman and chief executive, John J. Farrell Jr., said the company was considering expanding its servicing portfolio in order to boost income.
North American reported third quarter earnings of 64 cents a share, 20% lower than for the period last year. Earnings for the first nine months fell 6%.
The company announced last week that it would enter the subprime lending business and purchase the assets of Lomas Insurance, two moves that Mr. Farrell said should enhance North American's profitability.
Mr. Farrell said profits had slipped because of the company's focus on originating low-margin conforming loans. He added that North American could make a lot of money by expanding its servicing business geographically.
"Servicing is something we know about. Right now it's one of the items we're looking at," he said.
But North American's president, Terrance G. Hodel, was far less enthusiastic when discussing the subject of servicing.
He pointed out that the company remains a seller of servicing rights, not a buyer. North American sold $6 billion of servicing in the first nine months of this year, compared with $4.4 billion in the period last year. The total number of loans sold increased 40%. North American's servicing portfolio as of Sept. 30 amounted to $13.6 billion, about $800 million less than last year at that time.
On the production side, loan volume was down 5% in the third quarter as refinance originations dropped 19%.
But Mr. Hodel said there were signs that the slowdown in originations could be ending.
Applications received so far this month were 38% ahead of September's total, according to Mr. Hodel, while telemarketing applications have almost doubled.
Mr. Hodel said that since the telemarketing operations mainly handle refinancing applications, such an increase usually indicates refis will rise as well.