Norwest Mortgage in Des Moines is retooling its third-party origination business.
"Customers want and need to be treated differently," said Patrick Sheehy, vice president for institutional lending at the mortgage unit of Wells Fargo. "Some want to go to Wal-Mart, some to Bloomingdale's, some to Nordstrom, and we've found the same thing in our mortgage process."
Norwest has grouped its correspondents and brokers into categories with catchy names and is staffing them accordingly.
For example, the "get out of may way" clients are looking for the best price available, while "work with me" customers want salespeople to visit their offices.
Norwest is reconsidering its relationships with customers its classifies under "rationalize" because it has received only a small portion of their business; but it sees great potential in the "invest" and "develop" groups.
To cement promising relationships, Mr. Sheehy envisions cross-selling products and services such as title insurance, appraisals, home equity loans, and credit cards through Norwest's correspondents and brokers.
Norwest, the largest originator and servicer of residential mortgages, will offer to teach its smaller correspondents and brokers about such matters as hedging servicing portfolios and managing to full capacity. "That will add value to them and ultimately build the relationship," Mr. Sheehy said.
Sixteen Norwest salespeople work with correspondents, and 100 with brokers. Norwest hopes to have 25 to 30 in the first category and 125 to 130 in the second by yearend, Mr. Sheehy said.
Pricing has become more important in third-party origination because large servicers, eager to replenish their rapidly refinancing portfolios, are paying generous premiums for loans in order to get the mortgage servicing rights.
Mr. Sheehy is working to cut costs so his operation can bid competitively for new loans. That means making sure his team is always functioning at full capacity, so he has eliminated redundancies in the origination process.
His group has developed a sophisticated computer model that forecasts how many people it will need to handle volume a month later, based on "leading indicators" such as rate locks and registrations.
The third-party division can handle 60% of peak volume, and it assigns the rest to contractors, temporary employees, and mortgage insurance companies.
"If volume falls, rather than having to lay people off we first eliminate overtime and then eliminate temps and contractors," Mr. Sheehy said.
Norwest is developing an Internet-based computer system that would let it communicate electronically with correspondents and brokers and would let customers register, lock rates, price, underwrite, and eventually sell their loans to Norwest without using paper.
The company is negotiating a contract with a vendor to build the system and hopes to introduce the first phase by mid-1999, Mr. Sheehy said.
Norwest Mortgage has swallowed five other mortgage companies in the last four years, leaving it with an assortment of different systems. The company is working to integrate those systems, combining the best aspects of each.
"That will allow us to be more responsive to our customers and better manage our costs internally," Mr. Sheehy said. The company hopes to complete "Project One" by early 2000.
The recent implosion of the subprime industry has helped Norwest's subprime unit, Directors Acceptance, which Mr. Sheehy also oversees.
In the last month, he said, "a lot of originators who historically have not sold to us because we did not get real aggressive on price are now turning to companies like Norwest. They know we're stable."
Whereas a month ago correspondents would have aimed to sell their subprime loans for 105% to 106% of face value, they are now satisfied if they get 101% or 102%, Mr. Sheehy said.
He added, however, that Norwest will be selective when buying from subprime originators. "We'd want to partner with some of the more conservative firms out there."
