With pundits predicting a sharp decline in mortgage originations in 1994, Home Lending Associates, a Seattle-based mortgage broker, is scrambling to diversify and soften its landing.
Mortgage brokers, which originate loans and convey them to mortgage banks, have grown fat during the refinancing boom.
But because their income depends entirely on originations - disproportionately on refinancings - mortgage brokers are particularly vulnerable to downturns in mortgage volume.
Home Lending Associates, which will originate more than $1 billion of mortgages this year, is meeting this problem head on.
The company is taking steps toward raising capital and becoming a mortgage bank and has started a real estate brokerage subsidiary.
"Our goal is to build a servicing portfolio that will cushion earnings during slow periods," said Dave Zehm, president.
Plan Is to Go Public
Servicing rights produce a stream of fee income that acts as a hedge against drops in originations.
For a company to hold onto servicing, it needs a mortgage warehouse loan - and that takes capital.
To get the $5 million to $10 million of capital that he wants, Mr. Zehm plans to take Home Lending public sometime in 1994. The company is currently being audited and is in discussions with investment banks.
If he can raise the cash, Mr. Zehm will be in a position to negotiate a mortgage warehouse line, used to fund mortgages awaiting sale into the secondary market, of between $20 million and $40 million.
Realty Brokerage Element
If those hurdle can be overcome, Home Lending will have left the great mass of mortgage brokers and become a full-fledged mortgage bank.
However, that's not enough. A mortgage bank still needs to originate loans, and Mr. Zehm feels he'll soon be at something of a disadvantage there.
"Refinancings can only carry us so far.," he said, "We need purchase business, but mortgage banks have the real estate agents covered."
So, to access the critical purchase market, the company has opened Home Lending Real Estate Associates, a chain of real estate offices at each of the mortgage brokers, 16 locations.
Real estate agents at the wholly owned subsidiary will work hand in hand with mortgage brokers and, Mr. Zehm hopes, will bring the desired purchase business.
Thus, if the company's ambitious Plans come to fruition, it will have moved from a vulnerable and one-dimensional mortgage broker to a full-service real estate and mortgage lending outfit.
The company currently operates in the states of Oreson, Idaho, New Mexico, and Washington. It plans to expand into Nevada, Colorado, Arizona, and Montana.