Executives of Norwest Corp. are joining the small but growing cadre of mortgage bankers who can cut deals directly with Wall Street.
By sitting directly across the table from investment bankers, lenders like First Union Corp., NationsBank Corp., and now Norwest, are stepping into shoes once worn exclusively by a relatively small group of private securitizers, known as conduits.
Conduits typically buy pools of jumbo and subprime mortgage loans originated by others and package them as securities for Wall Street to sell.
Lenders eliminate these middlemen when they take over the task of packaging loans. But they must then spend millions of dollars on systems that they hope will raise their mortgage profits and profile.
"You can be more effective by having your own operation versus selling loans to a conduit at whatever price they're willing to pay," said Richard Ruffer, senior analyst with Moody's Investors Service. "You're less at someone else's whim."
In-house conduits also put the lenders' name in front of investors, a plus for building brand identity. "When you use one securitization vehicle all the time, investors really get to know your product," Mr. Ruffer said.
Minneapolis-based Norwest has long wanted to raise its profile on Wall Street. It found a vehicle through its May acquisition of Prudential Home Mortgage, which in addition to a lending capability supplied Norwest with one of the industry's largest private conduits. The Frederick, Va., operation is now part of Norwest Mortgage's capital markets group.
The conduit "gets the Norwest Mortgage name out in the marketplace as a legitimate player," said Jim Svinth, the Norwest senior vice president who oversees the conduit.
The unit also "allows us to control the process," Mr. Svinth said. "You know exactly what you paid for the loans and exactly what they're selling for."
The conduit is seen as an engine for the expansion of Norwest Mortgage. The unit already allows Norwest to make more higher-margin jumbo loans, since it can quickly package these products for sale to investors. Mr. Svinth estimates that in the next six months the jumbo production will jump from 5% to 10% of overall lending volume.
The versatile conduit will also give Norwest Mortgage the ability to branch into nonconventional products, such as "alternative A loans," to borrowers with good credit that want to finance a second home, Mr. Svinth said.