First Union Corp. is using a novel strategy to grow its mortgage securitization business.
The Charlotte, N.C., banking company offers its capabilities as a "master servicer" to bring in loans that are originated by outside lenders. As a master servicer, First Union's capital markets group collects fees from various loan servicers and distributes them to investors. But, perhaps more importantly, the arrangement allows First Union to securitize the outside loans, while letting the originators hold onto servicing rights and ongoing administration fees.
The master servicer system "is a money-maker for us," said Karl Mendenhall, senior vice president in the capital markets group. "This helps us achieve economies of scale and get better execution."
In fact, loans obtained from master servicing agreements account for about one-third of the home equity and jumbo loans that First Union securitizes each year. That means the group will pull in about $400 million of loans in this year, based on the estimated $1.2 billion of nonconforming loans First Union expects to securitize.
In another bid to build business from outside sources, First Union is beefing up outreach efforts. The company last week named Scott Daniels to head its home equity bank's wholesale division. The unit had been run by J.C Faulkner, who left the company last spring to set up his own mortgage shop.
The wholesale unit is in for a major expansion of staff and products, with the aim of doubling annual production to around $1.3 billion, said Rick Kourey, the unit's operations chief.
The banking company's efforts are not going unnoticed on Wall Street. Traders say that First Union and rival NationsBank Corp. are among the banking industry's steadiest deliverers of mortgage securities. The companies have increased their volume in the past year, as the market for mortgage securities has rebounded, one trader said.
In another sign the mortgage securities market is on the upswing after its steep slide in 1994 and 1995, Wall Street investment houses are hiring to keep pace with new business.
HSBC Securities, a unit of HSBC Holdings PLC, is among those staffing up. Steven A. Baselice, a fixed-income specialist from Nomura Securities International, is to join the mortgage trading desk, bringing its ranks to five. HSBC plans more additions, a spokesman said.