Start-up mortgage companies have several advantages as well as disadvantages.
One is that a new company does not have to deal with legacy issues or a full portfolio of nonperforming loans. But start-ups must work harder than most companies that have been around the block a few times not only to prove they have staying power but also to perform more stringently in complying with new regulations.
One relatively new company, the Walla Walla, Wash., wholesale mortgage lender NetMore America, says that in order for the next generation of mortgage banks to stay in the game they must be more diligent in combating fraud and mitigating risk.
NetMore, which was started in October 2007 to serve the Pacific Northwest, has since begun slowly but steadily expanding to other parts of the country, including Illinois, Texas and Maryland.
Lisa Schreiber, the chief strategy officer of NetMore America, said one thing the company has done to stay healthy is impose more stringent compliance and risk-mitigation guidelines on itself. For example, it required applicants to submit a Form 4506 — which authorizes a lender to order someone's tax return from the Internal Revenue Service — long before its loan investors did. It also has required higher FICO scores than the investors asked for.
"We focus on managing risk," she said. "It's a very important component of our philosophy, since we're a newer company. We are an early adopter of risk tools and risk-based policies."
Before joining NetMore, Schreiber was an executive vice president at American Brokers Conduit, where she led the installation of a wholesale mortgage lending platform. (That lender was a unit of American Home Mortgage Investment Corp., which filed for bankruptcy protection in 2007.) Before joining ABC, she worked at Bank of America Corp. in sales management.
Schreiber said that NetMore made risk mitigation and compliance cornerstones of its business practice by following its investors' lead.
"When we first came out," she said, "we were doing government loans and conventional loans; our investors were talking about their industry concerns: income verification, 4506s, undisclosed debts. They were telling us about red flags in the industry that they were seeing. So we wanted to find out ways to implement risk tools early to keep quality and performance up."
Though Schreiber stressed that NetMore is focused on doing everything properly and staying compliant, she said one challenge of dealing with new regulations is that they may not be addressed to things that could help lenders and originators.
"They're providing more information, yes, but we're not convinced this information is going to help the consumer," she said. "It doesn't help us identify occupancy fraud with regard to the performance of the asset."
She added that stricter-than-mandated risk mitigation adds a good deal of expense.
Still, Schreiber said, being diligent on compliance and risk mitigation is crucial for new companies starting out in the industry.
"We are seeing folks join the ranks of the next generation of mortgage bankers," she said. "We don't have a legacy issue, so the utilization of best risk management practices will make us new companies thrive and survive."
Schreiber also said she will be on the lookout for jumbo loan investors. "I hear investors are getting into jumbos again," she said. "We're looking to open up our investor relationships and solidifying our existing relationships."