Although the mortgage industry is shrinking in the face of dwindling demand for home loans, Shearson Lehman Mortgage Co. knows the picture will get brighter.
"We're waiting for the sun to shine again," said Walter P. Blass, chairman of the Newport Beach-based firm. "It always has and it will again."
Blass sounds casual when he says that, but his nonchalance conceals a hard-driving executive who has pulled the one-time regional mortgage company out of chaos and molded it into a national force in the mortgage field.
And with the 41-year-old mortgage banker in command, the subsidiary of the Shearson Lehman Brothers financial services company in New York isn't sitting on its corporate behind while it weathers the latest storm.
Prime Rate Offered
Instead, it is flooding the nation with advertisements offering home equity lines of credit to affluent borrowers at the going prime rate, and it is scouring the countryside looking to buy all the loans and loan servicing rights it can find from other lenders.
Additionally, Shearson Lehman Mortgage expects to lend $1.6 billion this year from its 40 branches in 11 states. That would make it one of the biggest firms in the highly competitive field, but it still would have only a very small piece of the market.
The nation's largest mortgage lender, New York-based Citicorp, financed $13 billion in home loans last year--only 3% of the record $442 billion in mortgages loaned by the industry.
A product that Shearson Lehman Mortgage hopes will push it further to the forefront of the industry is its prime-only revolving line of credit. The prime rate is the benchmark interest rate, set by the nation's major banks, and most loans carry interest rates that are higher than prime.
The Shearson prime rate line of credit is secured by the equity in a borrower's home. Nearly all of Shearson Lehman Mortgage's competition in marketing prime-only credit lines, Blass said, comes from banks and savings institutions, not from other mortgage companies.
Goal Is to Be the Largest
Shearson Lehman's program generates $22 million a month in new loan business for the company, and Blass said he expects that to grow to as much as $40 million a month next year.
"My goal is to be the largest home equity (line of credit) lender in the U.S.," he said.
To expand beyond the confines of the branch offices, Blass is pushing what he calls "user friendly" loan applications--easy-to-read forms that can be mailed to customers. With toll-free telephone lines also available, customers looking for $50,000 to $1-million lines of credit never have to appear at a Shearson Lehman Mortgage office, he said.
So far, the average line of credit taken out is $120,000, and the average amount actually borrowed is $90,000, he said.
But making loans is not what fills the coffers at Shearson Lehman. It's servicing loans, sending out bills and collecting the money--for a fee--that has provided the mortgage company with as much as 85% of its total revenues.
"Servicing is good steady business," said Perrin Long, an analyst with Lipper Analytical Securities in New York. "It is simple, not exciting, there's no sex appeal, but somebody's got to collect it. And you make good money at it," he said.
Shearson Lehman Mortgage probably makes more money at it than most servicers. Its finely tuned computer system in San Bernardino, run by Richard Galleher, allows the company to service about 900 loans per employee, well above the industry average of 550, according to Blass and industry sources.
"Galleher's division is the most efficient, best-run servicing operation on Earth," said one former employee, who wished to remain anonymous. "And efficiency determines how good your returns are."
Loan Servicing to Double
This year, Shearson Lehman Mortgage will more than double its loan servicing, handling $12.2 billion--mostly under contract with other lenders.
The loan servicing division should raise $50 million to $60 million in revenues for the mortgage company, Blass said, and should provide about 60% of the $99 million in total revenues expected this year.
The division also has begun a new "master servicing" operation, overseeing the collection efforts of other loan servicing firms and guaranteeing investors that it will step in and continue collecting and forwarding borrowers' payments if those firms go out of business. The operation is expected to generate $5 million to $10 million in revenues this year, Blass said.
The new product and increased marketing activity have catapulted the Shearson Lehman Mortgage servicing division from an also-ran to an industry leader in just 18 months.
And Blass said he's not satisfied yet.
He is looking to buy even more loans and servicing rights from other lenders.
"We're going to play trump, and we've got a long suit," Blass said.
The front-runner, again, is Citicorp, which serviced $38 billion in loans last year, more than five times Shearson Lehman's total.