Friday Funding is a HousingWire web series that profiles the lending segment in depth, while highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with George Henley, executive vice president with Freedom Mortgage, to learn how its correspondent lending business is growing the fastest compared to its other channels.
HousingWire: Who is your target customer and why are they a good fit for your business model? How does lending fit into your overall business strategy? In other words, what other lending divisions do you have, i.e. warehouse, wholesale, ect.?
Henley: Freedom Mortgage operates a full service mortgage banking platform with three different business channels. We serve consumers through our retail division, brokers through our wholesale division and correspondent lenders through our Structured Products Group. As an independent mortgage bank that believes in the long-term value of mortgage servicing rights and a diverse set of origination sources, each of these customer groups is a good fit for us.
HW: What do you see as the greatest challenge(s) your clients face today?
Henley: From a correspondent standpoint, by far, the biggest challenge facing our clients is the increase in federal oversight and regulatory compliance. In order to meet new compliance requirements, our clients must hire additional staff and purchase new tools, causing origination costs to rise and compressing margins. This is not exactly news, but it’s a serious challenge all the same. It affects everyone in the lending business.
HW: What made your firm decide to ramp up its correspondent division?
Henley: In order to have a full service mortgage banking operation and serve all segments of the market, we realized that we needed to diversify our source of origination volume and increase our overall production through multiple origination channels. We’ve always believed in the value of mortgage servicing rights and have operated our correspondent lending channel for several years.
HW: How broad of a market do you serve today and what does the next 12 months look like from an expansion standpoint?
Henley: Freedom Mortgage operates a nationwide business platform. We are licensed to originate loans in all 50 states and Puerto Rico, so our primary goal now is to increase our overall number of customers. Compared to our other channels, our correspondent lending business is growing the fastest. We expect that to continue. Our goal is to become one of the largest correspondent lenders in the country, and we’re well on our way.
HW: There have been a lot of new entrants into the correspondent market over the last 12 months, what is going to be the key that helps your firm rise above the rest?
Henley: By far, our most important asset is our people. Freedom Mortgage has been fortunate enough to recruit a number of extremely talented correspondent lending executives. Each one is well-known in our line of work and has decades of experience working for some of the nation’s biggest financial institutions. When you combine the strength of our people with our new avenues for liquidity and our intense focus on customer service, we really stand apart from the competition.
HW: With the increased competition in the correspondent arena, what do you think is the single most common mistake you see other correspondents making?
Henley: The most frequent mistake I see other correspondent lenders make is trying to grow too quickly without placing enough attention on customer service or operational efficiencies. Because they didn’t take care of the basics, these lenders often blow up their own operations, which causes their turn times and customer service to suffer. Many are then forced to spend extra time and effort rebuilding their reputations. The same is true for legacy correspondent lenders; a lack of customer focus forces clients to seek better alliances with firms more attuned with client expectations.
HW: Tell us about the team you are building and who sits at the core of the operation?
Henley: We have many great people, but to name just a few, I would mention Cindy Smaney, our senior vice president of operations, who has over 28 years of experience in senior leadership roles with large-scale servicing and origination channels; Kathryn Hellbach, vice president of credit, who has over 36 years of experience, primarily in underwriting and credit policy management; and Mark Kramer, our vice president of pricing and mandatory trading, who has held leadership positions in retail, correspondent and wholesale lending. Our national sales managers, Tim Bernard and Rob Porges, have a combined half-century of experience and obviously serve prominent roles in our growth as well. Our mandatory trade desk is also led by two very seasoned loan buyers, Rich Valentine and Ed Neal, who are focused on providing our clients with a competitive price and quality customer service.
HW: What do you see happening to spreads over the next 12 months and how will the potential for rising rates impact your business?
Henley: I think we’ve entered a period where rates will be relatively low for some time, but margins will continue to compress as volumes decline due to burn out in the refinance market. That said, with our financial backing, Freedom Mortgage is well-positioned to operate through a sustained period of low margins. Our focus on customer service and providing a high-quality correspondent relationship should serve us well.
HW: Finally, how will new compliance rules impact your business? What are you doing to stay on top of compliance, i.e. technology, new software, etc.?
Henley: Freedom Mortgage has a culture of compliance and a culture of quality originations. It’s instilled in the team we recruited and in our technology. Our best-in-class proprietary loan origination software, for example, includes quality controls that ensure every loan file we produce meets all federal and agency requirements.
