American Home Mortgage’s Correspondent Lending Division off to fast start: A one-year review

Rick Pishalski is an executive vice president of the Correspondent Lending Division of American Home Mortgage Investment Corporation, a publicly held real estate investment trust headquartered in Melville, N.Y. American Home Mortgage Investment Corporation started their Correspondent Lending Division at the start of the third quarter of 2005 after hiring Rick Pishalski. For more information on American Home Mortgages Correspondent Lending Division, please visit www.ahmcd.com.

The Mortgage Press recently sat down with Rick Pishalski to get an update on how American Home Mortgages Correspondent Lending Division has done during its first year of operation and what is in store for the future.

Q: Can you describe the rapid growth of the correspondent lending channel at American Home Mortgage?
A: We opened doors at the beginning of third quarter 2005 with no customers and five account executives. We funded our first loan in July 2005 and funded a total of $1 billion during our seventh month of operations. Through the first half of this year, we had grown our channel to nine account executives, two operations centers and about 300 customers. Now, by adding seven new account executives from a thrift that was exiting the correspondent business, we have 16 account executives and 480 approved sellers, giving us complete national coverage and a platform with which to significantly increase our business over the next six or seven months.

Q: What is the business model you put in place when you joined a year ago to establish and build the correspondent lending channel?
A: Our objective is to enable our correspondent lending partners to operate more efficiently, add a service advantage and build a more profitable modela model based on service and speed, and not just volume and price. The foundation of our model is built on what we call the four PsProduct, Process, Price and People. We believe we can deliver on these value propositions because we have a better understanding of the mortgage business and a commitment to being a true partner with each one of our correspondent lending partners.

Let me take a moment to touch on the last PPeople. In virtually every case, our peopleour account executives (AEs)have been customers and consumers of the products they are now offering as AEs. Their experience spans a wide range of financial institutions, such as savings and loans, mortgage banks, credit unions, community banks and the like, so they have a deep understanding as to the types of products and services their correspondents prefer. While your products, prices and processes are all indispensable for a successful correspondent lending channel, your people and the relationships they continue to build in the market determine your ultimate success. I believe strongly that we have those people.

Q: If you have the right people in place, are there other challenges that you anticipate in building the correspondent lending channel?
A: An increasing interest rate environment will decrease or flat-line the amount of overall business that is available, which will make competing for it a little bit tougher. However, with the tools that we have available to us, the excellent quality of our account executives, our innovative products and the support of the best executive management team in the industry, we expect to continue to grow the channel counter to industry trends.

Q: How do the correspondent lending channel complement American Homes retail channel and the wholesale division, American Brokers Conduit?
A: The correspondent channel leverages the existing internal resources of American Home Mortgage and allows the cost of those resources to be spread out over a much larger group of loans. The same technology and efforts that go into product development, underwriting and secondary marketing are also used for the correspondent channel.

Q: How did your latest growth opportunity present itself?
A: At American Home Mortgage, we are in the market on a consistent basis for the best people we can find for any channelnot just correspondent. When we heard that a large thrift was discontinuing its channel, we invited a group of account executives to visit our corporate office and review what we had to offer. Our entire executive team was involved in this recruitment. These account executives were recruited very heavily by other correspondent lenders, but at the end of the day, we won them over.

Q: How will this successful recruitment complement your overall goals? A: Our goal is to become one of the industry leaders in the correspondent business, similar to what we have done in the retail and wholesale channels. By adding these experienced account executives, it helps us reach that goal a little sooner. They are all seasoned industry veterans, who bring with them a significant book of business that will grow our customer base that much quicker. We are applying the same resources and strategies that are being used in the other two successful American Home Mortgage channels. Our business continues to grow as the industry shrinks.

Q: What is the benefit of bringing over so many account executives from the same shop?
A: Clearly, the benefit is that this team has worked together for a number of years and has an excellent working relationship with one another. Thus, their combined strength is more than the sum of each player. And of course, its easier to train a large group than to train each new account executive individually. In the short time theyve been with us, theyve been negotiating the learning curve smoothly and comfortably.

Q: What are the resources, products and strategies that your new account found so compelling?
A: We offer a compelling value proposition that is recognized as the type and kind of support that is required to be successful in the correspondent business. Were employing the same strategy that has worked in our other channels. We offer a high level of customer service, competitively positioned programs and technology that works to support our sales teams and customers. Moreover, weve made a total commitment to this channel and have an understanding of the business that enables us to grow and expand much more rapidly than other players. We are solely focused on one objectivethe mortgage lending business. The fact that we are a real estate investment trust that can react quicker than other players in the industry gives us a competitive edge in what we do. Our superb marketing department also gets us in front of our customers with outstanding support.

Q: How will the new AEs customers benefit from joining American Homes correspondent lending channel?
A: Their correspondent customers will receive better products, as well as a greater variety of products to choose from. Moreover, theyll be working with a correspondent lender truly committed to them and their business. Our approach is that correspondent lending is not a one-time secondary marketing transaction, but a partnership, where we are committed to their success. Foremost, our customers know that American Home Mortgage has made a tremendous commitment to this channel, on an equal footing with the retail channel and American Brokers Conduit, our wholesale division. At a time when major mortgage lenders are cutting operations, we are rapidly expanding our correspondent channel. Our stability and growth model should send a very positive signal to the correspondent market.

Q: Which products are your customers most enthusiastic about?
A: Two of our newest and most innovative products are the Progressive Payment and the 5+5 Monthly Treasury Average (MTA).
Our new Progressive Payment Saver is similar to a 2-1 buy-down, but with a new twist. It is an interest-only loan that provides borrowers with a two percent lower rate and payment the first year and one percent lower rate and payment the second year, funded by a three percent financed discount that is added to the loan amount. Although the buy-downs end after the second year, borrowers still receive payment protection because they continue to pay only the interest on their loan amount through the first 10 years. Over the remaining 20 years of the loan amount, principal and interest are fully amortized. With the Progressive Payment Saver, there is no negative amortization, no out-of-pocket costs to finance the buy-downs and no mortgage insurance. Moreover, the borrower qualifies at the first-year bought-down interest-only rate, so qualifying is a snap.

Our new 5+5 MTA combines all of the payment options of the popular MTA option adjustable-rate mortgages (ARMs) with the stability and security of a fixed payment rate for the first five years. It appeals to borrowers uncomfortable with fluctuating monthly payments associated with most option ARM products. The interest-only option and minimum payment option are based on a fixed rate that does not recast during the first five years of the loan. If the minimum monthly payment option is selected every time for the first five years, deferred interest will occur, but borrowers know exactly what this amount will be. Fifteen- and 30-year fixed amortization payments can also be made. Whichever monthly payment borrowers elect, it is always their choice.

Q: What size range of customers are you serving?
A: Our sales teams have been reaching out to correspondents whose net worth ranges from about $500,000 to $10 million and above. The majority of American Home Mortgages business will gravitate toward the middle range. Our breadth of business ranges across a broad range of financial institutions, such as thrifts, mortgage banks, credit unions and community banks.

Q: Weve talked about your people and products. What about that other key P called Process?
A: Were able to leverage American Home Mortgages reputation for operational excellence, guiding loans through their four major touch points. From registering correspondents and locking in loan prices to underwriting and purchasing loans, our commitment to excellence and quality ensures were meeting the highest standards and requirements. Let me add that we havent built this infrastructure in a vacuum. From the start, we have leveraged the vast resources of our successful retail and wholesale channels. In fact, as the newest channel, weve been able to cherry-pick the very best products, services, operations, marketing and management talent that our company has to offer. Thats why weve been able to grow as quickly as we have. We didnt have to experience the normal growing pains associated with such an ambitious undertaking.

Q: Youve come a long way in a short time. Where are you headed?
A: Looking forward, our goal is to become a top 10 player in the correspondent industry and pull our weight right alongside our other two channels. One-third of the total American Home Mortgage business is a big goal, but we have the kind of people, products, pricing and process to make this happen.

Q: That puts a lot on your plate. Will that leave room for any outside interests? If so, what are they?
A: A few years ago, I learned how to ride a motorcycle and am now the proud owner of two Harley-Davidsons. In addition, I am an avid bicycle enthusiast. That takes care of the summer months. In winter, I ski. I have skied at over 45 different resorts and occasionally heli-ski in British Columbia.