Bank of America to Stop
Using Mortgage Brokers
by Lingling Wei
From The Wall Street Journal Online
October 29, 2007
Bank of America Corp. plans to announce today that it will stop making home mortgages through brokers at the end of the year in order to focus on direct-to-consumer lending, a move that could pressure other big banks to follow suit.
The Charlotte, N.C., company, the second-largest U.S. bank by market value, said the move will allow it to devote more energy to expanding its retail-lending channels, including lending through its banking centers and loan officers. BofA set a goal early this year to become the No. 1 retail home-mortgage lender.
The step will also further shrink the wholesale mortgage market, as many lenders scramble to adapt to the turmoil caused by a sharp rise in defaults and falling investor confidence.
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• The News: Bank of America will stop home lending through brokers at year's end. • The Goal: The bank aims to become the No. 1 retail home-mortgage lender and the move will bring its lending operations fully in-house. • Separately... The bank confirmed the exit of Peter Forlenza, co-head of equities, amid an investment-bank revamp. |
Floyd Robinson, BofA's top mortgage executive, said the decision to quit the broker-lending channel is in line with the bank's strategy of "maximizing our more competitive retail channels by introducing innovative products," and was not because of any greater delinquency rates on loans generated by brokers as opposed to those from its own sales force.
Mortgage brokers historically have been involved in a quarter of home loans originated by BofA. Its decision to exit the wholesale business will lead to the elimination of 700 positions, or about 5% of the work force in the consumer real-estate division. The positions are part of the already-announced 3,000 job cuts aimed at shaking up the bank's corporate and investment-banking operation.
Recently lenders such as Washington Mutual Inc. and Wells Fargo & Co. have moved to rely less on mortgage brokers -- the low-cost sales force that made it easier for banks to ramp up production during the housing boom -- but more on direct lending as they seek more control over the quality of the loans amid rising delinquencies.
The move "...will be looked at by all of the other large banks to see if they are going to do the same," said Tom LaMalfa, a managing director of Wholesale Access, a mortgage-research firm .
Separately, BofA confirmed that Peter Forlenza, co-head of equities, has left amid a shake-up at the corporate- and investment-banking unit. Ciaran T. O'Kelly, co-head of equities , will lead the business.
Mr. Forlenza left of his own volition, the bank said. He couldn't reached for comment.
--Valerie Bauerlein contributed to this article.
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