MPA Mag talks with Brian Swanson, Senior Vice President, Residential Lending from Bank of Internet this month, a wholesale lender who is having tremendous success with their niche jumbo portfolio products.
Q: There has been quite a buzz about Bank of Internet in the lending community. Can you tell us a little bit more about the bank?
A: Bank of Internet is a branchless bank with one single location, based in San Diego, CA. We are publically traded on the NASDAQ, our ticker symbol is BOFI. We are a federal savings bank, operating primarily through the internet. The key advantage of internet banking is the cost savings associated with a branchless infrastructure. Since we do not have these types of expenses, we are able to offer some of the most competitive interest rates in the nation on our suite of banking products. Bank of Internet offers a variety of consumer and wholesale banking products, everything from deposit accounts to super jumbo mortgages and multi-family financing.
Q: We have been hearing about a national expansion in the mortgage lending division. Can you speak more specifically about what’s going on there?
A: We maintain three distinct lending groups who focus their production through both retail and third party origination channels. Our Consumer Direct Lending Division is focused on retail loan originations nationwide through our call center in San Diego. A vast majority of this production is originated through the internet and our affinity partnerships through member organizations such as Costco. Our Income Property Lending Division, www.apartmentbank.com, offers a nationwide platform catering to multifamily (5+ unit) lending through retail and wholesale origination channels. Within this group we arrange refinance and purchase transactions using multifamily housing as collateral which may be apartment buildings or mixed use properties. Our Third Party Lending Division, www.bofilendingpartners.com , is our wholesale and correspondent lending group which is the source of the national expansion. Within this division, we offer Jumbo and Super Jumbo portfolio ARM products on a national platform with a focus on our niche jumbo product. In each and all of these lending divisions, Bank of Internet maintains very conservative and prudent lending standards with a focus on borrowers with strong credit histories, liquidity and low loan to value ratios. This focus creates less risk exposure to the bank.
Q: You mention “niche” lending in the portfolio arena can you define ”niche” as it relates to this product offering?
A: At Bank of Internet, we strive to offer nothing less than a “world class” customer experience in all of our lending divisions and we do not rest until we feel we have accomplished this goal. Beyond that, our TPO division maintains both wholesale as well as correspondent delivery channels, which today has become very attractive for mortgage bankers. From a pure product standpoint, our “niches” become very apparent as we offer tools like Asset Depletion underwriting which aids a borrower with substantial liquidity in qualifying while maintaining a fully documented income transaction. We also offer Pledged Asset loans that afford borrowers the opportunity to pledge assets in lieu of large down payments or principal reductions to keep LTV’s with in guidelines without the need to liquidate their assets. This program brings to the wholesale and correspondent communities a product that lets them compete with something historically only offered by the large money center banks. In addition, we allow loans made to foreign nationals and non permanent resident aliens. We are more flexible with property types and are able to facilitate loans on condo’s, co-ops, and hobby farms. At the same time we truly understand the needs of wealthy borrowers with complex financial situations. In addition, our team possesses tremendous expertise within the luxury home markets.
Q: How is it that in the extremely consolidated Jumbo market an Internet bank is able to compete on a national platform?
A: In the Residential Lending Division, it’s our philosophy that our business is built upon prudent but consistent lending decisions. Offering dynamic programs that truly add value to the jumbo sector gives us an opportunity to provide liquidity in an underserved segment of the market. Delivering world class customer service on a consistent basis aids in driving business to BofI as customers truly enjoy the experience. All of this is brought to market by what I believe is the most talented sales team of Account Executives in the business, all of which are physically located our key markets and have partnered with the largest and most respected lender cooperatives in the country. Doing all of these things and doing them well, day in and day out, have brought BofI national recognition which to me is testament that our strategy has merit and will continue to drive our business to the next level.
Q: How does Bank of Internet compete on price for these transactions?
A: We don’t experience the same tremendous pricing pressure that our agency aggregating counterparts do as we are truly originating in an entirely different space. Having said that, our arena is not without a lack competition and we are seeing new entrants on a regular basis. Being a portfolio originator we require the interest rate protection that Adjustable Rate Mortgages afford us which allows us to be very aggressive in price for the product we offer while maintaining a solid return on equity. At BofI, we strive to differentiate ourselves from the competition by offering what they do not in the form of product and execution, with a solid emphasis on execution. Today, over 70 percent of our production is purchase business. This is because our customers understand our ability to quickly close a loan. Believe it or not, many jumbo borrowers end up paying cash for their house and the originator loses the loan all together. This is a result in premium price for execution; we feel that we have this covered on all fronts. Finally, our delivery model is paperless with file upload functionality from the originators end that populates and prepares our system on the back end for intake, disclosures and underwriting. This method of file delivery helps keep staffing costs in line and leverages technology and ease of use for our customers.
Q: What are some of the challenges that you face today and how will you address them?
A: One of the issues we face relates to automation with growing use of PPE’s (product and pricing engines) which today have become standard for use in the originators office and are found on every loan officer’s desktop. The challenge is that the use of the PPE has all but replaced the more traditional rate sheet. Bank of Internet products are all about niches and unfortunately these niches are not properly communicated through a best efforts pricing aggregator. We are constantly educating all of our customers; from Secondary Marketing Managers, Loan Originators, Underwriters and Processors about what we do and how we do it. Another challenge that we all continue to wrestle with is home valuation and what is the “right” number. Arms length purchase money loans make up a good portion of our business and the home drives a price that the market will bear, however collateral on jumbo cash out refinance transactions may be substantially more difficult. What we have done here is partnered with what we believe to be the best suited Appraisal
Management Companies, which have expertise in the luxury home markets and relationships with the appraisers that serve them. We created our own criteria as to how much experience an appraiser has, what type of licensing they maintain, how far from the subject property they reside and pressed that out to our AMC partners as BofI requirements. This process has been consistently delivering to us valuation reports that we feel comfortable with while at the same time the selection process seems to drive our customers business to only the most seasoned, talented and experienced local appraisers. Finally, we require two appraisals on all loans over $1,000,000.