Founded in 2007, Carrington Mortgage Services is a subsidiary of The Carrington Companies, a holding company whose primary businesses include asset management, mortgages, real estate transactions and real estate logistics. Collectively, the businesses are vertically- and horizontally-integrated, and provide a broad range of real estate services encompassing nearly all aspects of single family residential real estate transactions in the U.S.
Headquartered in California, Carrington Mortgage Services includes a full-service mortgage lending business – including wholesale, retail, and centralized sales and operations – as well as a mortgage servicing division, which includes two loan servicing locations that together provide integrated full lifecycle servicing to support both borrowers and investors.
With a strong focus on the “underserved market,” the fast-growing company’s mission is to “deliver exceptional customer care to our borrowers and our investors” and to preserve homeownership “through programs that support our borrowers and their ability to stay in their homes.”
Through tight integration with Carrington Real Estate Services, the real estate division of The Carrington Companies, Carrington Mortgage Services is able to offer potential home buyers a comprehensive suite of services that allows them to get educated about homeownership, shop for a home, purchase a home and, ultimately, retain that home. Also falling under The Carrington Companies’ umbrella are Carrington Property Services, the firm’s property services division, and Carrington Capital Management, its asset management division.
To learn more about Carrington Mortgage Services’ strategy for growth in 2017 and beyond, MortgageOrb recently interviewed Ray Brousseau, who was promoted to president of the company in June 2016. Under Brousseau’s leadership, Carrington has experienced unprecedented growth, increasing mortgage volume by more than 50% in 2016 alone.
Brousseau’s broad expertise includes nearly 30 years of mortgage banking and consumer finance experience. Prior to joining Carrington in 2011, he spent 23 years leading various segments of Citi’s consumer finance business, CitiFinancial. What follows are excerpts from our interview.
Q: First, congratulations on your recent promotion. What has it been like transitioning into the new role?
Brousseau: It’s exciting. It has been five years since I joined the firm, and those five years have been exceptionally fulfilling and challenging. We’ve experienced incredible growth, and it has been exciting to be a part of that.
Q: I understand that as part of your promotion, you’re now overseeing the servicing side of the business, as well as the lending side. Has that been challenging for you?
Brousseau: I would say it is a natural evolution. We retain the majority of our origination – so, tying the servicing and origination businesses more closely together via shared leadership made sense. And we feel it will provide for a better overall customer experience.
One of the unique things about Carrington is its focus on the underserved market. The key to that strategy is being able to service that client using our high-touch platform to keep that loan performing. So, shared leadership pulls it together that much tighter.
I was involved in servicing a bit when I was at Citi. So, it is not completely foreign to me. That said, servicing today has become a very complex process. I’ve certainly developed a greater appreciation for all that our servicing team does every day to operate compliantly and successfully.
Q: Does this mean you had to take on even more responsibilities? Or has there been some spreading around of the work?
Brousseau: During the past five years, I’ve been almost entirely lending-focused. And during that time, the lending business has grown considerably and the leadership team has matured considerably. I could go on for days about all of the changes we’ve made to the lending platform.
Four years ago, in October 2012, we announced that we had originated $100 million for the first time. Fast-forward to today, and we’ve done six times that much. The lending business is in great shape – the leadership has stayed intact during the past five years, and it has now reached the point where it’s gelled. So, the time was right for me to allow some of my senior leadership team to take on some additional responsibilities within lending. That’s why we announced some promotions at the time (of my own promotion) – we increased the responsibilities for the executive vice president (EVP) of retail and the EVP of wholesale. So, those guys are helping in sharing an increased workload. That allows me to devote more time to the servicing team – and to know what our opportunities and challenges are within that group.
Q: Through what types of channels is Carrington Mortgage Services operating today?
Brousseau: Brousseau: We have three channels. We have a retail branch network – about 35 locations across the U.S. The newest channel is our retail centers, which are focused on direct-to-consumer purchase business and portfolio retention. These are hybridized, centralized branch locations. They are larger than branches. Each one has maybe 50 -75 loan officers (LOs) and maybe 15 – 30 processors, and they are licensed nationally. There are 10 of them nationally. We now have a serviced portfolio of over $45 billion, and that’s largely Federal Housing Administration (FHA), Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans. So, the retail centers platform is charged with driving streamlined refinances through the portfolio – and keeping borrowers content and in the portfolio. That part of our business, frankly, has grown more than any because our investment side of the house has been very active in the acquisition of mortgage serving rights (MSRs) and nonperforming loans. So, portfolio retention is driving about 50% of our production. In addition to portfolio retention, the retail centers are charged with originating loans generated from our Connects platform. Connects is our proprietary technology for generating leads.
We also have a wholesale platform, which has doubled in volume since the start of 2016. However, unlike our retail and consumer direct channels, I would say that the efforts in our wholesale division are more focused on prime business. We don’t make our broker partners go out and only target the underserved; they can go after whatever business they want. We find that most of our broker partners don’t want to be focused on the underserved market anyway. They prefer to work with prime clientele. This is actually a good thing because it helps keep Carrington from being completely pigeonholed into the underserved market.
Q: Can you comment on any technology initiatives that are notable for 2016?
Brousseau: On the lending side, probably the biggest technology initiative is our Carrington Connects initiative. Marketing up to this point has been traditional – we used to go out and buy lead aggregation and provide that back to the LOs in the centers for making outbound calls. However, what we have developed in the past year or so is what we refer to as Connects, and it’s our effort at turning that traditional model upside down. It allows us to create an online presence – digital marketing – which allows us to reach out to potential home buyers, as well as to homeowners in order to get them to refinance. We “connect” with them by sharing education and by sharing tools online. So, instead of buying those leads and making outbound calls, we’re using digital marketing to develop our own leads. We’re sending potential borrowers our own property listings and telling them what their borrowing power is and then really bringing them completely in-house because we have all of the services available.
I think the difference between what we’re bringing to the table versus what others bring to the table is, with what others are bringing, it is pretty one-dimensional – it’s just about getting a loan – whereas with Carrington, it’s about the entire homeowner experience.
With Carrington Connects, it is as much for our existing customers as it is for prospects. For example, prospects can go online and get an education about what it takes to buy a home. They can get their pre-qualifications. And they can then “connect” and look at properties in their area, with their search essentially based on a potential monthly payment. Then they can open an escrow account, get property repairs done – just about any aspect of the home buying process can be handled via Carrington Connects.
In addition, our existing customers can get info on a streamlined refinance.
Q: Technologically speaking, do you find that retaining and servicing your own loans allows you to compare against the challenges other non-retaining lenders face, in terms of things such as loan onboarding and MSR transfers and how all of that relates to compliance? In other words, does it help you realize that there are better ways of doing things out there in the larger mortgage universe?
Brousseau: Candidly, when we originate and then board our own loans, and retain the servicing, that’s fairly painless – very rarely are there issues. The bigger challenges come with boarding the portfolios and doing that efficiently and effectively – in particular, making sure that borrowers who are in flight with modifications are transferred accurately and with sensitivity. Again, the MSRs that we’re typically after – there’s some delinquency in there; there’s some distress that’s in those portfolios. So, a primary focus for us is making sure that the experience of the borrower is a positive one, especially if he or she is in some stage of loss mitigation. That is definitely a focal point.
We brought in a new EVP about 18 months ago – Jim Miller – who has done a lot of the heavy lifting in recent months, in terms of bringing things such as automation to the table. To be honest, we were a little behind the curve, but now we’re getting caught up, bringing automation into the bankruptcy processing and claims processing, even some of the property preservation work. We’ve brought in a number of senior leaders with experience at places such as Fiserv, so we have subject matter experts in-house. There’s still a lot of work to be done.
But, getting back to your question about comparing MSR transfers, there are very different experiences out there, no question. Typically, the portfolios we board are coming from the big banks. And their focus – and how they do things – is very different from a smaller lender.
The bottom line is this: We know, based on the portfolio that’s boarding, what to expect. We know what their strengths and weaknesses are. For example, we might say, “With this firm, this is a challenge, this is what we have to look out for, as it boards.” We know what the challenges are.
And on the origination side of things, one of the advantages of bringing origination and servicing together under one shared leader is to make sure we tighten up the experience from a borrower perspective. Because, prior to the change in management, lending operated in one silo and servicing operated in another, and they stayed focused on their business priorities. But now I can put lending and servicing together in one room – and I can ask questions like, “How did we handle the escrow in this particular situation? Did we handle it right or not right? What can we do differently?” We can now look at the transactions from a customer-centric perspective.
Q: Would you agree that without the use of technology, the job of servicing today would be near impossible?
Brousseau: Yes, and it’s mainly because each of the organizations that we service for – Fannie Mae, Freddie Mac and Ginnie Mae – have different requirements, and in order to meet those expectations, you can’t just use spreadsheets and checklists. You have to have technology in place in order to meet those guidelines.
Q: In terms of origination, what is the current breakdown, by product type?
Brousseau: As far as the distribution goes – about 93% of our production of government loans – FHA is about 75%; VA is about 15%; and USDA is about 3%. We expect that we will achieve about a 65% growth rate for 2016. And our compound annual growth rate for the past five years has been north of 50%. So, I think we’re growing at a rate that is much faster than others. And our focus has been in the government space. If you look at total volume nationwide, government loans make up about 25% to 30% of all production, while the other 65% to 70% is conventional.
Q: What about the recent changes in the FHA requirements – the updates to the handbook, etc. – would you say that those had a significant impact on your business?
Brousseau: We enjoy our relationship with the U.S. Department of Housing and Urban Development (HUD) and the FHA – we consider them to be close partners. We worked with them on the recent launch of the supplemental performance metric, back last August. That was a significant change that helped lenders such as Carrington hit those lower FICO buckets. We found that engagement to be very fulfilling. We feel strongly, and we hope they agree, that we are helping HUD fulfill its mission of providing homeownership to middle-income America. It aligns perfectly with our strategic direction.
As far as loan performance goes, I can tell you that we pay a lot of attention to the details, and that’s really important. We have invested considerably in our compliance infrastructure. We do 100% pre-funding quality control. And we take a lot of pride in our performance statistics.
One of our company’s initial objectives was to help lead the resurgence of non-agency lending back into the marketplace. But the market still has not come around to the point yet where those are trading – and are liquid – well, barely. Frankly, working with the FHA and HUD, we’ve still been able to pursue that objective. Through the FHA/HUD – and using those tools that are available to connect with those same borrowers – the evolvement is leading toward non-agency products coming back into the marketplace.
In the type if business we do, we still do a fair amount of manual underwriting, which is necessary for borrowers with lower FICO scores and higher debt-to-income ratios. And, from what I hear from the underwriters, the biggest impact from the new FHA guidelines is that the new handbook took a lot of the guessing out. It clarifies for them what they can and cannot do. And, candidly, as I look at the distribution of production and pull-through rates and approval rates and things of that nature, there really hasn’t been any significant fallout. It simply clarifies the conditions and the compensating factors that the underwriters can use to justify their decisions.
Q: What would you say were the main factors that drove your company’s fantastic growth in 2016?
Brousseau: The fact that we were one of the first to raise our hand about two-and-a-half years ago and say we want to target the underserved market – that has really paid dividends for us. Because, whether it was Realtor relationships, referral relationships or broker relationships, that business has started coming in the door for us. We’re good at it – and we’ve developed a reputation for being good at it – so we continue to find that it is really paying dividends. Today, more than 40% of Carrington’s fundings are for borrowers who are FICO 640 or under. So, it is a significant piece of our business. That’s because we were first to market and have established ourselves as being strong in this area, and that keeps the business flowing.
However, we also don’t want to be a one-trick pony. Although we’re good at it, we also want to, for example, grow our wholesale channel. We certainly do not want the firm to be pigeonholed into being perceived as only going after the underserved market. That’s why it’s important that we allow our broker partners to go after prime business, too.
Q: So, what’s your forecast for 2017?
Brousseau: I expect to see the mix shift significantly away from the refi side. We’re going to get much stronger in the purchase business, and that’s part of the reason we set up those retail centers and are investing in Connects. So, although we’re expecting a major softening in our refinance business, we’re still expecting good solid growth in our purchase production. Right now, the mix is too heavy on the refi side.
Q: What impact do you think rising rates will have on the business over the next year?
Brousseau: Right now, we’re thinking the Fed will raise rates at least another 0.25% in the first quarter. We’re expecting some more acquisitions in the first quarter on the MSR side, and there’s some good meat on the bone there, so I’m hoping that these additional acquisitions will help offset some of the drop in production on the origination side.
As of November, almost half of our production was coming from the refinances on the retained portfolio. Still, the average coupon on those loans is pretty healthy. So, I think even with a couple of 0.25% increases, business still has plenty of upside.
On the purchase side of things, this is, again, where the underserved strategy is helpful. When you’re able to take someone who thought that homeownership was out of reach – and all of a sudden, show that person that you can help him or her – whether the average rate is at 3.5%, 4.5% or 5.5%, it isn’t really all that significant, to be frank. Our strategy around the underserved helps protect us a little bit from interest rate volatility.
But it is a unique challenge. We’ve got some 400 LOs – and, for the most part, they’ve never experienced interest rates in the 3.5% to 4.5% range. The problem with what has happened is that they’re view of what’s normal isn’t normal.