Processing Your Payment
Please do not leave this page until complete. This can take a few moments.
April 3, 2006
Match point | In one year, Novaya Mortgage has become one of the largest mortgage brokers in Maine, but how will it adapt to a slowing housing market?
By Torrey Meeks
When Eric Gundberg and Haj Carr set up their first mortgage office last March in Brunswick, they were looking forward to the perks that come with being independent businessmen, such as building their company from scratch and calling all the shots. Gundberg, 32, and Carr, 29, co-owners of Portland-based Novaya Mortgage, were veterans of the mortgage industry who didn't like being part of a larger corporation. But that didn't mean they wanted to stay small.
A year later, the company has four offices in Maine and New Hampshire ˆ including new headquarters in Portland ˆ that conduct business with 55 different banks in Maine, Florida, Colorado and New Hampshire. Thanks in part to that broad base of operation, Novaya currently is one of the largest mortgage brokers in the state based on number of loan officers employed and mortgages written, says Gundberg. Will Lund, director of Maine's Office of Consumer Credit Regulation, corroborates the company's size based on its 32 loan officers employed ˆ the most in Maine. The number of loans written in Maine by Novaya, according to Gundberg, was between 600 and 800 as of the end of 2005.
Acquiring competing brokers to expand both Novaya's reach and the number of experienced brokers on its staff has been a key part of the company's growth strategy, says Gundberg. That's because size is important in a volume-driven business like mortgage brokering. "We [Novaya] get better rates from the banks because of our volume, and our size allows us to offer our employees full benefits," says Gundberg.
While Novaya's growth looks impressive, a five-year real estate boom has helped the company ˆ and the approximately 380 other new mortgage brokerages that have come along in the last 10 years in Maine ˆ post strong numbers, says Anthony Armstrong, chairman of the Legislative Committee for the Mortgage Bankers Association of Maine and owner of Portland-based Maine Home Mortgage. But now, Novaya and other mortgage brokers might be in for lean times: Mortgage originations nationwide are projected to drop from $4 trillion in 2003 to an estimated $2 trillion in 2006, according to David Olson of Columbia, Md.-based Wholesale Access Mortgage Research & Consulting, due to a slowdown in the housing market and rising interest rates. "Mortgage brokers, from what we can tell, are hurting along with everyone else," says Olson.
The number of customers choosing brokers ˆ instead of applying directly for a mortgage with a bank ˆ is expected to shrink as well: Brokers handled 68% of mortgages in 2004, says Olson, but that number is expected to drop to 50% by the end of this year.
Despite market downshifts, Gundberg is confident about Novaya's prospects. "We had a small slowdown, but we were strong enough to weather it," says Gundberg. "Most of what we make we re-invest back into the business. We are constantly watching the overhead."
Middle men
When Gundberg and Carr established their first office in Brunswick, they already had identified markets they wanted to expand into as soon as possible, including Florida and New Hampshire. But they also began looking around Maine for existing mortgage companies to acquire in order to give the company an immediate increase in volume. A slowing housing market helped in that process, says Gundberg. "Reliance and Magna signed up with us because as the market tightens, the mom-and-pop shops are going to have a harder time competing," he says, referring to the two brokerages Novaya acquired in October 2005 and January, respectively.
A brokerage like Novaya is able to expand quickly due to an essential difference between its business model and that of a bank or other lending institution: A brokerage doesn't need deep pockets to dish out loans itself, and doesn't require expensive branches with tellers, vaults and the like. Brokers work on behalf of a homebuyer, land buyer or other borrower to find the best deal on a loan among several banks. When the brokers find a loan, they handle all the loan paperwork for the borrower, collecting a fee for their effort.
On average, Gundberg looks to gross $1,500 in closing costs and fees from each mortgage. A cut of that goes to the officer handling the sale, who works on straight commission, says Gundberg. (Earning between $1,500-$2,000 on a $100,000 loan is a reasonable profit margin for a broker, says Armstrong of Maine Home Mortgage.) "We don't charge crazy excessive fees because we want people to go back and tell their friends and family, 'Hey these guys really took care of me,'" says Gundberg.
Gundberg is a devotee of the value of that type of word-of-mouth referral. The approach was inspired by his experience working with Atlanta-based EarthLink in 1998 as a customer retention representative before getting into the mortgage industry. The Internet service provider became a juggernaut in the industry ˆ with about 5.3 million customers today ˆ primarily through word-of-mouth referral, says Gundberg.
The goal, he says, is to get away from more conventional, time-intensive marketing strategies to allow him to focus on setting up new offices and registering Novaya in new regions (co-owner Carr handles the business' finances). That said, Novaya also relies on more traditional marketing to create business, including advertisements on buses in Portland and in publications such as Portland Magazine. The company's website also includes educational features ˆ such as a section explaining the difference between brokers and lenders ˆ in order to attract clients.
Survival of the fittest
The majority of the loans handled by Novaya, says Gundberg, are primary home-buying mortgages ˆ in essence, a customer's first loan for a given house.
And while Novaya does handle subprime loans for customers with credit problems or a limited credit history, Gundberg says that type of loan only makes up 20% of the company's business. That's a typical rate for brokers, say industry experts. "We tend to deal more with 'A-Paper' people: individuals with perfect credit," says Gundberg.
Recently, the subprime market has been a focal point for unethical brokering practices, says Lund at the Office of Consumer Credit Regulation, (see "Loan sharks," page 36). But Armstrong of Maine Home Mortgage says that "most mortgage companies and brokers do some sub-prime lending. Some people have distressed credit and want to pay down or consolidate some debt. There are lots of legitimate reasons for those kinds of loans."
However, Armstrong adds that some brokerages that don't want to see their revenues plateau from a slowing real estate market may start to rely more heavily on the subprime market. That's because most young brokerages don't offer such diverse portfolios of financial services as standalone lenders and banks, meaning their entire operation relies on the number of mortgages they can push through.
With a national average lifespan for mortgage brokering companies of five years, according to Olson of Wholesale Access, and the number of total brokers declining from the estimated 52,000 in 2004, it's going to come down to survival of the fittest. "The main problem up there [in Maine] is high prices," says Olson. "Our view is that the high-priced houses are the ones hurting the most. Inventories are rising, and it's taking a longer and longer time for these houses to move."
The paring down of mortgage brokerages can be seen locally with the closing of Freeport-based Pine Tree Mortgage late last year. Attempts to reach the former owners of the company were unsuccessful, but Lund verified that Pine Tree did not register to do business in 2006. He adds that approximately 50 brokers registered in Maine didn't renew licenses this year, but speculates that many are likely brokerages based out-of-state that didn't feel they were generating enough revenue in Maine to justify paying a new minimum surety bond requirement of $25,000. (See "Rules of the game," page 28.)
Facing those conditions, Novaya's strategy is to find potential markets to continue growth, while keeping the 80/20 balance of good credit to subprime loans. Expansion is still part of the mix, with Gundberg eyeing the Southwest as the company's next market. "It has the fastest rising population, more than the rest of country," says Gundberg. "I just filled out license applications the other day for New Mexico and Arizona."
Beyond that, though, Gundberg says he and Carr have agreed to turn an eye inward before growing any larger. After a year of growth, Gundberg sees the risk of overextension leading to sloppy management. "We've recently started going back and adding the [management and tech support] levels we needed to make sure everything is rock solid internally," says Gundberg.
Once those new positions and policies are in place, Gundberg intends to resume building the business. The focus, however, will remain on writing the loans that keep the company's revenues coming in, he says. "At the end of day if a loan doesn't make any sense we won't do it," says Gundberg, "But we'll work with anyone, and we'll beat our heads against a pole until then trying to figure out how to make it happen."
A year later, the company has four offices in Maine and New Hampshire ˆ including new headquarters in Portland ˆ that conduct business with 55 different banks in Maine, Florida, Colorado and New Hampshire. Thanks in part to that broad base of operation, Novaya currently is one of the largest mortgage brokers in the state based on number of loan officers employed and mortgages written, says Gundberg. Will Lund, director of Maine's Office of Consumer Credit Regulation, corroborates the company's size based on its 32 loan officers employed ˆ the most in Maine. The number of loans written in Maine by Novaya, according to Gundberg, was between 600 and 800 as of the end of 2005.
Acquiring competing brokers to expand both Novaya's reach and the number of experienced brokers on its staff has been a key part of the company's growth strategy, says Gundberg. That's because size is important in a volume-driven business like mortgage brokering. "We [Novaya] get better rates from the banks because of our volume, and our size allows us to offer our employees full benefits," says Gundberg.
While Novaya's growth looks impressive, a five-year real estate boom has helped the company ˆ and the approximately 380 other new mortgage brokerages that have come along in the last 10 years in Maine ˆ post strong numbers, says Anthony Armstrong, chairman of the Legislative Committee for the Mortgage Bankers Association of Maine and owner of Portland-based Maine Home Mortgage. But now, Novaya and other mortgage brokers might be in for lean times: Mortgage originations nationwide are projected to drop from $4 trillion in 2003 to an estimated $2 trillion in 2006, according to David Olson of Columbia, Md.-based Wholesale Access Mortgage Research & Consulting, due to a slowdown in the housing market and rising interest rates. "Mortgage brokers, from what we can tell, are hurting along with everyone else," says Olson.
The number of customers choosing brokers ˆ instead of applying directly for a mortgage with a bank ˆ is expected to shrink as well: Brokers handled 68% of mortgages in 2004, says Olson, but that number is expected to drop to 50% by the end of this year.
Despite market downshifts, Gundberg is confident about Novaya's prospects. "We had a small slowdown, but we were strong enough to weather it," says Gundberg. "Most of what we make we re-invest back into the business. We are constantly watching the overhead."
Middle men
When Gundberg and Carr established their first office in Brunswick, they already had identified markets they wanted to expand into as soon as possible, including Florida and New Hampshire. But they also began looking around Maine for existing mortgage companies to acquire in order to give the company an immediate increase in volume. A slowing housing market helped in that process, says Gundberg. "Reliance and Magna signed up with us because as the market tightens, the mom-and-pop shops are going to have a harder time competing," he says, referring to the two brokerages Novaya acquired in October 2005 and January, respectively.
A brokerage like Novaya is able to expand quickly due to an essential difference between its business model and that of a bank or other lending institution: A brokerage doesn't need deep pockets to dish out loans itself, and doesn't require expensive branches with tellers, vaults and the like. Brokers work on behalf of a homebuyer, land buyer or other borrower to find the best deal on a loan among several banks. When the brokers find a loan, they handle all the loan paperwork for the borrower, collecting a fee for their effort.
On average, Gundberg looks to gross $1,500 in closing costs and fees from each mortgage. A cut of that goes to the officer handling the sale, who works on straight commission, says Gundberg. (Earning between $1,500-$2,000 on a $100,000 loan is a reasonable profit margin for a broker, says Armstrong of Maine Home Mortgage.) "We don't charge crazy excessive fees because we want people to go back and tell their friends and family, 'Hey these guys really took care of me,'" says Gundberg.
Gundberg is a devotee of the value of that type of word-of-mouth referral. The approach was inspired by his experience working with Atlanta-based EarthLink in 1998 as a customer retention representative before getting into the mortgage industry. The Internet service provider became a juggernaut in the industry ˆ with about 5.3 million customers today ˆ primarily through word-of-mouth referral, says Gundberg.
The goal, he says, is to get away from more conventional, time-intensive marketing strategies to allow him to focus on setting up new offices and registering Novaya in new regions (co-owner Carr handles the business' finances). That said, Novaya also relies on more traditional marketing to create business, including advertisements on buses in Portland and in publications such as Portland Magazine. The company's website also includes educational features ˆ such as a section explaining the difference between brokers and lenders ˆ in order to attract clients.
Survival of the fittest
The majority of the loans handled by Novaya, says Gundberg, are primary home-buying mortgages ˆ in essence, a customer's first loan for a given house.
And while Novaya does handle subprime loans for customers with credit problems or a limited credit history, Gundberg says that type of loan only makes up 20% of the company's business. That's a typical rate for brokers, say industry experts. "We tend to deal more with 'A-Paper' people: individuals with perfect credit," says Gundberg.
Recently, the subprime market has been a focal point for unethical brokering practices, says Lund at the Office of Consumer Credit Regulation, (see "Loan sharks," page 36). But Armstrong of Maine Home Mortgage says that "most mortgage companies and brokers do some sub-prime lending. Some people have distressed credit and want to pay down or consolidate some debt. There are lots of legitimate reasons for those kinds of loans."
However, Armstrong adds that some brokerages that don't want to see their revenues plateau from a slowing real estate market may start to rely more heavily on the subprime market. That's because most young brokerages don't offer such diverse portfolios of financial services as standalone lenders and banks, meaning their entire operation relies on the number of mortgages they can push through.
With a national average lifespan for mortgage brokering companies of five years, according to Olson of Wholesale Access, and the number of total brokers declining from the estimated 52,000 in 2004, it's going to come down to survival of the fittest. "The main problem up there [in Maine] is high prices," says Olson. "Our view is that the high-priced houses are the ones hurting the most. Inventories are rising, and it's taking a longer and longer time for these houses to move."
The paring down of mortgage brokerages can be seen locally with the closing of Freeport-based Pine Tree Mortgage late last year. Attempts to reach the former owners of the company were unsuccessful, but Lund verified that Pine Tree did not register to do business in 2006. He adds that approximately 50 brokers registered in Maine didn't renew licenses this year, but speculates that many are likely brokerages based out-of-state that didn't feel they were generating enough revenue in Maine to justify paying a new minimum surety bond requirement of $25,000. (See "Rules of the game," page 28.)
Facing those conditions, Novaya's strategy is to find potential markets to continue growth, while keeping the 80/20 balance of good credit to subprime loans. Expansion is still part of the mix, with Gundberg eyeing the Southwest as the company's next market. "It has the fastest rising population, more than the rest of country," says Gundberg. "I just filled out license applications the other day for New Mexico and Arizona."
Beyond that, though, Gundberg says he and Carr have agreed to turn an eye inward before growing any larger. After a year of growth, Gundberg sees the risk of overextension leading to sloppy management. "We've recently started going back and adding the [management and tech support] levels we needed to make sure everything is rock solid internally," says Gundberg.
Once those new positions and policies are in place, Gundberg intends to resume building the business. The focus, however, will remain on writing the loans that keep the company's revenues coming in, he says. "At the end of day if a loan doesn't make any sense we won't do it," says Gundberg, "But we'll work with anyone, and we'll beat our heads against a pole until then trying to figure out how to make it happen."
Mainebiz web partners
Most Recent
Most Recent
Comments