He's Bullish On 2007

By Brian Collins
NATIONAL MORTGAGE NEWS

Sterling Edmunds President & CEO

WASHINGTON — SunTrust Mortgage is bullish on the market and its chief executive expects to see a double-digit increase in loan production this year as other companies cut back or fall by the wayside.

“We have been aggressively growing all of our channels even though the industry has been contracting,” said STM president and chief executive Sterling Edmunds Jr.

The Richmond, Va.-based lender is planning to hire 500 to 600 loan officers in 2007 and open 60 new loan offices. STM originated $54 billion in single-family mortgages in 2006, up 14% from the previous year.

Looking at the overall market, Mr. Edmunds sees a better origination picture than most people, especially on the refinancing side with a heavy schedule of adjustable rate mortgages resetting.

“There are a ton of hybrid ARMs and a lot of people want to get out of option ARMs as well,” Mr. Edmunds said in an interview.

The optimist also believes there’s a chance that mortgage rates could be lower next year.

“If you can get a 5.5% fixed rate, which could happen next year, why do you want a monthly option ARM? A lot of people are going to want the safety and security of a fixed rate,” he said.

STM is subsidiary of SunTrust Bank, Atlanta, a $183 billion company with a retail banking network stretching from Baltimore to Key West, Fla.

SunTrust Mortgage has a $130 billion servicing portfolio and a $32 billion loan portfolio. Its retail offices fit into the same Southeastern regional footprint as the bank.

But STM also generates 60% of its loan production through wholesale and correspondent channels nationwide.

In setting production goals for 2007, the STM president is not just banking on market conditions, he is also banking on quality of service.

J.D. Power and Associates just ranked SunTrust Mortgage “highest” in customer satisfaction based on several criteria, including customer interaction with its loan officers and mortgage brokers.

“Winning a J.D. Power award is not easy,” Mr. Edmunds said. But he attributes the award to STM’s loan officer training program and its success in customer retention.

“We measure everyone of our loan officers on service quality. Every month they are ranked and it is public to everybody in the company,” he said.

STM also adopted a policy about a year ago that is designed to improve a customer’s experience at the closing table.

SunTrust guarantees the interest rate and closing costs on the good faith estimate so there is no unexpected increase in costs at closing.

“We made one easy change and eliminated one of the biggest sources of customer dissatisfaction,” Mr. Edmunds said.

With guaranteed pricing, there are no surprises and the borrower knows actually what they are going to pay, he said. “That helps our service quality and the total experience of our customers.”

STM is currently in the process of implementing the nontraditional mortgage
guidance that federal and state regulators issued to curb aggressive underwriting of interest-only and payment-option ARMs.

“We think [the guidance] was fairly well done and needed in the industry,” Mr.
Edmunds said, particularly in regard to risk layering. “We are already in the process of making a lot of those changes with regard to alt-A and nontraditional mortgages.”

STM is mainly an A-paper and alt-A lender that makes interest-only ARMs and some payment-option ARMs.

Mr. Edmunds has been in the mortgage business for 19 years and he was the chief operating office at Crestar Mortgage in Richmond in 1998 when it was merged into SunTrust.

SunTrust Mortgage is now ranked 14th in total mortgage originations and ninth in purchase mortgage originations, according to the president and CEO.

The one dark spot in his outlook for 2007 involves the deteriorating credit quality of alt-A loans, which includes IO and option ARMs, stated-income and piggyback loans.

“Our delinquencies are up,” said Mr. Edmunds, “but not as high” as the industry averages.

However, it appears that alt-A performance is “as bad as subprime loans or close to it,” he said. “Some of the alt-A and subprime companies have shut down because the buybacks are so heavy.”

But such a credit environment can also lead to opportunities. As mortgage companies go out of business, it creates vacuums in the market, he said.

“And we look forward to filling them.”