A new player will be entering the intensely competitive prime mortgage market. Equitable Bank, the country’s second-biggest non-prime lender, plans to distribute insured single-family mortgages through brokers as early as the third quarter 2014.
The company says it will fund a “majority” of its prime mortgages through securitization, taking advantage of interest-only strips. (Lenders sell I/O strips to investors. This lets the lender earn a profit on a mortgage while keeping that mortgage off its balance sheet, which is necessary due to regulatory capital constraints.)
The company has a loyal following of brokers. That should give it a running start on the “A” side of the business, assuming its rates and product features are better than average.
CEO Andrew Moore noted two customer segments in particular where Equitable plans to be strong: business-for-self (BFS) and new immigrants.
Before Equitable launches its prime mortgage business, Moore said the company first needs to finalize legal documentation, decide on penalties and commission schedules, broaden insurer relationships, hire prime underwriters and finish IT work.
Equitable Bank was the eighth-biggest lender in the broker channel last quarter, according to data from D+H. This announcement could easily move it up the ranks another notch or two.