Another view of Quicken Loans

The lead essay in the financial section of the morning newspaper describes the Quicken Loans firm and their conflict with the Department of Justice.

https://www.nytimes.com/2017/01/21/b...=business&_r=0

An excellent, if long, read. The entrepreneurial efforts of Dan Gilbert are truly amazing. Yes there is controversy, and that is not dodged in the article.

As the following passage describes, he's a bit of a Henry Ford. But instead of cars he made loans faster, cheaper, safer.

Quote:

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Former executives describe Quicken Loans as a technology company that sells mortgages. But the heart that keeps Quicken’s blood moving is the 3,500 mortgage bankers who work its phones. Many new employees come in with little to no background in financial services. One employee joined after delivering pizzas to the Quicken Loans office and becoming interested in working there.

Entry-level employees typically make hundreds of calls a day, trying to get potential customers on the phone. Not unlike the assembly lines that put together cars in Detroit, the call is immediately handed off to a licensed mortgage banker, who completes the loan application, then quickly passes it to processing so that he or she can focus on the next loan application.

Mr. Gilbert said clients are able to close more quickly on loans when specialists focus on each stage of the loan process.

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He has uniquely filled a void/opportunity in financing creating what the writer calls the shadow-banking or nonbanking system, financial companies that originate loans solely, and innovating the process and making a ton of money.

Quote:

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In September 2012, banks originated 65 percent of the purchase-mortgage loans insured by the F.H.A., according to the data. Today, that number has more than flipped: Nonbanks originate 73 percent of the loans, with banks’ share dropping to 18 percent.

The figures are more spectacular for refinanced mortgages, where nonbanks now make up 93 percent of loans.

“The market has moved to the nonbanks because the nonbanks’ appetite for risk is much higher,” said Edward J. Pinto, a director of the Center on Housing Risk.

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All in all he comes off well in the article. Yes there are controversies but in the vast sweep of businessmen in the world, I think he comes off pretty high up. At least I hope so for Detroit.

The writer of the NYT DealBook articles, Andrew Ross Sorkin [[a panelist on CNBC's Squawk Box every morning as well) is a very good writer.

He missed a key point, however.

When mortgage bankers sell the loans they generate they sell either "servicing retained" or "servicing released." The real profit in the mortgage banking business is primarily from the servicing of the loans sold, collecting monthly payments, making sure taxes and insurance premiums are paid, etc.; for a monthly fee. [[Countrywide, when it went under and was bought by Bank of America [the idiots, who lost billions on the acquisition] were generating over a billion dollars a month in servicing fees. Quicken sold most of its loans to Countrywide at the time, servicing released.)

Quicken's business [[as is all mortgage bankers) is selling U.S. dollars; almost all loans are sold to Fanny or Freddie, which is primarily the U.S. govt, you and I. It's a very low margin business where the real money is made on title insurance premiums and other closing costs where required, refinancings [[less expensive to close), and servicing, whether retained or released [[sold.)

Thank you very much, 3WC, for the explanation. I never fully understood the source of
profits for firms such as Quicken Loans. One of their major expenses must be advertising. My one experience doing business with Quicken was very pleasant and accurate.

You're welcome.

I admire Gilbert, not only for being the major cause of Detroit's "revival" but for making it so relatively uncomplicated for Americans to obtain mortgages and increase home ownership, a key cause of economic prosperity.

Doing well by doing good.

This might interest some of you.

http://real-estate-and-urban.blogspo...-is-doing.html

Fascinating read on Gilbert and his vision and fighting style. Amazing that he took the battle to the Feds on the housing bubble. It'll be interesting to see where that goes. Lots of crookedness there and most banks/lenders paid huge fines but denied guilt. Gilbert isn't cutting a deal in what are hard cases to litigate. High risk high reward for the Prince of Gilbertville.

Those Quicken employees work all the time. I'd be cheering the mouse to get Gouda too.