CHICAGO (Dow Jones)--The ruined finances and reputation of many mortgage lenders is providing an opportunity for MetLife Inc.'s (MET) bank.
MetLife's plan takes a page from the banking playbook: Offer mortgage loans with the well-known MetLife brand to high credit-scoring customers, then try to sell them traditional insurance products.
"A lot of our agents really like the bank," said Bill Wheeler, MetLife's chief financial officer, at the company's investor day in June. "We've had a very surprising level of success of cross-sell between Internet customers [to whom] we then say, 'Would you like to talk to a MetLife agent about your retirement needs and stuff like that?' And you'd be surprised how good it's been, but it's small still."
MetLife Bank got into the mortgage origination business last year when it bought the mortgage origination and servicing business of First Tennessee Bank. The housing market is still down, but MetLife's model, making loans that it sells to Fannie Mae and Freddie Mac while retaining servicing, has been profitable, the bank's president said in a Dow Jones Newswires interview.
"I think we got into it at the right time," even though the housing market has gotten worse since MetLife closed the deal in August, said Donna DeMaio, the bank's president.
More than 200 MetLife Home Loan offices have sprung up in the past year to fill the gap left when some of the biggest mortgage names went down with the housing bust. To capitalize on the bad feelings left behind by the mortgage problems of Countrywide Financial, Washington Mutual and others, MetLife Home Loans promises to conduct its business "with sincerity, truth and fairness," according to its Web site.
The mortgage environment is different now and lending rules are more strict, which DeMaio says will make new loans more creditworthy. "It is a nice advantage not to have to deal with the problems of the past," DeMaio said. "I hate to say it but in the kind of 'anything went' days, people were getting credit that could not repay that credit."
MetLife Bank turned a $41.1 million profit in the first quarter, and originates about $1.5 billion in loans per month.
As to the success of its cross-selling efforts, a MetLife spokesman said the company does not release those figures, but said more than half of its approximately 8,400 MetLife agents had been trained in cross-selling its lending and insurance products.
In the past, banks had a difficult time with their own insurance cross-selling plans. One insurance consultant said insurers are likely to run up against the same cultural disconnects between banking and insurance sales practices that made it difficult for banks to grow in the insurance business.
MetLife agents are likely to be more interested in selling products that relate to their core life-insurance training, said Andrew Barile, an insurance consultant in Rancho Santa Fe, Calif. He said MetLife's push into property/casualty lines of insurance hasn't gained a lot of traction and he predicted that home lending would follow a similar path, and remain a small sideline to its established life insurance business.
Mike Moebs, president of Moebs $ervices, an economic research firm in Lake Bluff, Ill., said the origination and servicing businesses can be tricky in a down market. If servicing personnel spend too much time making collections calls, it can cut into profits, he said.
Moebs noted that MetLife Bank stepped up its borrowing from the Home Loan Bank and the Federal Reserve in 2008, increasing leverage as the mortgage market continues to look shaky.
But another banking expert takes a more positive view. "They are fairly highly leveraged, but it doesn't surprise me, as they are growing rapidly," said Bert Ely, a banking consultant in Washington. He said retained earnings might not be enough to support their growth rate, and the borrowing is another way to grow quickly.
"This is a good time" to get into mortgage lending, as long as MetLife stays away from problem loans, he said. "They've got to run a tight ship."