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The insurer wants to sell its depository but keep writing mortgages. Essentially, it’s making a bet on regulatory arbitrage — the idea that certain categories of institutions can dodge scrutiny being placed on their competitors.
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MetLife Bank, a unit of the New York insurance company MetLife Inc., has catapulted from relative obscurity in banking to become the seventh-largest depository and a contender in mortgages.
January 6
First MetLife wanted to be a bank. Then it wanted to retain mortgage banking while dumping the other trappings of a depository institution. Now it doesn't want even the standard origination business anymore.
The company's latest retreat from banking came on Wednesday, when MetLife announced that it would try to sell the majority of its mortgage business, keeping only the mortgage servicing and reverse mortgage origination functions. A sale would put an end to the company's stated ambition to rival the big four banks in originations. It also removes yet another funding source for independent brokers and marks a setback for Brian Hale, a former Countrywide executive who was brought on to build MetLife's residential lending business.
"Given the regulatory environment, multi-state licensing and buying loans from third-party channels, I can see their point," about getting out of mortgages, says Rob Chrisman, a 25-year industry veteran who writes a blog about the business. Other industry experts say MetLife likely had given up on its original strategy of trying to cross-sell mortgages with insurance products.
Logical contenders for MetLife's origination platform include PNC Mortgage, a top-20 home lender owned by $263 billion-asset PNC Financial Services Group Inc. in Pittsburgh, and Fortress Investment Group LLC, which owns Nationstar Mortgage Holdings Inc. PNC has been making a big push into California, and Fortress has been in talks to purchase Bank of America Corp.'s correspondent lending business.
Though MetLife wanted to be a major contender in mortgages, its timing was awful. Industrywide mortgage originations plummeted in the first half of the year, after Hale told American Banker in January of the company's intention to push for higher origination volumes and
MetLife is already positioned to be marked by regulators as a systemically important financial institution, making growth in mortgages less attractive and possibly requiring the company to hold higher capital levels. And the mortgage business itself has been subject to significant scrutiny.
"We determined that remaining in the forward mortgage business would require the company to expend a tremendous amount of resources to effectively compete in and profitably grow the business in today's uncertain marketplace and regulatory environment," says David Hammarström. "Doing so would divert these resources away from MetLife's primary focus on its global insurance and employee benefits businesses."
When the giant insurer said in July that it would
Analysts covering the company suggested on Thursday that MetLife's decision to withdraw from most mortgages was the result of a conclusion that jettisoning its bank charter alone wouldn't keep it out of bank regulators' sights on capital levels and other matters.
MetLife is one of 14 mortgage servicers that entered into consent orders with the Office of the Comptroller of the Currency that require an independent review of foreclosure practices and new mortgage servicing standards. MetLife said the federal inquiry "could adversely affect MetLife's reputation or result in material fines, penalties or other enforcement actions," and in significant legal costs. The changes "may affect the profitability" of mortgage servicing, MetLife said in its second-quarter filing with the Securities and Exchange Commission.
"What they're doing now is similar to several other insurance companies like Allstate, Lincoln, and Hartford," says Jimmy Bhullar, an analyst for JPMorgan Chase & Co who covers the insurance industry. "They feel that maybe the banking requirements are going to be even more onerous, and they're in the process of winding down their banks."
MetLife has not signaled it entirely intends to withdraw from mortgage business. It will continue to service more than 400,000 mortgages, and it will maintain its reverse mortgage business, a niche to which many large banks don't cater. But Bhullar says he believes that such operations might no longer make sense if the company won't collect deposits or write standard mortgages.
"The fact that they're selling the other two parts of the bank make it more likely that they'll get out of the business," he says, adding that there may be a practical reason for not putting the reverse mortgage division on the block.
"Reverse mortgages? It might be hard for them to sell the unit in this environment," he says.,"
MetLife's Hammarström says that there were no plans to dispose of the servicing business, though as a publicly traded company "we continuously evaluate all of our businesses based on market conditions and the regulatory environment."
