Originations Soar at New Discover Unit

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With barely more than three months in the business, the new mortgage unit at Discover Financial Services is on pace to quadruple residential originations.

Discover Home Loans was launched in June. The company was created when Discover Financial Services acquired Home Loan Center Inc. in June from Tree.com for $46 million.

At the time of the acquisition, the unit was originating around $1 billion a year — though Carlos Minetti, Discover’s president of consumer banking and operations, said in a conference call earlier this year that Discover hopes “to be as large as Quicken Loans is today.”

Quicken originated $30 billion in 2011.

Riverwoods, Ill.-based Discover is already on its way to growing its home-loan production.

During the first 100 days after launching, Discover originated around $1 billion in mortgages, David W. Elms, chairman and chief executive officer, said in the third quarter earnings conference call.

The volume puts the company on pace to generate $4 billion annually in home-loan production.

But Discover isn’t necessarily looking to grow at a break-neck pace.

“We’re not gonna to jam the pedal to the floorboards anytime soon to try and dominate the industry in the next three months,” an executive said in the conference call.

Management noted the reliance on mortgage leads that dominated originations under Tree.com will be reduced and be replaced by cross selling to other Discover clients.

Including credit cards, mortgages and student loans, the balance sheet reflected $59.2 billion in loans outstanding in the third quarter, growing from $57.1 in the previous period, Discover reported in its fiscal earnings report for the three months ended Aug. 31. Loan assets were $54.1 billion as of Aug. 31, 2011.

On all of its loans, the 30-day delinquency rate was 1.71 percent. Late payments fell 10 basis points from the three months ended May 31 and has improved substantially over the 2.35 percent rate in place in at the same point in 2011.

Other income increased at Discover by $25 million from the prior year “primarily due to revenue from Discover Home Loans.” At the same time, expenses were up 14 percent “primarily due to the Home Loan Center acquisition, higher marketing expenses and higher headcount.”

Net income before taxes across all of Discover Financial during the three months ended Aug. 31 was $1.0 billion, climbing from $0.9 billion three months earlier but mostly unchanged from a year earlier.

Mortgage Expert

Mortgage Daily Staff