Fundings off as the refi tide goes out
Fundings off at Cendant is the story of early 2004, as the company’s mortgage business confronts the downside of the record refinance boom.
After two years of extraordinary volume in 2002–2003, rising rates and a thinner refinance pipeline left first-quarter 2004 fundings running noticeably below the prior year’s peak levels. Cendant’s mortgage arm – then operating under the Cendant Mortgage/PHH banner – was still sizeable, but the easy gains from rate-driven refis were clearly behind it.
Industry rankings for the first quarter showed Cendant as the 11th-largest originator, with about $11.3 billion of loans funded, and the 10th-largest servicer with a servicing book around $140 billion. Those are big numbers, but smaller than what the platform had been producing at the height of the boom. American Banker
Profit pressure and strategic rethink
Lower fundings translated quickly into weaker earnings. In the first quarter, Cendant’s mortgage servicing and lending net income fell by roughly a third, and cash flow from the business slumped even more sharply, highlighting how sensitive results had become to volume and margins.
At the same time, management was reshaping how it reported the business. Beginning in 2004, Cendant carved out Mortgage Services as a separate reporting segment alongside its real estate franchises and relocation units, making the drag from softer fundings more visible to investors.
By mid-year, executives were openly exploring options to reduce exposure to traditional mortgage banking – including a potential sale or spin of the production and servicing operations – while trying to preserve the value of Cendant’s powerful real-estate referral network.
What it meant for the mortgage market
For MortgageDaily readers, “Fundings Off at Cendant” captured three key themes in 2004:
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The refi boom was cooling fast, and even top-tier platforms could not escape the drop-off in volume.
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Mortgage banking income was highly cyclical, with earnings and cash flow falling much faster than headline funding numbers.
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Large, diversified groups like Cendant were starting to ask whether they should own full-blown mortgage banks or participate more selectively through outsourcing and referral models.
Fundings off at Cendant, in other words, was less about a failed franchise and more about a business built for a boom having to relearn how to operate in a more normal – and less forgiving – mortgage market.
