Second-quarter turnaround after earlier slump
Cendant Production Up became the story of mid-2004 as the company’s mortgage arm reversed part of the volume drop it suffered when the refinance boom cooled.
After a sharp fall-off in first-quarter 2004 fundings, Cendant had already signalled that low interest rates were driving a fresh wave of applications that should lift mortgage production in the second quarter. Subsequent results bore that out, with higher mortgage activity feeding into improved mortgage services earnings compared with the start of the year.
At the same time, Cendant remained a major player in both origination and servicing, with earlier league tables ranking it among the top dozen US mortgage producers and servicers by volume. American Banker
Mortgage services still under pressure year-on-year
Even with Cendant Production Up versus the first quarter, the mortgage business was still feeling the hangover from the record 2003 refi wave.
Second-quarter 2004 segment data show Mortgage Services revenue down versus a year earlier, though segment EBITDA managed a modest gain. That combination – lower revenue but slightly higher earnings – reflected tighter cost control and a more disciplined approach to underwriting and pricing in a cooler market.
Cendant also made clear that, for the full year, it expected Mortgage Services revenue and EBITDA to come in below 2003, even as other segments of the group posted strong growth.
Rethinking the mortgage model
The improvement behind the Cendant Production Up headline did not stop the company from reassessing its long-term mortgage strategy.
In its second-quarter release, Cendant confirmed that it was exploring a potential sale of the mortgage business, along with an ongoing relationship that would keep Cendant involved through its real-estate franchises, relocation and settlement services. That signalled a shift away from owning a full-scale mortgage bank toward a more capital-light referral and partnership model. SEC+1
For MortgageDaily readers, the message in July 2004 was clear: Cendant Production Up showed that volume and earnings could recover from early-year lows – but also that even large, successful platforms were questioning how much mortgage banking risk they really wanted to carry into the next phase of the cycle.
