AVON, Connecticut — Changing its business model from being a mortgage broker to becoming a mortgage lender fueled rapid expansion for Norcom Mortgage.
Five years ago, the company had 46 people.
This year, it grew to 259, with about 160 of those in Connecticut.
Founder and chief executive officer Phil DeFronzo, who is also on the board of directors of the national Mortgage Bankers Association, hosted U.S. Rep. Elizabeth Esty (D-Connecticut) Monday to tell her about the company’s expansion and briefly discuss issues in Washington affecting the business.
About 110 of Norcom’s employees work in the Avon headquarters, a former call center for The Hartford Courant.
The company got a $100,000 grant from the state’s Department of Economic and Community Development and a $250,000 loan for the $2 million project, as well as a $629,801 loan from the Connecticut Green Bank for a solar panel installation. Norcom has already paid back all the loans, officials said.
Mortgage brokers shop a loan deal around to lenders, but do no underwriting.
Norcom is now a lender, and also acts as a wholesale lender for independent brokers. It also buys loans from credit unions and small banks and then resells them to Fannie Mae, Freddie Mac and other government entities that undergird residential lending.
Esty told DeFronzo and some of his top deputies that she hoped the Dodd-Frank Wall Street Reform and Consumer Protection Act financial reform legislation would be reopened, because she thinks some of the changes to financial services are adding costs to small companies without improving safety.
“A lot of my job is talking about unintended consequences of well-intentioned legislation,” she said.
Esty talked to the executives about her concern about the burden of student loans on young adults.
“I really do worry about what it’s going to do to the real estate market,” she said.
Jeremy Potter, the company’s general counsel, can relate. He had $75,000 in debt when he first graduated from law school, and even after refinancing, the monthly payment is more than $700. But after eight years, he and his wife were able to buy a house in Canton.
Norcom executives know that many millennials have lived at home after college to save money and pay down student loans, but they believe they will become home buyers after a bit of a delay.
About 50 percent of the company’s loans are arranged through the Federal Housing Administration program, which allows a 3 percent home payment and a government-run mortgage insurance.
Nearly all of the company’s loans are connected to government involvement in the residential lending market, whether through Fannie Mae and Freddie Mac, which were nationalized in the financial crisis, or through FHA, the U.S. Department of Agriculture, the Department of Veterans Affairs or the Connecticut Housing Finance Authority.
Fannie and Freddie buy mortgages, repackage them into securities, and then provide guarantees to investors if the loans in the securities default.
Norcom said it was pleased with how Fannie has been refining its approach to lenders when loans go bad, or when those loans have inadequate documentation. After the financial crisis, the agency started requiring lenders to buy back more loans, a process called a putback. But now, the agency is treating risk as a spectrum, Potter said, with lenders sharing part of the risk, for instance, by holding mortgage insurance on some of the loans they originated.
DeFronzo said because of the industry reaction to putbacks — lenders had to repurchase more than $80 billion from 2011 to 2013, according to Bloomberg — borrowers’ credit is the highest it’s been in his 25 years in the business.
He said among the loans the company has sold to Fannie and Freddie, there hasn’t been even one delinquency.
“That’s not where we should be,” he said. “We should be 1 or 2 [percent].”
Mortgage lending is risk management, he said, and if you have zero defaults, that means your standards are too strict. “Legislators don’t want to hear that,” he said.
