Q&A With Prospect Mortgage CEO Ron Bergum
From the Publication "Inside Mortgage Trends"
by Charles Wisniowski
Last week, Sherman Oaks, CA-based Prospect Mortgage – an independent residential retail mortgage lender and a relatively small jumbo lender – announced it is looking to issue a jumbo mortgage-backed security.
The prime jumbos offered by Prospect are 30-year loans with minimum credit scores of 700 and a 20 percent downpayment for balances of up to $1 million, as well as a 30 percent downpayment and two appraisals for loans between $1 million and $2 million.
In an interview this week with Inside Mortgage Trends, Prospect’s CEO Ron Bergum discussed the lender’s expansion into the jumbo lending space, the state of the secondary market today and potential growth opportunities as the jumbo market defrosts.
INSIDE MORTGAGE TRENDS: Can you give a brief explanation of Prospect Mortgage?
RON BERGUM: We are, from a market share position, the largest private, non-bank, retail-only mortgage company in the United States. We are a 27-state distribution, 50-state licensed entity. We did north of $9 billion [in business] last year. The way that we rank from the market share reports on the purchase side, we’re 8th in conventional purchase money in the U.S., we’re a top-five FHA lender in the country.
Our distribution is all retail; no wholesale and no correspondent at this time. Primarily through 1,000 originators that are in the 27 different states.
IMT: Recently, Prospect Mortgage announced it had begun offering jumbo prime loans up to $2 million to the secondary market in 2011. Can you expand on that?
BERGUM: Strategically, as you know, the capital markets for jumbo have been frozen for the last several years. The only financing that’s been available other than the Redwood Trust deal that was aggregated last year has been with bank balance sheet financing. There’s been no secondary mortgage market for that product.
So we’ve been working very diligently for the last 12 months, and we believed that we would be able to get a transaction done with relationships that we’ve created for the last year. We thought we would get it done in time for first quarter 2011 and we did. We rolled out our jumbo one product about a month ago.
IMT: As the vast majority of Prospect’s funded mortgages are conforming loans and the company notes it is among the largest FHA lenders in the nation, what did you see in the current market environment that indicated this is the time to spread your wings into jumbo lending?
BERGUM: We’re in what we call strategic markets. We grade our markets and market segments based on volume and product mix. Historically, the jumbo product line has been between 11 percent and 13 percent of all originations. We are in those markets that have jumbo mix but not having jumbo product and not having bank balance sheet financing, we were frozen out of those markets to compete.
So it’s really just a market share issue for us that we have markets we were in that we could pick up a significant amount of market share just by having the product availability and offering to compete against the banks.
IMT: Whom do you consider Prospect Mortgage’s most direct competitor for business in the prime jumbo lending space and what differentiates Prospect from its competition?
BERGUM: Very simply, it’s the four large aggregators – Citi, Chase, Bank of America and Wells Fargo. Those are the big players that have been supporting that market place. So what we do is try to get a look-a-like product that resembles the product that’s being offered by our competitors.
IMT: Specifically, what is Prospect Mortgage’s outlook or expectation for the jumbo market this year?
BERGUM: We think right now that the jumbo market – depending on what data you get – is 6-to-10 percent of originations. Not having been in that market in the past, other than some brokered loans, this opens up another avenue of the national market for us to compete in.
IMT: How has that outlook been impacted by the White House’s recent proposed reduction in the $729,750 ceiling on jumbo conforming loans which is set to fall to $625,500 at the end of September?
BERGUM: I think that impact is going to be significant. So for that reason, it’s important that more jumbo lenders enter that marketplace because there’s going to be [a negative impact on] consumers if the financing is not available once that loan limit is reduced. I think it’s a very significant issue.
IMT: Do you see private investors more primed than before to step back in and pick up the slack that Fannie Mae and Freddie Mac had been carrying? How do you see that most directly impacting your business?
BERGUM: I think that market is opening up. I think it’s defrosting and it’s thawing and I think that there are more people who have an interest in that product line. So we’re seeing a lot more people come to the table to make investments in the jumbo product.
IMT: What do you see as growth opportunities for Prospect Mortgage throughout the rest of this year and into 2012?
BERGUM: In the jumbo product line alone, it’s a $1 billion addition to our business annually. It represents a growth opportunity of 20 percent for us. That’s significant. I think the other business opportunities out there are clearly in the renovation lending business.
As you see a lot of the foreclosures and properties that have fallen through the foreclosure protocol, people have abandoned the properties and there has been a lot of neglect. There are a lot of houses out there that are in foreclosure and/or in other stages of the waterfall of loss mitigation. We think there’s a very significant opportunity to do renovation lending.
IMT: What are Prospect Mortgage’s economic assumptions for the mortgage industry and for the economy at large in 2011? How are you planning your business accordingly?
BERGUM: We tend to look at the predictions from the Mortgage Bankers Association, Fannie Mae, Freddie Mac and the Federal Reserve. We take those into consideration and project where we think business will be. Having modeled that for several years now, we’re fairly comfortable with the modeling protocol that we use.
If you look at the market in 2009, we were looking at a $2 trillion mortgage market and today the predictions [for 2011] are for $1 trillion. So you are half of where you were two years ago.
When we modeled for 2010, the industry was showing a 30 [percent decline] and as we modeled that based on the way we run our business platform, we were only down from a volume perspective of less than 5 percent.
So we’re actually out-performing the market. We think the same thing happens this year. The advantage for us is to pick up market share and product that we did not previously offer – jumbo is an example of that – and renovation lending represents another growth opportunity for us.
Published March 18, 2011
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