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Special Reports
Branch Development
First Houston Exec Says Firm More Than A Logo
Treating branches like a franchise. Loan file diligence helps keep EPDs down.
By Alton Gary Simpson
Celebrating its 10th anniversary, First Houston Mortgage Ltd. started life in
1997 as a mortgage broker and became a mortgage banker in 2003 using capital provided by co-founders Dana Gompers
and David Zugheri.
First Houston has 11 net branches, 120 employees and is licensed in 16 states, with the bulk of its business coming
from Arizona, California, Florida and Texas. The company is coming off its best month ever in July and has done
nearly $50 million in volume year-to-date. First Houston is running approximately 25% ahead of last year and is
poised to have a record-setting year according to Mr. Zugheri who added, "We're very content with that."
"In making the transition in 2003 to a banker, we wanted to take control of the processes - underwriting,
closing, funding and shipping - to better serve our loan officers or future potential branches," said Mr.
Zugheri, who serves as the company's president. He noted that from 2003 to about 18 months ago, the company has
been building out systems to bring their product to market. "We've taken the [net branch] concept and really
expanded upon it," he added. "In surveying our potential competition, what we noticed was that with a
lot of net branches there was either no home office support or rather limited home office support."
Noting that First Houston wanted to be more than "a logo and a license," Mr. Zugheri said that the goal
was to make their branches more like a franchise. The company achieves this through education and the centralization
of certain processes as he noted that First Houston embraces a real strong sense of education that goes out to
all of its branches, explaining that the better informed and educated the loan officer is when speaking with borrowers,
the better the loan is. He also said that the company emphasizes educating borrowers about finding the right product
and right programs for their particular needs.
First Houston also helps its net branches process their loan files. "From origination to underwriting, we
do all of the verifications out of one main location," said Mr. Zugheri. "If you're a processor at a
net branch, you do not have to do any VODs, VOEs, VORs or VOMs. You don't have to order appraisals, you don't have
to order titles, you don't have to order title insurance. We have a team that does all of that on your behalf."
A 30-year veteran of the mortgage industry, Ruth Smith was on the verge of retiring from the mortgage side to concentrate
on just doing real estate. The paper chase was wearing her down. "You have to know what your dollar productive
activities are and chasing documents from some law firm in Timbuktu is not dollar productive," she said. "When
you can truly lead generate at the level you need to, it makes a big difference in production."
Ms. Smith is currently the manger of First Houston Mortgage's Conroe, Texas, branch. She credited First Houston's
leadership with running the company with the kind of integrity that she searches out. She said, "Everything
is convenient. They try to help us do business." She noted that this frees up loan processors to concentrate
on originating loans, adding that year-to-date origination volume was running ahead of last year. She also noted
that First Horizon had managed to garner rare praise from title companies in the Conroe area for its consistency.
Ms. Smith said, "The consistency from closing to closing is always the same. From secondary pricing to underwriting,
to drawing the documents to closing, it's always the same. And it's well thought out. The loan officers and I agree
that it probably saves us about a third of the time that we used to spend with things that just don't make any
money." "That third-party verification concept, which we began three-and-a-half years ago, has paid off
handsomely," said Mr. Zugheri. "It keeps mistakes from making it past processing. That's where all the
problems are solved here at this office, through origination and processing. They never make it past underwriting
or into post-closing." He said that a post-closing problem is a pre-closing problem that made it through the
system, noting that one of the problems in the mortgage industry is the expense of verifying paperwork. "The
eyeballs that you put on the paper are very expensive, so expensive that some companies can't afford to have them,"
he said, adding that a lot of these loan files are then rushed through the system only to be rejected by investors
in the secondary market. First Houston's diligence has paid off in the form of an early payment default rate that
many mortgage brokers and lenders would love to have. "Here at First Houston we've had one - out of $1 billion
of loans - we've had one early payment default," said Mr. Zugheri.
He added that from his point of view, the subprime implosion and its fallout in the marketplace was something he
saw coming from a mile away. "What was happening in California, Florida and the upper East Coast, was not
something that took anybody in the industry by surprise," he said. "A stated income, 100% financing loan
on an $800,000 loan amount for somebody who may have been a waiter or waitress, I mean those are the types of loans
that the industry was doing in California and Florida. Again, we saw this coming from a mile away and took precautions
and that's why we're solvent today."
Two years ago, the company started brokering out subprime loans. Acknowledging that at the time this was an expensive
decision for First Houston, Mr. Zugheri noted, "We took a hit in terms of both profit and customer service
- which is more important to us - to mitigate our risk. As evidenced by recent news, it's paid off nicely."
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