Retention Strategies Need Attention.

Steven Kropper is co-founder and CEO of Domania Inc. (www.domania.com), a Boston-based financial and marketing services software company that provides customer acquisition and retention products to banks, mortgage lenders and Realtors. This viewpoint is the first of a two-part series.

Two numbers leapt off the page at me on a recent morning. First, there was the Mortgage Bankers Association of America estimation that refinancing will constitute 43% of all loan origination in 2001. I know the mortgage industry is cyclical, but 43% represents a 180-degree turn back to 1998, when refinancing was 50% of all origination. Second, there was the $288 million after-tax write-down of mortgage servicing rights (MSRs) at HomeSide Lending, a top 10 mortgage company (6th in servicing and 7th in origination).

HomeSide's parent, National Australia Bank (NAB), is widely rumored to be considering the sale of HomeSide to stem the damage. In their press release announcing the HomeSide debacle, NAB cited three factors that led to the write-down:

* Unprecedented refinancing activity in the United States mortgage market following six rate cuts in six months that reduced the future income from the mortgage servicing portfolio.

* Extreme volatility in U.S. interest rate markets that had adversely impacted HomeSide's United States hedging positions.

* And changes to industry and market forces following new accounting standards in the United States (i.e., FAS 133, requiring servicers to book MSRs at market value).

Those three factors are hardly unique to HomeSide, which suggests that other banks, lenders and mortgage servicers will be reporting write-downs in their MSRs in the near future, probably when Q3 results come out in early October.