Recently I chatted with Fifth Third management.
Fifth Third started taking brokered home equity loans late 2006. They took 2.7 billion of them. They also took loans out-of-footprint (that is where they had no branches). They took 900 million of them.
The loss-given-default (severity) of the home equity loans is rapidly approaching 100 percent on the whole portfolio but the default rate for the brokered loans is many times the branch originated loans even though the branch originated loans are in bad states.
The branch managers at Fifth Third have profit and loss accounts and are remunerated in part on them – so it figures that the branch managers were much more sensible than the brokers in rejecting patently bad or fraudulent credits.
But can anyone (please) explain the cultural change at Fifth Third that allowed them to take out-of-area loans through brokers?