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A new life for 'Old Yeller' as insurer returns to mortgage lending

Primerica Inc. is laying the groundwork to re-enter the consumer lending market in a measured way.

The life insurer's Primerica Financial Services Home Mortgages Inc. stopped accepting loan applications at year-end 2011 amid a post-financial crisis evaporation of home equity and a corporate belief that a near-term recovery in the U.S. housing market seemed unlikely.

"We finally had to shoot Old Yeller," then-Primerica CEO John Addison said during a February 2012 conference call in reference to shutting down a lending business that had been incorporated 25 years prior. The company said closing the business, which included the surrender of state licenses, was not material to its financial statements.

Although Addison vowed at the time to search for "Young Yeller" to replace the discontinued operation, the circumstances that caused Primerica to enter the lending business in the first place — the debt-management challenges confronting its core middle-market customer base — have remained in place over the subsequent eight years. A pilot program recently introduced in two states is intended to allow Primerica to better address those needs.

"There's not a question of, 'Is there a huge need in the marketplace,'" CEO Glenn Williams said during an Aug. 8 conference call. "The debt load in the middle market is clearly greater than it's ever been, and clients want to talk about it more than they want to talk about any other financial issue."

While the lending business became unprofitable in the aftermath of the financial crisis, Williams said it had been "successful" overall.

Primerica Financial Services Home Mortgages, which functioned as a loan broker, originally partnered with then-ultimate parent Citigroup Inc. for the underwriting and issuance of a debt consolidation loan and a purchase money product. The partnership continued under a new brokerage agreement after Primerica's April 2010 separation from Citi, but the mortgages were structured as conforming loans eligible for sale to Fannie Mae and Freddie Mac. They contained stricter underwriting criteria and offered lower compensation levels to producers relative to the products Primerica sold previously.

SEC filings indicate that Primerica historically offered fixed-rate, fixed-term, fully amortizing loans that it deemed appropriate for a middle-income client. Primerica also maintained an unsecured consumer loan program that it terminated at the end of 2010.

Williams said during a February call that Primerica had been "assessing opportunities to partner with a third party to provide a mortgage lending solution that would help our clients consolidate and eliminate debt." He did not divulge the name of the prospective partner at that time nor did he elaborate on any such arrangements during his August remarks.

Primerica distributes a range of products underwritten or otherwise issued by third parties, including prepaid legal services, home monitoring services through a internet-connected smart device program, and personal lines property and casualty insurance.

In Canada, Primerica engages in a mortgage loan referral partnership with third-party lender B2B Bank. Primerica said its Canadian representatives are not involved in the loan application and closing process due to regulatory requirements. It receives referral fees based on the amount of the loan funded.

With the U.S. mortgage pilot, Primerica opted to move deliberately to make sure that the dynamics of the business that the company previously enjoyed remain in place even as the regulatory and competitive landscapes have changed significantly.

The Nationwide Mortgage Licensing System and Registry shows that Primerica Mortgage LLC was formed in January 2018, registered as a mortgage company in Colorado and licensed as a mortgage broker in Florida.

"We have only about 40 representatives that are actively involved in the pilot," Williams said. "So far they've submitted about 85 applications, and we've closed about 25 of them. The good news is that the process is working well, our field force is responding well, the technology is working."

Although the initial results have provided reason for encouragement, much work remains to be done to obtain regulatory approvals and licenses in various states.

"We'll probably be in pilot phase for a year or [more]," Williams said. Primerica still needs to determine how and to what extent to leverage the product across its sales force, among other things.

The sales force is "excited," and customers have been "helped significantly" to date, Williams said. But, he conceded, "We probably validated the easy part."