KeyCorp to Have Another Go at Home Equity Lending

After a false start last year, KeyCorp is pushing ahead with plans to become a national force in the booming market for home equity loans and subprime mortgages.

The Cleveland-based banking company has hired a veteran home equity executive, James Downing, from NationsCredit Corp., where he was president and chief operating officer for consumer operations. He will be chairman and chief executive of Key Finance Inc., which was formed last year as part of a restructuring.

The unit is shooting for annual production of $2 billion within two years, said A. Jay Meyerson, group executive vice president of KeyCorp. That could make the company one of the top 10 players in the field.

The push comes amid a broad surge in home equity and subprime lending. Competitors of every stripe, from giants like Countrywide Credit Industries to start-ups like Cityscape, are joining the long-established specialists such as Money Store and Contifinancial. The field typically offers returns that are about one-third higher than those of traditional banking.

KeyCorp formed Key Finance last year as vehicle for making home equity loans and loans to people with blemished credit histories. But the effort was put on hold when R. Harold Owens resigned as head of the unit after just two months on the job. He wanted to establish a large, decentralized chain of lending offices, but his approach was rejected by KeyCorp's management.

When Mr. Owens left, KeyCorp postponed the expansion in order to seek his replacement - a search that ultimately took an entire year.

With Mr. Downing now in charge, KeyCorp sees little trouble in meeting the volume target of $2 billion.

"Just in our branch system, there's half a billion dollars right under our nose," Mr. Meyerson said.

Early last year, KeyCorp largely withdrew from the traditional mortgage business, eliminating about 250 jobs, closing its wholesale and correspondent lending operations, and reducing its secondary-market presence. And it sold its $25 billion servicing portfolio to NationsBank Corp.

It has continued to originate home loans through its branches, but Mr. Meyerson says the effort has been largely passive and the bank has been selling all the mortgages to Countrywide Home Loans, Pasadena, Calif., along with the servicing rights.

But Mr. Meyerson says KeyCorp is not cowed by this rush, nor by the warnings from the established companies that the marketplace is a dangerous one for neophytes.

"I agree completely" about the hazards, Mr. Meyerson said. "This is not a business you want to go into without an experienced person to run it."

He said KeyCorp had learned much from getting into subprime automobile lending. "We are keeping the business fundamentally independent," he said. "They can't be managed under the usual banking management structure."

As to the crowded field, he said, "Nobody owns a substantial share, and it is one or the best-performing lines of business in the credit sector."

Instead of Mr. Owens' decentralized approach - which Mr. Meyerson referred to as "a lot of storefronts" - KeyCorp is planning a highly centralized operation with telemarketing and remote application processing as key elements. It expects to have regional offices in the Northeast, Northwest, the Great Lakes area, and the Rocky Mountains, all of which are now in KeyCorp's service area. And it will add offices in the Southeast and Southwest.

"We won't look much like anybody else in the business," Mr. Downing said. "There are synergies to be captured from the existing bank customers. Possibly a large percentage of our business will come from people who don't meet the bank's requirements for home equity loans." But the unit will also engage in wholesale and correspondent lending, he said.

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