Five ex-bankers, including three Wells Fargo & Co. alumni, have formed a company that is teaming up with banks to provide high-loan-to-value and subprime mortgages.
Affinity Financial Corp., Walnut Creek, Calif., is helping banks expand their loan menus and earn fee income-without having to learn how to make the potentially risky loans or keep them in portfolio.
Banks have shied away from such loans, but they face competition from finance companies that offer them, and heavy pressure to boost revenue.
"We do the processing and the underwriting," explains Victor Stone, executive vice president. "Then we put the loan back in front of the bank's loan officer" and the borrower signs the documents. Affinity sells the loans off to larger finance companies.
Affinity has signed up 15 banks, most with less than $1 billion of assets. Smaller banks are more apt to pair with a company like Affinity, because they have the least appetite for risk, Mr. Stone explained. "Smaller banks are reluctant to go over 80% loan-to-value," he said.
The company hopes to make $100 million in nontraditional mortgage loans this year and $200 million next year.
The high-loan-to-value market has boomed in recent months, partly because of a new mind-set of younger homeowners, Mr. Stone said. He noted that many consumers no longer expect to remain in their homes until the mortgage is paid off, and are comfortable tapping the built-up equity.
In effect "homeowners don't really own homes anymore-they rent," Mr. Stone said."They don't think, like I did, 'This is my retirement home.'"
The partners that make up Affinity come from all over the consumer banking landscape.
Mr. Stone, 62, retired from First Interstate after 25 years there, and served afterward as president of First Independent Financial Group, Orange, Calif.
Chairman Wallace L. Wong, 55, also serves as chairman of FFF Enterprises Inc. and chairman of Prime Financial, LLP, a commercial finance company. He was a founding member of the senior loan committee of Metro Bank, which was recently purchased by Comerica Banks.
Rocky F. Covarrubias, 36, president and chief executive, managed Wells Fargo Bank's first trust deed and home equity lending operations, and specialized in turning around nonperforming loans for Home Savings of America.
R. Todd Lazenby, 32, chief operating officer, was senior operations manager with Wells Fargo Finance. Joseph Tyrrell, 31, chief credit officer, was a project manager with the bank's equity lending division.
Bradley Wong, 32, Affinity's chief financial officer, was a manager in Ernst & Young's retail consulting practices.
