A subprime start-up is betting it can succeed where onetime market leader Ameriquest Mortgage recently retreated: lending through retail branches, with leads funneled from a central office.
One reason is that Sage Credit Corp., which opened Jan. 1, has hired former independent mortgage brokers to run its 40 branches. "When you own your own company, you typically have an understanding of how a business operates, the costs involved," explained Quentin Caruana, the Irvine, Calif., lender's 31-year-old president. He also said, "we see an opportunity to pick up some quality staff" from the recent layoffs at other subprime lenders.
Additionally, Sage thinks a smaller network than Ameriquest's (which had 229 branches when it shut down its retail network this month) will help it to be nimble as it tries to originate $1.7 billion in loans this year, Mr. Caruana said.
His recruitment pitch is that by joining Sage, brokers can essentially exploit the uneven playing field between mortgage brokers and bankers in five major markets.
California, Illinois, Georgia, New Jersey, and Nevada all require mortgage brokers - but not bankers - to count the yield-spread premium earned on loans when calculating whether total fees exceed a certain limit. This discourages brokers from making certain subprime loans, leaving the field open to direct lenders.
Another advantage to these salespeople of joining a centralized corporation, Mr. Caruana said, is that corporate headquarters pays for branch advertising, especially in its five key states. Sending specific leads to specific branches improves customer service, and does not bog things down, Mr. Caruana said, because the leads are distributed according to "the specialty within that branch office. We have specific branch offices with unique specialties within the framework."
Sage likes to hire brokers because "it's really the character of the individual branch manager that provides the difference between success and failure. ... Because they were entrepreneurs they know how to manage an office and this opportunity is something they hold in high regard."
Mr. Caruana added that Sage's management knew all 40 of the branch managers before hiring them, giving it "a historical perspective" on them. He also noted that Sage studied their production "volume levels, their compliance scorecards" and their likelihood to adapt to a corporate model. "Generally their specifications are better than your average loan officer."
Another distinction Mr. Caruana sought to make was between his offices and net branches, in which branch managers get more autonomy than usual and have their compensation firmly tied to the branch's profits. "In most cases net branches are looser in regards to licensing, corporate branch consistency, and compensation," he said.
Mr. Caruana said that Sage's loan files are of higher quality than those of his wholesale competitors because it can "filter a specific product type that is attractive" to investors: a low loan-to-value ratio and a high credit score but a "fairly aggressive coupon rate … north of 7.5%."
Normally Sage's borrowers have "some issues on their credit" and need to take cash out of their home or refinance.
Mr. Caruana said that there is "no way to get around" the costs of running a brick-and-mortar retail branch, but he says that the company saves money by avoiding the No. 1 cost in wholesale lending: the account executive.
Sage's is a "hybrid model - a middle ground between wholesale and retail," he said.
The lender sells its loans on a servicing-released basis to nonprime Wall Street conduits including Credit Suisse, Deutsche Bank, Nomura, and Winter Group (a New York outfit formed a couple of years ago by former Credit Suisse bankers).
Brown to Ivanhoe
Ivanhoe Mortgage, a division of Central Pacific Mortgage, announced in mid-May that it has appointed Robert Brown to senior vice president of retail production.
Mr. Brown is responsible for growing Ivanhoe Mortgage's retail production channel on the East Coast.
With more than 14 years of experience in the mortgage industry, Mr. Brown recently served as a national recruiter for a net branch operation. He has held several regional manager and regional vice president positions in the industry. He also once owned a mortgage brokerage.
Based in Orlando, Fla., with retail offices throughout the Eastern U.S. and a wholesale production platform that serves the East Coast, Ivanhoe Mortgage is a full-service mortgage banking firm. Its parent, Central Pacific Mortgage, is based in Folsom, Calif.
Warehouse Deal
NovaStar Capital Inc., the warehouse lending business of NovaStar Financial Inc. said Tuesday that it has a deal to buy the warehouse lending customer relationships of nBank in Commerce, Ga.
NovaStar Capital, of Roswell, Ga., provides warehouse lines to mortgage lenders nationwide.
NovaStar Capital will acquire nBank's warehouse relationships with approximately 40 mortgage lenders, who funded a total of approximately $1.8 billion in loans in the past year.
In addition, NovaStar Capital will hire some of the key members of nBank's warehouse lending team.
NovaStar Capital's line limits generally run from $1 million to $15 million. It funds conventional, government, Alt-A, and nonprime loans, and allows 100% of the line limit to fund nonprime and Alt-A loan types.
Hot Seat
Fannie Mae's board seems to feel it has looked closely enough at what president and chief executive Daniel H. Mudd did while other executives were allegedly manipulating its earnings numbers.
However, a long list of other current executives mentioned in the Office of Federal Housing Enterprise Oversight report released Tuesday will have to be looked at, according to its deal with the regulator.
They are Robert Levin, the chief business officer; Michael J. Williams, the chief operating officer; Peter Niculescu, the executive vice president of capital markets; Linda Knight, the executive vice president of capital markets; and Julie St. John, an executive vice president and the chief information officer.
On a conference call Tuesday, Stephen Ashley, Fannie's chairman, said that its management, "led by Dan," is going to "make appropriate recommendations" after studying each executive's record. He gave no timetable.
