First Finance, an upstart in home equity lending, has picked a fight with an industry giant, Money Store.
It began as a war of words - including an exchange of combative letters this month between the companies' top executives - and escalated last week when First Finance announced it would actively pursue Money Store borrowers in a refinancing push.
Beginning in its home state of Michigan, First Finance is offering competitors' customers lower interest rates and will pay all closing costs.
"We're going to go after the Money Store's portfolios first - for fun," said First Finance chief executive officer Randall Sage.
Mr. Sage first tweaked Money Store publicly in an April 25 American Banker article. He claimed that First Finance was beating Money Store's originations in markets where they compete.
William Templeton, president of Money Store, sent Mr. Sage a letter this month thanking First Finance for serving as an inspiration.
"The smart sports coaches read all the press they can, in regards to their competition, and their attitudes about themselves and the teams they play against," the letter read. "We readily accept your challenge, and look forward to our short- and long-term victories in our collective marketplaces."
Mr. Sage replied by letter that First Finance welcomed the opportunity to compete.
Picking up on the sports metaphor, and the fact that baseball Hall of Famer Jim Palmer is Money Store's advertising spokesman, Mr. Sage wrote, "Would it be possible (to get) Jim Palmer's autographed picture? I'm one of the few who remembers him."
The picture arrived Friday at First Finance headquarters in Bloomfield Hills, Mich.
Only a year and a half in business, First Finance is serious about its refinancing campaign. It will probably cost $1,100 per transaction, after title insurance and closing fees, said Mr. Sage. But it will erect a huge hurdle for other lenders intent on taking away the business.
The costs will be recouped by fees, but borrowers will never see these charges, Mr. Sage said, because they will be tacked onto the price First Finance gets from wholesalers.
As a further lure, the company is arranging for loans to close in October, then allowing borrowers to wait until January to make their first payments.
Wholesalers in the home equity industry regularly and carefully target their own borrowers for refinancing to prevent runoffs, said Allen Tuthill, executive vice president of wholesale lending for Equicredit.
But George Yacik, an analyst at SMR Research, Budd Lake, N.J., called First Finance's plan "pretty aggressive."
"There isn't much of a history of home equity lenders' trying to steal balances" as in the credit card industry, Mr. Yacik said.
First Finance may be taking a risk, he added, by allowing the loans to sit for three months without repayments. During that period, interest obligationbs could grow substantially.
First Finance operates in 22 states and originated over $150 million of home equity loans in the first six months this year. Money Store operates in 41 states and originated $1.93 billion during the same period.
Money Store does not officially comment on competition, said a spokeswoman. When asked about First Finance, she said, "Who are they again?"
