FiNet Inc. has survived two years of losses, a 1-for-12 reverse stock split, the recent resignation of its two top executives, and some big layoffs. Now, officials of the struggling online mortgage technology firm say it is poised for a comeback.
Dont count us out, L. Daniel Rawitch, FiNets vice chairman and acting chief executive officer, said in an interview Thursday. Were still contenders.
Mr. Rawitch compared his companys troubles to grime in a swimming pool: The pH balance of FiNet has been out of whack for too long. When a pools acidity gets too high or too low, he said, its almost impossible to get it clear again. Im trying to clean up the water.
The corporate cleansing could not come at a better time for FiNet, which operates a consumer mortgage Web site and provides automated Internet services to mortgage brokers.
One of the first providers of online mortgages, FiNet lost nearly $25 million last year and $35 million the year before. After cutting 60 jobs in December, FiNet slashed more than one-third of its California staff, or about 28 employees, on June 1.
FiNet was also hit with a delisting warning from Nasdaq last summer after its stock price fell below $1 a share. The 1-for-12 reverse split solved the problem for nearly three months, but the price dipped back below $1 May 30. It closed Monday at 91 cents.
And as if all that were not enough, Rick Cossano, FiNets CEO, and Patrick J. Macklin, its chief financial officer, resigned last month.
Mr. Rawitch said the companys strategy is to shrink its business to a level that makes sense.
The company got on a track doing business with way too many customers and mortgage brokers, and quality suffered greatly, he said.
One of the keys to Mr. Rawitchs streamlining strategy is what he calls his 80/20 plan. He estimated that 20% of FiNets broker clients provide 80% of its loan volume, and he said the company will focus on its high-performing brokers.
By firing 80% of our customers and keeping 20%, we will stick with 80% of the volume, he said.
In addition, FiNet will cut a huge percentage of its expenses across the board, he said. FiNet has had this inflated cost structure, and it has been trying to grow revenue into this inflated cost structure. Were tired of doing that.
As a result, Mr. Rawitch is looking for other revenue sources. He said FiNet may start buying closed loans and selling them in pools to investors, and it is experimenting with a new online retail service that it will unveil in the coming months. (Its current retail service uses a Philadelphia retail lending center to handle requests from the companys Web site, www.finet.com.)
Analysts expressed admiration for FiNets will to survive, but they said they doubt it will be able to pull itself together.
Craig Focardi, senior analyst of consumer banking services at TowerGroup, a Needham, Mass., financial research firm, lauded FiNet as an early leader in the online lending market.
However, he argued that now is not the time for online lenders to expect to make money solely from Internet lending. The adoption rate of consumers has been slow, he said. The cost of customer acquisition has been very high traditionally in the online market.
Nick Karris, director of mortgage services at Gomez Advisors, agreed with Mr. Focardis assessment. Its very, very difficult to originate mortgages profitably on the Internet, he said.
The online mortgage market is extremely competitive, and only companies with a very consumer-centric approach will survive, Mr. Karris said. Restructuring aside, are they really serious about attracting the Internet consumer and competing at that level?
According to Gomez surveys, 70% of consumers have said that, when they shop online for a mortgage, they have hundreds of choices at their fingertips, Mr. Karris said. They are looking for guarantees. They are looking for detailed pricing information and detailed product information. When Im on the FiNet site, I dont see that depth of information and assurance that is required to capture that consumer.
Mr. Focardi said the online mortgage companies that have survived have done so because they have a strong parent company with lots of cash or an alternate income source that gives them time to gradually build up their online lending volume.
Yet Mr. Rawitch said he is confident that a drastically streamlined FiNet would win over skeptics in coming months. By increasing the quality of our customers, he said, the volumes will increase, and the revenues will grow, and the industry will see that we know what we are doing. But we have to drain the pool first. 
