Seeking to capitalize on the boom in mortgage servicer outsourcing, Northwest Cos., a St. Paul-based firm that helps with often- complicated foreclosure proceedings, is set to expand its presence with the opening of several offices in Florida and the Northeast.
Ruth Cleary, Northwest's founder and president, has spent most of the past six months criss-crossing the country, raising $7 million in private equity for the expansion.
"We've just been out there telling the story (to investors), and I don't think anybody's heard it and said no," she said. "We're positioned now to create some critical mass. It's been six years of building and educating people about the benefits of outsourcing, and now we're ready to grow."
Investor interest in Northwest is an indication of the growing trend among mortgage servicers of using outside help as they seek to cut costs and maintain profit margins in an era of rapid consolidation.
"Almost every function on the servicing side can be outsourced in one way or another. It's becoming a staple of this industry," said Tom Farrell, first vice president for defaults at Knutson Mortgage Corp.
"Underwriting is outsourced. Loss mitigation is outsourced. ... We're approaching the day when all you really need to be a mortgage company is a nice office and with a shingle in front of it," he added. "It's a good way to stay competitive."
And that's where Ms. Cleary's enterprise comes in.
Northwest Cos. is actually three interconnected firms in one. Northwest Mortgage Services Inc. monitors and tracks foreclosures; Northwest Legal Services handles the legal aspects of the business; and Clear Title Inc. manages the property title end.
It is one of a growing army of vendors that have sprung up in recent years to help big servicers manage their foreclosures in a more cost- effective manner. Many, such as the Law Offices of Gerald Shapiro, U.S. Foreclosure Network, and Service Star, look more like loose attorney networks that span the states.
Ms. Cleary's fund-raising frenzy is aimed in part at providing the capital to head off would-be competitors. The firm, which already has three regional offices - in California, Missouri, and Minnesota - has plans to open four additional offices in Southeast and another in the Northeast.
Knutson's Mr. Farrell, a regular Northwest client, said he believes the company is well positioned to grow. He added that he favors Northwest's all-in-one approach, as opposed to attorney networks.
"They approached the industry with a very deliberate, tactical game plan, and did it right," he said. "The relationship has been a definite win-win for us. They are well managed from coast-to-coast."
Northwest was born in 1988, shortly after the consolidation and securitization booms began. Suddenly there were fewer servicers but bigger ones, with portfolios that typically included loans from all 50 states.
Each state and mortgage program had its own complex set of laws and regulations governing foreclosures. When loans went bad - as some invariably will - servicers were required to maintain a legal staff, or to hire separate attorneys, in each state.
Ms. Cleary, then a 28-year-old real estate attorney, saw an opportunity for a "one-stop" specialty shop that would work under contract to servicers to manage foreclosures nationwide more cheaply than could be done in-house.
She chucked her job, borrowed a word processor, and set up shop in her uncle's office.
Today, Northwest has annual revenues of $18 million, and a staff of 180 employees who do nothing but handle all the complicated aspects of foreclosures. Its clients include GE Capital Corp., Source One Mortgage, and Twin Cities-based Knutson.
Its services, from start to finish, range in cost from an average of $1,100 in Minnesota and Georgia to as high as $3,000 in Hawaii, according to vice president Chuck Officer. The firm tackles about 1,000 new foreclosures each month.
"Our objective is to minimize servicer losses, and shorten their time frame" for foreclosures, Mr. Officer said. "Instead of maintaining large staffs to deal with this, lenders can reallocate their resources to workouts and other areas."
And that, said Mr. Farrell, is exactly what it does.
Knutson manages a $10 billion, 125,000-loan servicing portfolio that spans the country. Northwest handles foreclosures on Knutson's portfolio in 48 states, and Mr. Farrell estimated that his firm saves about $1 million a year using Northwest, versus having the job done in-house.
"I don't have to staff at $30,000 per employee," he said. "And I'm able to use my staff for other things, like loss mitigation."
Mr. Engen is a freelance writer based in Minneapolis.