Transamerica Financial Services Co. will buy $1.4 billion of home equity loans this month and hire 600 people to service them, according to a senior executive at the Los Angeles-based lender.
Jack E. Nelson, special projects manager for the subsidiary of Transamerica Corp., San Francisco, said the unit would soon complete a purchase of $500 million of loans from GE Capital Mortgage Corp., Raleigh, N.C. Another loan pool, of $900 million from a lender he declined to identify, will be purchased by month's end.
The transactions, considered unusually large by industry analysts, represent a vigorous bid by Transamerica to become a major player in home equity loans. The company is expected to be aggressive in trying to induce its new customers to borrow even larger sums.
According to SMR Research Corp., a Budd Lake, N.J., consultancy, Transamerica Financial is now among the 15 largest home equity lenders in the nation. But its growth has been flat over the last two years, compared with that of others in its class, like the Money Store.
George R. Yacik, an SMR vice president, said this is a "major expansion" for Transamerica.
"It is a good sign that they haven't given up on the area," he said.
Transamerica has no centralized servicing center. Instead, each branch services and originates loans, mostly to individuals with poor credit ratings. "Each individual branch is a center by itself," said Mr. Nelson.
He said the company wants its employees to feel the repercussions of loans going bad to make them more sensitive to the importance of effective servicing.
With this purchase, each branch will take on an average of 50 new loan accounts. He said the most basic administrative chores will require that Transamerica hire so many new employees.
He said it currently costs Transamerica $30 a month to service a loan - high by industry standards. About 2% of its loans go delinquent.
The loans from GE are high-quality loans scattered across the country, he said. He said Transamerica "was paying a premium" for the pool of loans.
A Wall Street executive who works on whole loan transactions said the Transamerica-GE deal will be a "rather large" purchase of loans to hold on the lender's books. She said it seemed as though Transamerica was trying to quickly increase its asset size.
Daniel I. Castro, director of asset-backed and mortgage-backed securities at Merrill Lynch, Pierce, Fenner & Smith Inc. , said the sale was particularly substantial considering that the buying and selling of pools of loans has fallen off in recent months. He blamed that on a market made jittery by problems with the dollar and the Mexican peso, among other economic worries.
Mr. Castro said Transamerica will try to "get a little more juice" from the loans by buying them outright. By that he meant that Transamerica will be able more intently to market and to service loans it had purchased.
He said that the key to Transamerica's buying the GE loans is their high credit quality. He said GE loans have strong reputations among Wall Street executives for solid credit quality.
"I haven't seen any paper I would consider ugly" coming from GE, he said.
Transamerica sees the portfolio as a field of potential business to be sown. Mr. Nelson said that by bombarding customers with solicitations, Transamerica expects to be approached by at least half the borrowers for additional loans within the next two years.
David Olson, an industry consultant, said the purchase was a coup for Transamerica, marking a renewed effort to grow as its competitors have over the last couple of years.
But he said the company has yet to take a leadership role in home equity lending. He said that Transamerica was smart to build on its retail branch operation with its huge cash resources, but he wondered whether the branch system was productive enough to merit its 3,000 employees.