Two veteran mortgage executives are trying their hand at online banking, saying they have learned from others' mistakes.
Jerome J. Selitto and Philip Yee, the former vice chairman and top marketing executive, respectively, of Amerin Guaranty Corp., have launched DeepGreen.com, a subsidiary of Third Federal Savings and Loan Association of Cleveland. DeepGreen has $62.1 million of capital and a long-term goal to amass $500 million to $1 billion of assets.
The two say the new bank will be more focused than other online banks, dealing almost exclusively in certificates of deposit and home equity lines of credit. Billing itself as "the bank for grown-ups," DeepGreen plans to target only consumers with high credit quality.
It also plans a thriftier market campaign than the typical Internet company. Mr. Yee said DeepGreen's would use a mix of direct-mail solicitations and print advertising; e-mails to customers who have given their Internet service providers permission to give out their addresses; and banner ads on Internet portals.
A spokesman added that DeepGreen has a marketing agreement with Yahoo.
DeepGreen executives would not disclose its marketing budget, but Mr. Selitto said, "I don't think you're gonna see any Super Bowl ads from DeepGreen bank."
With Mr. Selitto as its chief executive officer and Mr. Yee its chief marketing officer, DeepGreen also boasts two prominent former banking regulators on its board: former FDIC Chairman L. William Seidman and former Comptroller of the Currency Eugene Ludwig.
At Amerin, Mr. Selitto and Mr. Yee were part of an aggressive, entrepreneurial Chicago company that shook up the sleepy private mortgage insurance industry in the 1990s. Amerin - known for its lavish parties at Mortgage Bankers Association events - was bought by Commonwealth Mortgage Assurance Co. of Philadelphia last year. The merged company is called Radian Guaranty.
In online banking, Mr. Selitto said, "people have done a great job on building technology for the liability side of the business, but very few people have done a very good job, quite frankly, on building the asset side of the business."
That is because even when consumers apply for loans online, they often end up having to talk to a telemarketer or submit paper documentation, he said. DeepGreen has eliminated such delays and nuisances, Mr. Selitto said. "You can sit on our site and fill out the home equity application with the information in your wallet," he said. "You don't have to gather detailed documentation."
DeepGreen promises the loan applicant an unconditional answer within two minutes of submitting an application.
The bank is electronically linked to vendors of various services needed to process an application, such as appraisals, title searches, credit reports, and flood certificates, Mr. Selitto said. And the underwriting of DeepGreen's loans is completely automated, he said. "We don't see the loan until after it is closed."
The other reason DeepGreen can give an definite answer fast is that it is willing to say no more often, Mr. Selitto said. "We're not going to be the bank for everyone," he said. "We're targeting people who have demonstrated responsibility in handling their debts."
Mr. Selitto said he considers DeepGreen's potential customers to be "underserved" in that they "deserve better rates and a higher level of service" than they get now.
Above a certain credit threshold, Mr. Selitto said, consumers are treated the same by banks "regardless of credit history and willingness and ability to repay." A consumer with a Fair, Isaac & Co. credit score of 740 and one with a 620 score today would get "the same product, the same level of service, and the same rate," he said. It is "only when you get below 620 - when you get into A-minus, B, and C credits - that you see a differential," he said.
Mr. Selitto said DeepGreen will price its home equity lines of credit at about 5 basis points below the prime rate; this type of loan usually carries rates at or above prime, he said. The bank is also offering competitive rates for CDs; Tuesday the DeepGreen Web site quoted six-month CD's at an annual percentage yield of 7.15%, verses an average of 6.18% as calculated by bankrate.com.
The bank also allows depositors to withdraw their funds at no penalty every three months, and they can withdraw at any time for only a seven-day interest penalty. This way, Mr. Selitto said, they can "hedge against interest rate fluctuation."
That hedge comes at the expense of the bank's spread income. But Mr. Selitto said DeepGreen can accept a narrower net interest margin because as an online bank with no branches it has lower costs.
Some were skeptical. "If they're thinking they're going to make money because they've got higher rates on CDs and lower rates on loans, there's got to be something more to this or they're going to have a tough time on both sides of the ball," said Christopher Musto, director of financial services at Gomez Advisors.
But some of the incentives DeepGreen plans to offer, such as an 85-basis-point reduction in interest rates for those who draw down 70% of their credit lines and sign up for electronic debit, could engender consumer loyalty, Mr. Musto said.
DeepGreen customers can draw on their home equity lines using personal checks, credit cards, or wire transfers.