Pipeline: Mortgage Production News and Trends
Second Life
The chief executive of Silverado Financial Inc., the upstart Pleasanton, Calif., subprime mortgage lender with an unusual history, said it would use its acquisition of a Chicago mortgage brokerage to grow even further.
Silverado paid $3 million in cash, preferred stock, and structured debt last week for Core One Mortgage Inc. and half of Liberty Settlement Services Inc., a related Lancaster, Pa., title company. The deal closed May 5 and was announced Monday.
John Hartman, Silverado's president and CEO, said in an interview that Core One's Chicago, Pittsburgh, and Baltimore branches will become three of the eight or nine "hub" offices Silverado expects to run by the end of next year.
Over time each hub probably will be staffed up with 100 or more employees, he said. Silverado already has hubs in San Jose and Phoenix. (It also has a few smaller "spoke" offices elsewhere, and it will probably expand that network, too.) It is looking to open or acquire two more in Denver and Florida this year, he said.
The plan - for each hub to handle borrowers in a few surrounding states - will work better than using more-centralized call centers to reach customers farther away, Mr. Hartman said.
Silverado generates leads through telemarketing, direct mail, and some outreach to realty firms. He mentioned H&R Block Inc.'s Option One Mortgage Corp. as one lender whose model it is eyeing.
With the acquisition, Silverado now has between 150 and 175 employees, which it hopes to increase to about 1,000 as it expands, Mr. Hartman said. Last year Core One originated about $120 million; Silverado did about $100 million, but Mr. Hartman expects it to fund $300 million or more this year.
Until bringing him on in 2002, Silverado had been called Rhombic Corp., and "primarily focused on the acquisition of the rights to intellectual property that could lead to the development of innovative technologies," according to a securities filing.
In the past it had patents and other interests in "Diamond Film Forced Diffusion," "Inertial Electrostatic Confinement and Neutron Monitor" and the "Micro Wave Driven Ultra Violet Lamp." In prior incarnations, it had been Toledo Medical Corp., Almaz Space Corp., and Ready When You Are Funwear Inc. It entered financial services by buying Financial Software Inc. in 2002.
Before joining Silverado, Mr. Hartman had been the CEO of Next Advisors Inc., which provides various brokerage and other services to "family offices," small businesses that meet wealthy families' financial needs. His real estate experience includes jobs at Realty Capital Partners and Grubb & Ellis.
In the interview, he said he remade Silverado after sensing an opportunity in the mortgage business. (Silverado plans to eventually branch out into auto lending, banking, and other businesses aimed at credit-challenged individuals.) "It's my belief the mortgage industry is going to go through the same type of consolidation that the registered investment adviser [sector] did a couple of years ago," he said. To deal with increased regulatory burdens and other issues, brokers will have to "join somebody with some scale to them, or they're going to perish." His goal: To use Silverado "to take advantage of those changes."
On Our Side
The slowing pace of enactment of state predatory lending laws is giving lenders time to buy or develop systems to ensure compliance, says Glenn Costello, an analyst at Fitch Inc.
"It may be easier to ensure that originators are in compliance," because they have not faced as many state measures recently, Mr. Costello said last week. "Many states probably feel like they got what they want in place." Only Indiana and Wyoming have enacted laws this year. The slowdown has been easier on Fitch, too. "We don't need to sample loan pools" to see if any loans hit coverage triggers for some of the tougher laws, he said.
North Carolina enacted the first such law in 2001. The movement gained steam in 2002 and 2003, when states like Georgia and New York enacted laws, but started slowing last year, Mr. Costello said.
"Clearly it was a challenge to lenders when there were many new laws. They had to make sure to comply with each of them," he said. Now lenders are better equipped to comply with state laws, because they have "made a lot of investments" in recent years "in technology and the expertise to make sure they could comply."
Lenders' problems aren't over yet, he said. Interest in lending practices recently got a lift from the Federal Reserve Board's release of Home Mortgage Disclosure Act data. Last month New York Attorney General Eliot Spitzer announced that he would look into whether bankers there have lent fairly to minorities.
New Partner
Vineyard Bank of Rancho Cucamonga, Calif., went back to offering mortgages last month "after being out of the ballgame for 18 months," with the help of the Irvine private-label outsourcer MoneyLine Lending Services Inc.
Rick Hagan, an executive vice president and the chief credit officer at the $1.4 billion-asset Vineyard, said a decline in refinancing volume, a pipeline hedging misstep caused by the summer 2003 rate spike, and the departure of a key mortgage employee led to the hiatus. Vineyard does little retail banking, but before too long its customers were expressing enough interest in mortgage to cause it to rethink things, Mr. Hagan said.
It did not necessarily want to jump back in with both feet by running its own mortgage division, though. "Because of the ebbs and flows of the mortgage business, we didn't think that was a good solution," he said.
Though it had been a correspondent for PHH Corp.'s mortgage unit before shutting down its in-house operations, Vineyard did not contact PHH when looking for a solution, Mr. Hagan said. Instead, a call from a MoneyLine executive who previously had been with another area bank and whom Mr. Hagan knew got Vineyard interested in MoneyLine's offerings - which include call-center and back-office support and a private-label Web site that bank branch employees can use to take applications.
Vineyard liked what it saw, and it liked the idea of working with a local company, Mr. Hagan said. "We think we've found a solution that allows us to get back in the game. It's not going to be a primary focus of the bank, but we want to offer it to be accommodative to our customers."
