Pipeline: Mortgage Production News and Trends (Corrected)

Reverse Reaction

Financial Freedom Senior Funding Corp., the Irvine, Calif., reverse mortgage unit of IndyMac Bancorp Inc., says it will introduce lower-priced products this year to stay competitive with other providers.

Jim Mahoney, the chairman of Financial Freedom, said in an interview Tuesday that it would begin offering "a range of value propositions" that "will certainly be competitive from an ultimate cost standpoint."

He did not say whether Financial Freedom would match the recent 50-basis-point reductions by its rivals. Though his lender does not "rush out" to offer new products, it has "always led in product development," he said.

Last year Financial Freedom's production surged 66%, to $5 billion, which Mr. Mahoney said accounted for half of the reverse mortgages originated last year. The total was a company and industry record, Financial Freedom said.

Also Tuesday, IndyMac said it had named Michelle Minier the chief executive of Freedom Financial on Jan. 1.

Since July, Ms. Minier had shared CEO duties with Mr. Mahoney, who had been the unit's CEO since 1996 and became its chairman last year. He told American Banker that Ms. Mahoney's promotion "was the best way to achieve our goals of operational efficiency and building capacity."

He said in a press release that Ms. Minier, an 11-year company veteran, "knows how to build the internal infrastructure necessary to grow, lower costs, and manage risk, which will be critical as the reverse mortgage business … gets more competitive."

Since early January, BNY Mortgage Co., Seattle Financial Group's Seattle Mortgage, and Wells Fargo & Co. have said they would cut their margin on government-insured reverse mortgages by a third, to 100 basis points.

Ameriquest Discord

The former chief executive of Ameriquest Mortgage Co. and Argent Mortgage Co. says that after he resigned in June 2005, the chairman of their holding company, Roland E. Arnall, raised rates to move market prices upward.

The strategy backfired and caused business to decline significantly, Wayne Lee claimed in a breach-of-contract suit filed Jan. 26 in the California Superior Court for Orange County.

Mr. Lee also said in the suit that Mr. Arnall, who later became the U.S. ambassador to the Netherlands, "balked at" efforts to reform Ameriquest after "many investigations of improprieties." For example, Mr. Lee says that Mr. Arnall rebuffed a proposal to have "loan coordinators," who approved applications, no longer report to commissioned branch managers, who had an incentive to approve bad loans.

The parent company, ACC Capital Holdings, reached a $325 million settlement in January 2006 with 49 states in which it agreed to overhaul practices at Ameriquest and its other retail units.

The main allegation in the complaint is that Mr. Arnall failed to pay Mr. Lee an agreed-upon $30 million to stay with the company as a consultant and not work for competitors. The suit seeks that money plus interest and legal fees.

Mark Kemple, an attorney for Mr. Lee, said, "The complaint boils down to Ameriquest trying to strong-arm a talented executive" by "not paying him and trying to take him out of the market."

Bernard LeSage, an attorney for ACC Capital, said through a spokesman: "Mr. Lee's complaint is a ridiculous work of fiction. It is disappointing that Mr. Lee is attempting to use baseless and inflammatory allegations to extract money to which he is not entitled. The company will vigorously contest his claims."

All in the Family

Circle Lending Inc., which arranges loans between consumers who know each other, says the proposed federal budget cuts to student lender subsidies could make its peer-to-peer lending model more attractive.

The Waltham, Mass., company says it already offers rates that are up to 150 basis points below the industry average. On Tuesday, the day after the Bush administration released its fiscal 2008 budget calling for a 50-basis-point reduction in interest subsidies on Federal Family Education Loan Program loans, Jim Smith, the vice president of marketing and sales at Circle, called student lending "an important growth area in our future."

Circle arranges loan contracts through its Web site and call center, mostly between parents and their children but also with friends, landlords, and tenants.

Typically, "the motivation of the person making the loan is to help the borrower" instead of profiting, Mr. Smith said.

Circle charges a setup fee ranging from about $1,000 (for an unsecured loan) to $4,000 (for a reverse mortgage), as well as a monthly servicing fee of $9. "Our clients tell us they are happy when they don't have to think about" servicing the loan, he said.

The six-year-old company says that it was servicing $150 million of loans at the end of last year, and that volume is growing at an annual rate of 25%.

Mr. Smith said reverse mortgages also provide growth opportunities as baby boomers take cash out of their homes for retirement and help children finance their first homes.

Few of the loans Circle services are unsecured, he said. About half its loans are mortgages, 30% are tuition and car loans, and the rest go to small businesses.

Peer-to-peer lending is already popular through Web companies like Prosper Marketplace Inc. of San Francisco, which matches individuals willing to lend money with strangers who need it.

Though Mr. Smith conceded that peer-to-peer lending has existed for a long time, he said that Circle is unique because it lets consumers customize monthly payments, grace periods, and other terms.