Q&A: Money Store Founder: Banks Missed the Boat

Alan Turtletaub is the Davy Crockett of home equity lending. The grand old chairman of Money Store Inc., today's dominant player in lending to people with damaged credit, was one of the industry's pioneers in 1967, when home equity lending was often considered a business for shysters.

He has scaled back his involvement somewhat in recent years. He spends winters in Florida, at a distance from the business now run by his son Marc and based in Sacramento, Calif.

But he remains a guru in the industry that since 1991 has experienced manifold growth as securitization for its loans has increased. He spoke with the American Banker about the industry's developments - and his vision for its future.

Q.: What made you think the future of lending would be in second mortgages?

TURTLETAUB: I created this company in 1967, on Oct. 18, at 8:45 a.m. The banking industry in 1967 and the banking industry in 1995 have not moved that much. The opportunity to help people has been overlooked by banks. The deciding factor in starting the company was that there was no decided effort that allowed the consumer to use the banks to the maximum. If you had equity in your home, there was no way to utilize that equity. We said, let's supply that need. Our success in it has been that we have been very active and very straightforward. It is profitable both for us and for the consumer.

Q.: How has securitization changed home equity lending?

TURTLETAUB: It has given an ongoing, bottom layer of financing. If you meet all the standards, you find that you can get the underwriting and the financing at a rate that we never thought would be possible. We can pass that rate on to the customer. We did our first securitization in 1991. It was for $30 million, and at the time we never thought we would see that much money again.

But it is not securitization alone. The stock market crowd is constantly knocking on our door asking what can they do to provide money. The biggest factor that is involved is, Mr. Consumer can borrow from us cheaper than ever before. And that is happening in our SBA lending, our student loan business, in all our businesses.

Q.: What have banks done wrong in home equity lending?

TURTLETAUB:: I think the banks have done a wonderful job. I don't think they are doing anything different than what they were doing four years ago, what they were doing 14 years ago, and what they were doing 40 years ago. I don't know if they failed to meet the demands of these customers, I think they just missed an opportunity. Banks are like aircraft carriers; it's damned hard to turn them around.

Q.: Beyond securitization, how has the marketplace changed over the last few years?

TURTLETAUB: The marketplace is enlarging. There are more people who are involved in the use of credit and that is what this whole business is all about. As credit becomes more available and more necessary you have more growth. As long as we have manufacturers and consumers who want to continue to improve their lifestyles, there will be continued growth in nonconforming lending.

Q.: What lines of business within home equity lending do you think hold the most promise?

TURTLETAUB: I don't know if I can answer. Our newest one is less-than- prime auto financing. The need is there for active lenders who will not look askance at borrowers because they have blood on their credit background, and that makes it a very active and growing field.

Q.: What is the most pressing home equity issue today?

TURTLETAUB: Taxes. One of the greatest things that has helped our industry's grow is the tax deductibility of home equity loans. But we didn't have it for years and we grew anyway. What if it were taken away? Our volume would diminish. We would have to work harder for business. But we would get by.

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