Resource Bancshares Mortgage Corp. is trying its hand at subprime lending.
The Columbia, S.C.-based lender has begun originating B and C loans through its six retail branch offices and three of its 11 wholesale offices.
The company joins a parade of traditional mortgage lenders that have stepped up their lending to people with blemished credit histories. The rush comes in response to dwindling profit margins on high-quality mortgages. The B and C loans carry significantly higher rates - but more risk.
Steven F. Herbert, Resource's chief financial officer, said his company is moving cautiously and will continue to evaluate the operations to determine how big a commitment to make.
"This will enable us to gain experience in a business that is very, very different than our A and A-plus product line," he said.
The product represents "one small step toward becoming a more diversified" company, said Richard M. Duncan, executive vice president of loan production.
So far, Resource has closed 20 of the loans, half of them in the past month.
The company plans to soon extend the product to its remaining eight wholesale offices.
Initially, Resource originated these loans only through its retail offices. That's because it's easier to control the production of retail offices than that of correspondent lenders and mortgage brokers, Mr. Herbert said.
Resource already had staff members with experience in underwriting and processing these loans, so no new staff additions have been necessary.
Separately, Resource announced that its second-quarter earnings jumped 155% from a year earlier, to $6.3 million. Earnings also were up compared to the previous quarter, despite a 15% drop in loan production. The company attributed this to improved loan production margins.
Loans purchased through the company's correspondent division declined 21% from the first quarter, to $2 billion. The company's pipeline of new loans in process was $607 million at June 30, down from $878 million three months earlier.
The company closed $1.2 million B and C loans in the second quarter. The preapproved application pipeline was $8 million of B and C loans at the end of the quarter.