A subprime home lender is shuttering its branch and office space in an all-Web bid for profits.

WMC Mortgage Corp. this week announced that it had recast itself as an Internet-only lender that will work mainly with other businesses. During the prior two weeks, the Woodland Hills, Calif., mortgage bank closed its 26 retail branches and eight wholesale offices and cut its staff by about 75%, to 200 people.

Henceforth, WMC said, it will take all its loan applications online. "We're finding we can offer much better service for brokers and customers, and produce a higher-quality loan at a better price," over the Internet, said Scott McAfee, WMC's president.

WMC also said it had gotten a $25 million investment from Cendant Corp., and the two companies formed a strategic alliance in which Move.com, a homebuying and relocation Web site owned by Cendant, would send subprime homebuyers to WMC.

At a time when dot-com enterprises that market directly to consumers are suffering huge losses and investor backlash, WMC is remaking itself into a business-to-business Internet company. Though the privately held company operates a Web site, homelender.com, where consumers can apply for loans, it is devoting most of its resources and attention to wmcdirect.com, a site for use by mortgage brokers.

WMC's move to a 100%-Internet business model is a response to fundamental changes in the subprime mortgage market in the past two years, Mr. McAfee said. In early 1998, when subprime lending was still a hot industry, companies could sell their loans for as much as 106% to 107% of face value. With such fat margins, few worried about controlling costs.

But in the fall of that year, financial markets worldwide went haywire. The prices paid for subprime loans plummeted and are now at 102% to 104% of face value. Many big subprime lenders did not survive. Faced with narrower margins, those left standing had to focus on cutting expenses. That is why WMC started building its Internet lending technology during the late-1998 crash, Mr. McAfee said. "We realized we needed to revolutionize our cost structure."

WMC's Internet business has been up and running for nine months. So far it has logged more than $1 billion of applications. About one-third of these have resulted in loans, on par with the average for subprime wholesale lenders, Mr. McAfee said.

This year WMC decided to make the Internet its sole source of loans. Just before the company closed its brick-and-mortar offices, the Internet channel had grown to account for 65% to 70% of WMC's originations, Mr. McAfee said.

He said the wmcdirect.com site is already a hit with brokers because it is easy to use. More than 2,000 brokers have submitted loans to the site.

The broker site has a proprietary automated underwriting system and customized pricing engines, and it uses automated appraisals whenever possible. But if a user needs to talk to a live person, a help line is open from 8 a.m. to 6 p.m. in all four time zones.


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