Some Firms Worth Keeping an Eye On

Every year this newspaper and its affiliate, National Mortgage News, release a special report on 20 (mostly) private mortgage banking firms that are worth keeping an eye. The lenders aren't necessarily the Countrywides of tomorrow (then, again you never know) but are noteworthy because they are mining a particular niche, are fast growers, or have a dominance in one particular channel, product, or geographic region.

Some of these firms very well could be out of business in a few years - probably through M&A. Others might be thriving. Time will tell. In the end it's all about building a better mousetrap. Right?

Again, most of these firms are privately held. Some are subsidiaries of publicly traded, larger companies (like BNC Mortgage). In the space below I'm providing a teaser on three of the 20 firms. Happy reading and let me know what you think.

BNC Mortgage: In October 2005 (and after months of speculation in the industry), subprime wholesale giants BNC Mortgage and Finance America finally merged, leaving BNC as the surviving brand. The two were affiliates, operating in the same niche, sharing a well-known parent, investment banker Lehman Brothers. The reason the BNC brand survived and FA disappeared speaks volumes about the reputation of BNC's president and CEO Kelly Monahan. As for FA, well, that's a different story, one that Lehman would not discuss with the business press. Suffice to say that things were not going well at FA. Back in May 2005, Lehman fired several top executives at FA, including CEO Art Rice and chief operating officer Graham Fleming. The merger of the two affiliates created the nation's ninth largest subprime originator overall. Based in Irvine, Calif., the company, which employs about 2,500, now has the ability to fund $2.5 billion a month but would like to grow that capacity. Even though BNC reduced its overall workforce when it absorbed the beleaguered FA, the company is committed to growth and would like to add more sales people and increase its market penetration.

CMG Mortgage: Last year while most lenders (it seems) were concentrating on funding low-payment, interest-only loans CMG Mortgage Services of California rolled out a new product that helps consumers pay off their mortgage early. The loan, which is called Home Ownership Accelerator, is "A" paper in nature and appears to be catching on. CMG president Chris George describes the loan as one of the first "transactional" mortgages in the U.S., noting that its model is a product first offered in Australia. The loan allows the consumer to deposit his/her paycheck directly into the mortgage account, which has the effect of dramatically reducing the loan's principal. By comparison, using an interest-only loan the customer pays off only interest - and none of the principal, a feature that has some consumer groups and regulators gravely concerned. With the HOA loan, the more a consumer is cash flow positive the faster he/she can pay down the note. The product is indexed to LIBOR. CMG funded about $1 billion in HOA loans in 2005 out of a total production base of $6 billion to $7 billion.

First Magnus: Like many lenders, First Magnus here - one of the largest privately held lenders in the nation - anticipates industry upheaval as 2006 progresses, but instead of fretting about it the mortgage banker hopes to capitalize on it. "With declining markets comes change," company chief operating officer Karl Young told us, "but we hope to take advantage of it." About 60% of the lender's production is sourced through loan brokers. Last year, it funded a record $27 billion in home mortgages, a 63% gain from 2004. In 2006, a year in which industry production is expected to fall by 25%, First Magnus is projecting its fundings will grow to $30 billion. Mr. Young believes that as other firms falter and cut back it can increase market share by hiring new account executives and enter small to midsized markets that other lenders might abandon. "We're a nimble company," said the COO. Three years ago, 75% of its production was conventional or government based. Today about 45% of its fundings are alt-A or niche products. The company's motto is: As consumer demand changes, you have to be nimble to survive.

So, there's your taste of three. The full report includes additional analysis as well as key contact information, top executives and more. For further information about "20 (Mostly) Private Mortgage Firms to Keep an Eye On" e-mail: Deartra.ToddSourceMedia.com.

Paul Muolo is executive editor of both Mortgage Servicing News and National Mortgage News. He can be e-mailed at Paul.MuoloSourceMedia.com.

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