Fairbanks Ready to Grow Loan Portfolio

On the long, painful road to recovery, Fairbanks Capital Corp., Salt Lake City, has just passed some big milestones, and the company is now ready to halt the runoff that has shrunk its portfolio over the past year.

The company received upgrades of its servicer rating from Standarnd & Poor's and Moody's recently, both of which had slashed Fairbanks ratings after publicity and lawsuits drew attention to allegedly abusive servicing practices. In addition, Fitch Ratings removed Fairbanks from ratings watch "negative" status and affirmed its ratings in March.

And in May, Fairbanks' new executive leaders came to New York to update industry participants on their turnaround plan and announce that the company is ready to once again start adding new loans to its portfolio.

While Fairbanks has seen its portfolio suffer attrition since the controversy began, the company remains the nation's largest servicer of subprime loans with about $30 billion under management. The company was once servicing nearly $50 billion.

The company plans to hold the portfolio size roughly steady this year and grow by about 10% next year.

Since last June, the company's investors have injected $75 million into Fairbanks, including funds to pay fines and settle claims, that demonstrate a commitment to revitalizing the firm, Fairbanks president Matt Hollingsworth said.

He said Fairbanks has identified 34 "attack items" and is focused on building the most compliant-oriented subprime servicer in the business.

"We really want to back that up with training. It's key to redefining the culture of Fairbanks and setting up the culture of the future," he said.

He said the company's foreclosure timeframe has lengthened from 63 to 92 days. While not something a servicer would ordinarily tout, Fairbanks believes that its new timeline reflects an increased emphasis on compliance and commitment to trying to keep troubled borrowers in their homes.

James Ozanne, the chairman who came in to replace Fairbanks' previous management, said Fairbanks is committed to building an organization dedicated to regulatory compliance and customer service. And he believes Fairbanks can be competitive in the market for servicing subprime loans.

"We think we offer an alternative that wasn't there for the past year, and we offer an alternative that you can be sure is compliant," Mr. Ozanne said at the meeting.

In a statement released by Fairbanks after one of the rating upgrades, Mr. Ozanne said that the upgrade "affirms the significant improvements" Fairbanks has made to its servicing platform to address complaints about aggressive collection practices, questionable fees and the management of lender-placed insurance.

He added that Fairbanks was profitable in the first quarter of this year.

By contrast, Fairbanks reported a net loss of $59 million in 2003, largely driven by legal and regulatory costs.

But these developments, while favorable, do not mean that Fairbanks is completely out of the woods. While upgrading Fairbanks, Moody's warned that Fairbanks needs to successfully renegotiate credit lines with banks and maintain liquidity to fund its operations.

During the meeting in New York, Fairbanks executives expressed confidence that they will be able to renegotiate their credit lines and noted that the company's banks have been supportive during the reorganization.

Moody's also noted that while Fairbanks has reached a settlement with federal regulators and has tentatively reached a class-action settlement with private plaintiffs, Fairbanks is continuing to seek settlement of issues related to several state examinations of the firm.

Fairbanks services about 380,000 nonprime residential mortgage loans.

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