Orange County’s lending landscape goes beyond its growing status as a regional hub of commercial banking.
OC also is home to a number of long-standing nonbank lenders that have carved out profitable niches for themselves and are finding new ways to grow as the economic recovery gains steam here and nationwide. They cover a variety of lending categories, ranging from subprime auto and collectible cars to rare coins and home mortgages.
Irvine-based CarFinance Capital LLC is Jim Landy’s latest go at running a subprime auto lender here.
The 2-year-old company finds itself squarely positioned in the “525 to 675” segment of the credit-score spectrum—mid-range risks that make up about a third of the $780 billion auto-financing market nationwide, according to Landy, who serves as chief executive.
“We tend to start … right where the conventional prime bankers stop … and we take that down to where the deeper subprime companies start,” Landy said.
CarFinance has originated about $500 million worth of loans over the past two years. It recently raised $238 million in a securitization deal overseen by Deutsche Bank Securities and Credit Suisse. Those banks also increased the credit facility for CarFinance by 50% to $300 million in March.
“That really provides the liquidity and capacity for us to grow,” Landy said.
Triad Financial
Landy’s subprime auto-financing focus goes back more than two decades to when he launched Triad Financial Corp. in Huntington Beach in 1989.
He sold the company to a group of investors in 2005 after growing it to about $4 billion in loans and 1,000 employees in OC.
CarFinance has about 190 employees total, with 90 here.
About 60 are former Triad employees, a concentration of talent that Landy described as “the most compelling reason for us to be here” in OC.
Consumer Portfolio Services Inc. in Irvine also is a long-standing subprime auto lender in OC and has originated more than $9.8 billion since its inception in 1991. The company currently manages about $969 million in its portfolio, continuing a steady comeback over the past few years after its portfolio shrank during the economic crisis to about a third of its 2007 high of $2.13 billion.
The auto-financing sector has enjoyed a relatively quick post-recession comeback, according to Landy.
“Financing dried up after the crisis in 2008, 2009,” Landy said. “But somewhere around late 2010 and early 2011, large institutional investors realized that it was really more of a [real estate] mortgage issue. Auto in particular actually performed really well. Once investors were able to differentiate auto from specifically mortgage, capital became much more available.”
Home-loan companies took a bigger blow in the recession—particularly in OC, which had a concentration of subprime lenders that contributed to the mortgage meltdown.
Mortgage lenders also took a longer time to recover, although historically low interest rates helped those that hung on through the recession to a good run over the past couple of years. The low rates first sparked a wave of refinancing and more recently helped push new-home purchases.
Impac Mortgage Holdings Inc. clearly has seen the residential market parallel the overall economic cycle over the past 18 years or so, including the recent recession.
The company hit pause on lending activities in 2007 but “stuck around” by providing fee-based services, according to Justin Moisio, director of corporate and investor relations.
“Modifications, escrows, title, auctions, default surveillance—we were doing these things to get by,” Moisio said. “We adapted. And when we saw that mortgage lending was back, we jumped back in.”
That was 2010. Impact provided $2.5 billion worth of loans in 2012 and is looking to reach $4 billion in originations this year, according to Chief Executive Bill Ashmore.
Ashmore said heavier regulation on traditional banks over mortgage financing has helped companies such as Impac strengthen their foothold in the market.
About half of Impac’s loans are in California, which is part of the reason the company plans to stay in OC despite the relatively high cost of doing business here, Ashmore said.
“You have a huge amount of personal resources here in OC,” he said. “It’s traditionally been that way. We do attract people because we’ve been here a long time. You are paying a bit more, but you’re [getting talent at a] nonaverage, high technical skill level.”
Stearns Lending Inc. in Santa Ana boosted local talent last year when it made 100 hires for a total of 450 here. That was part of a companywide hiring spree that added 600 workers to Stearns, for an overall employee base of more than 1,500.
Stearns Lending managed to hang on through the recession, outlasting a number of competitors to capitalize on the recovery. It posted $493.3 million in revenue last year, more than double from a year prior, and jumped about 30 spots on the latest Business Journal list that ranked the largest private companies based in OC.
Greenlight
Irvine-based Greenlight Financial Services Inc. is another player in the mortgage lending arena. It recently fetched $75 million in a sale to Nationstar Mortgage Holdings Inc. in Lewisville, Texas. Nationstar is among the largest nonbank lenders in the U.S., with 5,400 employees and more than $312 billion worth of outstanding loans as of March. Greenlight—which advertises through its “you’ve got the green light” jingle—is expected to bring a widely known consumer brand, among other strategic benefits, in helping boost Nationstar’s business.
Industry veteran David Norris joined Greenlight as chief executive late last year, after founder Joann Pham stepped down from the post. Pham was previously with Costa Mesa-based mortgage lender DiTech Funding Corp., which was launched in 1995 by J. Paul Reddam and sold in 1999 to General Motors Co.
Reddam continued with residential lending and soon launched CashCall Inc. in the early 2000s.
The Anaheim-based company quickly grew into one of the larger mortgage lenders nationally. It funded about $10 billion in mortgages last year, up from $4 billion in 2011. CashCall is set to reach about $12 billion this year, according to Reddam, who serves as chief executive.
He’s among those concerned about rising interest rates that have dampened demand for refinancing and put a downward pressure on lending overall.
“There was explosive growth with the decline in interest rates in 2012,” he said. “But with the rates back up, there’s still [going to be] some growth, but not ‘explosive.’ The market was white hot, and now it’s just hot.”
OC also has companies that focus on high-end consumer products, including Irvine-based Woodside Credit LLC, which provides financing for buyers of classics and collector cars.
Woodside’s portfolio doubled to more than $50 million last year and is looking to pass the $70 million mark by the end of this year, according to Executive Vice President Mitch Shatzen.
“Our business runs on consumer confidence,” Shatzen said, pointing to the May reading of the Consumer Confidence Index, which reached 76.2, the highest since February 2008. “There is a very positive thing happening in the economy. So [that’s] what brings our borrowers out, because they feel good about the stock market, the economy, the real estate market.”
Woodside also gets publicity as the preferred lender of Barrett-Jackson Auction Co., which puts on a number of auctions and shows each year in different parts of the U.S. It has held a few auctions at the OC Fairgrounds since 2010 but moved the site to Reno this year.
Coins
Irvine-based Spectrum Group International Inc. also has benefited from consumer confidence and growing interest in precious metals and wine, as well as collectible coins and paper currency.
The company is an auctioneer and merchant, but it also serves as a lender through its A-Mark Precious Metals Inc. subsidiary and its Collateral Finance Corp. in Santa Monica.
“We’ll take your coin and products and extend you a loan on that collateral,” Chief Financial Officer Brian Kendrella said. “We’ll hold the material, and you’ll get charged on interest as you would on any other assets. We’re really uniquely qualified to be able to evaluate these kinds of collateral, especially the coins and gold bullion.”
Spectrum Group had $39.5 million worth of loans through Collateral Finance as of March, up slightly from $39.2 million as of June 2012.
Spectrum Group’s total revenue last year was $7.97 billion, up 11% year-over-year.
Its specialty in numismatic valuation helps the company gain an advantage over typical banks, Kendrella said.
“If you walked into your traditional banker and laid out a bunch of rare silver dollars, I don’t know what they would say,” he said. “We could say you might have $1 million in rare coins. The banks might say you have $5 in $5. We can really know the underlying value of those items. Their coin collections are tremendous assets.”
