LoanTrader.com, the Irvine-based Internet portal for mortgage brokers and lenders that debuted in September, is getting ready for the next level.
The company,which has grown the loan volume through its site to an expected $200 million this month,expects to close a multimillion-dollar venture-capital funding deal in the next two weeks, according to John Le, the company’s president and CEO. Le also plans to take the company public within the next two years.
“We’re aggressively looking at that,” Le said.
LoanTrader gives brokers direct online access to lenders without any paper shuffling, reducing the loan application and approval time from a few days to a few minutes.
Le founded LoanTrader two years ago with two of his former coworkers, Robert Palmer and Donald Tran. Le and Palmer met at Long Beach Financial. Tran and Le worked together at Merisel Inc., a distributor of computer equipment and software. Le worked in the finance department facilitating securitizations, and Tran worked on Merisel’s e-commerce project, which was showcased by Microsoft as its example of an e-commerce site.
Last January, the company got its seed round from Fredric Forster.
“They had great technology with a great business plan,” said Forster, who was a president and COO of Home Savings of America from 1993 to 1996 and is also a former director and vice chairman of the Federal Home Loan Bank in San Francisco.
“I wrote the check that got the guys to quit their jobs,” said Forster, who has since joined the Tech Coast Angels.
Internet Provided Opportunity
Forster said the core issue with LoanTrader was that the mortgage business had been struggling with technology issues for a long time, since companies tried developing systems only within their organizations. The advent of the Internet provided for a solution outside the companies.
Since its inception, LoanTrader has raised about $2 million in financing, part of it from Irvine-based New Century Financial Corp.
After getting their seed money, Le, Palmer and Tran quit their jobs and went to work developing the technology for the web site and creating business opportunities.
They also started making the rounds of industry trade shows, distinguishing themselves amid the suit-and-tie loan-broker crowd by wearing shorts and bright yellow company T-shirts and driving up in a Volkswagen Beetle emblazoned with the LoanTrader logo.
The trio launched the web site Sept. 14 and in the 10 remaining working days in that month, they had $15.7 million in loan transactions pass through the system. In October, they did $48.3 million, in November, $80.0 million and last month they did $103.4 million in loan transactions. Le expects to do about $200 million each month for the next quarter and finish up the first year with $1.4 billion in transactions.
The loans are averaging $104,000, while ranging in size from $2,000 to $12 million.
As far as revenue goes, “we decided not to focus on it during the launch period,” Le said. The company’s revenue comes from a $100 to $160 charge to the lenders that respond when a broker submits an application to them. LoanTrader is averaging about 800 transactions per month.
Le is undaunted by the fact that the company may not be in a positive cash-flow position this year.
“We are very focused on establishing market share,” Le said. He expects to have positive cash flow by 2001.
LoanTrader operates out of a Koll Center Irvine office, but Le is planning to move his operations by March. He said he’s looking for about 30,000 square feet in either the Irvine Technology Center, the Irvine Spectrum or the UCI Research Park.
LoanTrader already has a tie with UCI, since the dean of the UCI Graduate School of Management, David Blake, is one of its investors and sits on the company’s board.
Blake met Le through Roger Cohen, a partner at Brobeck, Phleger and Harrison covering emerging companies and e-commerce.
“They had an outstanding business model and wonderful technology,” said Blake.
LoanTrader’s board includes Forster, Blake, Cohen, and Roger Davisson, one of the original partners of Brentwood Venture Capital, as well as Le and Palmer.
Hiring Spree
LoanTrader is on a hiring spree, and Le wants to grow from the current two dozen to 100 employees by the end of the year, with the majority of the new hires coming in the second quarter. Despite the tight labor pool, Le said he is not having trouble finding people for the jobs. Tran, LoanTrader’s CTO, “is able to draw high-caliber people,” Le said. Some of their prospects hold Ph.D.s and patents on IT products, he said.
LoanTrader is not the only web site to offer online business-to-business services for brokers and lenders. Companies such as IMX Exchange, LION Inc., LoanCity and NeverLoseaGain.com did not make LoanTrader’s entry any easier. The most notable competition comes from IMX Exchange, which went online in October 1997. IMX is working with 1,300 mortgage brokerages and 70 lenders.
Room to Compete
But Forster said, “there’s plenty of room for competition.”
According to Wholesale Access, a residential lending industry research organization, there are approximately 30,000 brokerages nationwide. Le said there are about 5,000 lenders nationwide.
Le would like to get as many brokers in its stable as possible, but said he only needs about 200 lenders. LoanTrader is currently signed up with 27 lenders and get three or four lenders every week applying to get on the system.
About 2,300 brokers now use LoanTrader, and Le said he hopes to capture about 50% of that market. He said that 88% of brokers use a computer and would only need to hook up to the Internet to use the LoanTrader system.
Forster said a key for LoanTrader is “good traction with the loan-broker community and they (the brokers) have to enjoy using our system.”
Le added a Reuters news service feature to the LoanTrader web site to give financial news and market commentary, and plans to expand the site’s capabilities to assist in the funding process. Le is also working with third-party services, to introduce lower transaction costs to the mortgage industry. n
