Option One Mortgage is preparing to hire 275 new employees in Orange County and expand its Irvine-based operations.
The sub-prime lender has signed a five-year lease for 63,412 square feet at 7515 Irvine Center Drive.
Steve Pisarik of The Seeley Co. in Irvine represented Option One in the deal valued at $6.2 million.
Roger Rizner, senior vice president of lending operations for Option One, said the company needs more space to accommodate five years of double-digit revenue expansion.
In order to handle that sort of growth, the company is expanding near its Irvine Spectrum campus along Ada and Barranca Parkway. It plans to hire 275 new employees by the end of 2001, about half of which will be added in the next 12 months, according to Rizner.
Most of those new workers will be assigned to the company’s new office space about a mile away.
When Option One moves into its new space in May, it will occupy more than 230,000 square feet in the Irvine Spectrum.
The private firm currently has about 1,800 employees, some 700 of which are based in Irvine.
Option One focuses on the sub-prime market, making loans to homebuyers who have been spurned by conventional banks and are willing to pay higher interest rates. But with interest rates rising, analysts say the sub-prime market is shaky.
“The (sub-prime) industry is in trouble,” said David Olson, an independent mortgage loan analyst in Columbia, Md. “But Option One seems to be weathering the market turmoil, which you can’t say about a lot of the players in that market these days.”
In the local area, three companies recently announced major changes. EMB Corp. and United PanAm Mortgage Corp. of Orange have decided to get out of the sub-prime business. EMB is in the process of selling its sub-prime operations in Costa Mesa to Irvine-based e-Net Financial Corp. Meanwhile, senior managers of sub-prime lender BNC Mortgage Inc., Irvine, have offered $47 million to take the company private.
“The market has changed with the liquidity crisis that really started appearing in the fall of 1998,” said Jeffrey Zeltzer of the National Home Equity Mortgage Association. “It has made it much more difficult to sell to the secondary market.”
The executive director of the Chino-based national trade group representing more than 300 sub-prime lenders believes those surviving the shakeout will have to be well-financed and not dependent on quick securitization of their loan portfolios.
“Those who are succeeding these days are the ones with their own sources of funds, such as an Option One,” said Zeltzer.
Purchased in 1997 by H & R; Block Inc., the privately held Option One has used its parent company’s deep pockets to weather stormy financial markets.
“We probably could’ve grown a lot faster than we did,” said Option One’s Rizner. “Some of our competitors have grown much more quickly, but control was very important to us.”
By control, he is referring to holding the line on pricing at a time when many sub-prime lenders are feeling pressure to take deals from any investment sources they can find.
“We haven’t been forced to sell loans at rock-bottom prices,” said Rizner. “The strength of our parent has allowed us to hold loan production until prices have rebounded.”
Prior to October 1998, sub-prime mortgage bankers could cut deals for about 105% of a principal loan’s value, he added. After financial markets in Asia, Russia and Latin America bottomed out, those rates were down to around 101% , or a 1% profit for mortgage lenders.
Now, according to Rizner, those rates are up to the 103.5% range.
“They probably won’t get back to where they were,” he said. “But our whole loan schedule is back to a more regular pace.”
As of Jan. 31, Option One was servicing 104,000 loans worth $10.5 billion. In 1994, the company originated about $500 million in sub-prime loans. By the end of fiscal 1999, that total was up to $3.6 billion.
Almost half of Option One’s loan portfolio is offered to investors interested in buying securities backed by different assets,in this case, mortgages. Direct selling of mortgages in secondary markets complements such securitization of loans.
The company is also getting involved in other areas.
Option One last week announced it was folding a New England prime and government-backed lending operation, Assurance Mortgage Corp., into its H & R; Block Mortgage Corp. Both are subsidiaries of Option One, with H & R; Block Mortgage operating from Irvine. Although the merged operation will shift its headquarters to Burlington, Mass., employees now working in Orange County will not be transferred.
The former Assurance Mortgage Corp. had 13 offices and H & R; Block Mortgage operated five sub-prime lending branches and seven financial centers for H & R; Block Inc.
The deal completes a strategy, according to Option One managers, to combine different types of lending with H & R; Block Inc.’s financial services.
But they say that even though the moves amount to a diversification of corporate product lines, Option One will continue to focus on sub-prime markets. n
