There are few survivors, let alone success stories, left in the world of subprime home loans.
Lake Forest-based Clearinghouse CDFI claims to be both.
Out of 770 loans Clearinghouse has made as part of a federal program to help poor borrowers, only seven have gone bad, according to the company.
Compare that to other lenders, such as Irvine-based New Century Financial Corp. and Brea-based Fremont General Corp., which both went bankrupt on bad subprime mortgages.
The reasons why others failed and Clearinghouse did not are pretty clear, according to Chief Executive Douglas Bystry.
“We made sure that the borrowers could pay,” he said.
And Clearinghouse didn’t offer loans with initially low interest rates that reset to higher, unaffordable levels after a couple years, Bystry said.
Adjustable-rate mortgages were the downfall of Newport Beach savings and loan operator Downey Financial Corp., which collapsed last year.
“We thought it was irresponsible to lend at a teaser rate,” Bystry said.
Borrowers, too, are to blame for many bad loans, according to Bystry. Many misled lenders with false income statements, he said.
Clearinghouse avoided that, Bystry said.
The company has about $65 million in loans on its books. Clearinghouse lends to people with low incomes as well as to nonprofit groups, including Orange County Conservation Corps in Anaheim, Stop Gap in Costa Mesa and Mary Erickson Community Housing in San Clemente.
All of its business is in California, with about 15% in Orange County. Most of its loans are sold to the state of California as part of the state’s efforts to promote home ownership.
About 90% of Clearinghouse’s loans have gone to first-time homebuyers, half of which are minorities.
Last year, Clearinghouse had $636,000 in impaired loans,which may be overdue or have other collateral concerns,equaling 0.9% of its portfolio.
“We are pretty proud of this in the current economic environment,” Bystry said.
Another local lender that avoided the subprime pitfalls is the Anaheim office of Neighborhood Housing Services, a nonprofit lender that’s backed by private and government grants.
In 15 years of lending primarily second mortgages to first-time buyers, Neighborhood Housing claims to have never had a default. Its monthly delinquency rate ranges from 0% to less than 2%.
It has 238 loans worth $12.4 million on its books.
Neighborhood Housing requires borrowers to take eight hours of education and gives counseling before making its fixed-rate loans.
For both Clearinghouse and Neighborhood Housing, size has something to do with their success. They do a fraction of the loans that big subprime mortgage and other lenders did.
New Century, which collapsed in early 2007 to start the subprime spiral, was doing $60 billion in loans a year at its peak. Orange-based ACC Capital Holdings Corp., parent of Ameriquest Mortgage Co. and others, did $75 billion in yearly loans before dissolving or selling off its units in 2007.
The culture of New Century and Ameriquest, where pressure was on to do better than the year before, played a big part in their taking on large amounts of loans that went bad, Bystry said.
Clearinghouse, which was started in 1995 as a for-profit company in a bid to attract investors, had near record profits of about $3 million last year, he said.
Before founding Clearinghouse, Bystry said he became frustrated trying to sell banks mortgages made to low-income borrowers. They were rejected for being too risky, he said.
Clearinghouse was started with $10 million in debt financing and $1 million in investments from about a dozen lenders. Some of them now are gone, including Fremont General, Washington Mutual Inc. and Wachovia Corp.
Clearinghouse is now trying to attract money for $90 million worth of loans the government has authorized it to make.
It is feeling fallout from the subprime meltdown, which has killed the appetite of investors for subprime mortgages packaged as bonds.
About 90% of Clearinghouse’s loans have been sold to the California Housing Finance Agency, which isn’t buying them anymore because it’s had trouble issuing bonds for them, according to Bystry.
The rest of Clearinghouse’s loans were sold to Citigroup Inc., which also has stopped buying as it tries to repair itself from heavy losses.
