A subprime lender in Brea has received $100 million in financing,its second big cash infusion since its founding two years ago.
Resmae Financial Corp. plans to use the money to build a $1 billion portfolio of loans.
The company funds home loans to people with imperfect credit. It later sells the loans to investors as securities.
Now the company is set to hold some of the loans it originates, according to Jack Mayesh, chairman and co-chief executive.
“There are times when the market for selling loans is better. Other times it’s worse,” Mayesh said. “Obviously, at such a time we would prefer to hold a loan.
“The people buying (loans) are making money, too,” he said. “We would like to be in that position.”
Hedge fund TPG-Axon Capital Manage-ment LP of New York provided the $100 million last month. Resmae will use the funds as collateral to make and hold subprime loans.
TPG-Axon has a small stake in Resmae and is set to get a dividend tied to the lender’s performance in return for the funds, which are like a loan, Mayesh said.
The investor declined to comment. The $3 billion fund is headed by Dinakar Singh, a former executive at Goldman Sachs Group Inc., and backed by Fort Worth, Texas-based leveraged buyout firm Texas Pacific Group.
Resmae’s three founders,Mayesh, Ed Resendez and Bill Komperda,started the company in 2003. The partners previously ran Long Beach Financial Corp., which went public in 1997 and was bought in 1999 by Washington Mutual Inc., which still runs the operation from Orange.
Two years ago Resmae got $25 million in funding from New York-based TH Lee Putnam Ventures, which is backed by private equity firm Thomas H. Lee Partners LP and money manager Putnam Investments.
TH Lee got a stake in the company and has two seats on Resmae’s board. The founding partners have three seats. Two are independent.
The subprime lender has expanded its loan volume dramatically despite stiff competition and low-ball pricing from market leaders Ameriquest Capital Corp. of Orange and Irvine’s New Century Financial Corp.
Resmae does about $600 million a month in loans in 25 states. Last year it did $2.7 billion in loans, about four times what it did in 2003. So far this year it has done $3.7 billion in loans and is set to do more than $7 billion for all of 2005.
The company has 800 workers, including 425 in Southern California, mostly in Brea.
To handle its growth, the company earlier this year decided to take all of a 130,000-square-foot office complex under construction in Brea.
Resmae initially had planned on leasing 80,000 square feet of Olen Properties Corp.’s 6 Pointe Drive for its headquarters. The building is set to be finished later this year or in early 2006.
Resmae sees a slim profit on each loan it buys and sells. That’s partly because of its business model and partly a result of rising short-term interest rates.
Subprime and other lenders make loans based on long-term rates and finance them with bonds tied to short-term rates. The Federal Reserve Bank has been raising a key short-term rate during the past year or so.
The Business Journal estimates Resmae has made about $12 million on the $3.7 billion in loans the company has processed this year.
Resmae keeps costs low a couple of ways. Its computer system allows it to process loans with two-thirds of the workers other lenders need to do the same volume, Mayesh said.
And the company doesn’t advertise much since it’s a wholesaler, meaning it deals with brokers. Both Ameriquest and New Century spend heavily on advertising to promote their retail operations.
In any case, Resmae will continue to buy and sell loans as well as hold them. All its loans will end up as securities.
Resmae is set to collect all the profit when it sells its loans outright. It will hold other loans, collecting the difference between the interest borrowers pay and the payments it makes to bond holders.
