It looks like Lake Forest-based NationPoint, one of the nation’s largest online mortgage lenders, may be sold by its Ohio-based parent.
Cleveland-based National City Corp. recently said it was considering the sale of its NationPoint and San Jose-based First Franklin units.
The units could be sold separately or together, said National City, which is undergoing a review of its “strategic alternatives.”
First Franklin makes home loans to borrowers with imperfect credit. NationPoint makes several types of home loans, including ones with interest-only monthly payments or no down payment. All its loans are made through NationPoint’s online operations.
“It’s a strategic review to possibly reduce National City’s presence in the nonprime market,” said Chris Kemper, a spokesman for National City.
NationPoint is the ninth largest online mortgage lender in the U.S. and employs roughly 380 in Lake Forest, according to Kemper. It makes loans in 47 states. The unit falls under National City’s First Franklin operation.
First Franklin is a leading originator of subprime residential loans through a national network of brokers. A third unit that National City is looking to sell, Pittsburgh-based National City Home Loan Services Inc., services loans for First Franklin and others.
National City, which has about $140 billion in assets, has seen its mortgage lending business slow in recent quarters. Rising interest rates have curtailed lending at most U.S. mortgage lenders.
In the first quarter, National City said its revenue from mortgage loans and sales was $119 million, down 38% from a year earlier. The decline primarily was due to lower revenue from hedging mortgage loans held for sale.
National City said in its 2005 annual report that by the fourth quarter, profit margins at First Franklin had fallen to their lowest level since it bought the business in 1999.
NationPoint, whose headquarters is at a 70,000-square-foot building at 25530 Commercecentre Drive in Lake Forest, reported pretax earnings of $10.7 million and $1.7 billion in loans made in 2005. NationPoint declined to break out its 2004 results.
A sale of Franklin First and NationPoint would cut National City’s exposure to alternative loans at a time when housing sales are falling, analysts said.
To compensate lenders for risk, nonprime loans have higher interest rates than those made to higher-quality borrowers. Losses from loans gone bad are expected to rise as the housing market cools.
Orange County counts several top subprime lenders as well as traditional mortgage lenders.
In early June, Ameriquest Mortgage Co.’s Orange-based parent, ACC Capital Holdings Corp., said it was putting as much as 600,000 square feet of local office space on the market as part of a restructuring at the nation’s largest subprime lender.
ACC Capital’s units have laid off thousands of workers during the past year.
Irvine-based ECC Capital Corp., parent of subprime mortgage lender Encore Credit, said in April that it was cutting 17% of its workers.
In February, subprime lender BNC Mortgage Inc., part of Lehman Brothers Holdings Inc., laid off about 100 OC employees.
Bank analysts said a sale of First Franklin and NationPoint could fetch $800 million to $2 billion. The wide range is a reflection of the state of the lending market, analysts said.
“The decision to sell is being made at a time when outside observers see the home finance industry about to take a tumble,” said Richard X. Bove, analyst with Punk, Ziegel & Co. in Lutz, Fla. “There are actually a large number of potential buyers of First Franklin among the bigger banks and some of the finance companies. It will be an easy sale.”
Hoping for a Sale
Analysts welcome a possible sale.
“National City would have a cleaner story,” said Michael L. Mayo, analyst with Prudential Equity Group LLC. He expects the lending units to go for $2 billion.
The outlook for higher delinquencies, or loans gone bad, in the subprime sector suggests a sale price of about $1.2 billion to $1.4 million, said Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine.
National City could use funds from the sale to buy back shares or boost its dividend. The bank also could fund an acquisition with the sale proceeds.
National City said last week it plans to buy Fort Pierce, Fla.-based Harbor Florida Bancshares Inc., the holding company for Harbor Federal Savings Bank, for $1.1 billion.
National City has a tiny presence in Florida, including minor operations of NationPoint.
Harbor Federal has 40 branches along the central east coast of Florida. The state is viewed by some as a tough one to crack for Midwestern banks.
Prudential’s Mayo said the Harbor Federal acquisition was “a mediocre deal at best.”
“The Florida expansion is a positive, but the ability to execute, particularly growing the customer base, remains to be seen,” he said.
