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Wednesday, May 29, 2024

Orange County’s Mortgage Industry Prominence is Back

Orange County made a national name for itself in mortgage lending in the 1980s and 1990s. Then its reputation tanked along with subprime mortgage lending in the 2008 financial meltdown.

Now, OC is prominent again as the place to be for nonbank mortgage lending.

Four of the 25 largest nonbank mortgage lenders in retail originations last year in the U.S. have their headquarters in OC, according to Inside Mortgage Finance Publications.

“I don’t think you’d find any other county in the U.S. with that concentration,” said Guy Cecala, chief executive of Inside Mortgage Finance, one of the most prestigious publications in the mortgage industry. “Nonbanks have become a major force in the mortgage market over the last three to four years.”

Last year, the four OC-based firms together originated $58 billion in retail loans, which deal directly with borrowers. Each outgrew the market average of 19%.

They were No. 3, loanDepot LLC in Foothill Ranch; No. 15, Impac Mortgage Holdings Inc. in Irvine; No. 16, New American Funding in Tustin; and No. 21, Stearns Lending LLC in Santa Ana. In the first quarter, loanDepot zoomed to second place on the list.

The biggest nonbank lender was Quicken Loans Inc. of Detroit. Even if banks like Wells Fargo & Co. are included, these four OC firms are still among the top 35 largest mortgage lenders in the nation, according to Inside Mortgage Finance.

One of the biggest reasons for OC’s re-emergence is that banks are pulling back from mortgages, Stearns Chief Executive David Schneider said.

“They’ve all shrunk their businesses and many had a lot of talent in Orange County,” he said. “It’s a combination of great talent being available here, a legacy of understanding how the business works and Orange County being a great market for independent businesses.”

For example, Santa Ana-based Banc of California, which originated $6.1 billion in mortgages last year, sold its home loan division this year, citing a desire to focus on commercial banking.

Besides lending directly to borrowers, the OC companies also provide business in other areas such as wholesale channel, where loans are offered through third parties like brokers, credit unions and banks, and the correspondent channel where loans are sold on the secondary market.

These businesses generated an additional $29 billion in originations for the four biggest OC firms, according to Inside Mortgage Finance.

Mortgage Capital

The only other California-based nonbank retail lender in the top 25 was Guild Mortgage Co. in San Diego. The only other state with as many companies as OC was Texas with four. And one of those, No. 11, Nationstar Mortgage Holdings Inc. grew by acquiring Irvine-based Greenlight Financial Services in 2013, which at the time was expected to originate $8 billion in loans annually. Nationstar this year leased a 150,000-square-feet facility in Santa Ana.

Two other prominent mortgage lenders, both founded in 2007, are Santa Ana-based Nations Direct Mortgage LLC, which generated $2.3 billion in broker originations last year, and Irvine-based JMAC Lending Inc., a wholesale and correspondent mortgage lender founded in 2007 and today is one of the 30 largest wholesale lenders in the industry. JMAC Lending founder Christina Pham was named as one of the 100 most influential mortgage executives this year, according to Mortgage Executive magazine.

“Orange County is the mortgage capital of the country,” said Brendan Maun, chief executive of Costa Mesa-based TMG Home Loans, which he began in 2013 and which now has eight loan officers. “There’s a large talent pool in terms of the mortgage market.”

Rise Then Fall

OC has a long history in mortgage lending. Western Pacific Financial in the 1970s became one of the nation’s biggest by packaging mortgages to Wall Street and was eventually acquired in 1979 by the brokerage Shearson Loeb Rhoades. Paul Reddam in 1995 began Ditech Funding, which was eventually sold to General Motors and recently resurrected in Pennsylvania, where it ranked No. 25 with $6.7 billion last year in originations. Reddam also started CashCall Inc. in 2003 and sold it in 2015 to Impac Mortgage Corp.

“Orange County has always been the hotbed for nonbank mortgage lenders,” said Bill Ashmore, who has been in OC real estate since the mid-1970s and is now the president at Impac, which was started in 1995.

The county’s mortgage lending reputation took a nosedive in the 2007-08 financial crisis because it was home to about eight of the 12 biggest subprime lenders in the nation. Most collapsed or closed, including New Century Financial Corp. and Ameriquest Mortgage Co.

Impac reached a height of $25 billion in originations in 2005 when it noticed an increase in foreclosures, Ashmore said. The company cut its originations by more than half in the following two years and began new divisions such as Auction.com which eventually was purchased by Google Inc.

“We pulled off the gas in originations and we reinvented ourselves in other businesses,” Ashmore said.

New American Funding avoided the meltdown by staying out of subprime lending and riskier loans, said Jason Obradovich, the company’s executive vice president for capital markets.

Co-founder Patty Arvielo “personally signed off on every single loan because she wanted to know the risk her company was taking,” Obradovich said.

One sign of recovery is the boost in employment. In 2006, the mortgage lenders employed 22,200, which fell to 9,300 by 2010, according to the Irvine office of brokerage JLL. They now employ 17,500 as of May, up from 15,600 in 2015.

A shakeout may come this year as mortgage lending is expected to fall about 20% as the Federal Reserve raises interest rates. This will particularly affect smaller mortgage lenders with limited capital.

“There have been more acquisitions than in previous years,” Ashmore said. “You’ll see more of that this year as production goes down.”

Still, local mortgage executives said they don’t foresee anything similar to the 2007-08 meltdown occurring among OC mortgage lenders.

“So much has changed in the industry since 2008,” said Obradovich, who worked that year at Countrywide Home Loans Inc. “Now, you don’t see the subprime and the abuses that went on.”

First Inning

One company that completely avoided the 2008 fiasco was loanDepot, which was founded in 2010 by Anthony Hsieh, who has a history of prior successful mortgage companies such as loandirect.com and HomeLoanCenter.com. LoanDepot has grown sales to more than $1 billion annually and has more than 6,000 employees.

Compared to other industries upended by technology, mortgage lending is considered archaic because of the paperwork and onerous regulations, caused in part by the 2008 collapse.

LoanDepot invested $80 million in its technology to create a system called mello that permits much of the requirements to be handled online. Hsieh said the industry has undergone great change in the past five years.

“I took my first loan application on a typewriter in 1985 and wore a pager,” Hsieh wrote on his LinkedIn page.

Loans for mortgages and personal finance “are at the bottom of the first inning in terms of change. Change is coming.”

Innovative and Attractive

While Quicken Loans has chosen a completely online approach, the OC firms are taking a hybrid approach by using both modern online websites and branch offices. For example, loanDepot has 180 local branches.

“The combination makes a lot of sense to people,” Stearns’ Schneider said. “There are people who want to access mortgages in different ways.”

Experts in the industry cited a variety of other reasons for OC’s prominence in mortgage lending.

For example, Impac examines the cash flows in bank statements for immigrant entrepreneurs rather than the standard lending demand for W-2 tax forms, Ashmore said.

“It’s a completely legitimate way to increase those underserved borrowers,” he said. “It expands your universe of borrowers. It’s just a loan with a different perspective.”

OC is rated as one of the best places to live in America, which helps loanDepot relocate people to its headquarters, said Kevin Tackaberry, the company’s chief of human resources.

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Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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