Stearns Lending Inc.
Where: Santa Ana
12-month sales: $93 million
Two-year growth: 614%
OC workers: 226
Business: mortgage lender
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Santa Ana’s Stearns Lending Inc. not only survived the mortgage meltdown, it’s growing.
The company ranked No. 7 on the Business Journal’s 2009 list of fast-growing private companies with sales growth of 614% for the two years through June 30, according to Business Journal estimates.
Stearns Lending had estimated revenue of $93 million for the 12 months through June, up from $13 million for the same period in 2007.
The company funds mortgages brought to it by brokers and then sells the mortgages to investors. These days, buyers mostly are government-backed Freddie Mac and Fannie Mae.
Stearns Lending has been funding and selling about $500 million in loans a month, up from $150 million a month a year ago, according to founder and Chairman Glenn Stearns.
Low interest rates and refinancing have driven growth this year. The company’s also expanding with new offices across the country as it picks up teams of brokers from fallen rivals.
Of course, the mortgage market is nothing like it was a few years ago, when companies pushed the limits of complicated loans to risky borrowers.
A move out of riskier loans kept Stearns Lending from falling by the wayside like many onetime rivals, Stearns said.
Search YouTube.com and a company video with scenes from a 2005 episode of KOCE-TV’s “Real Orange” comes up with Stearns warning about risky loans and a looming burst of the bubble.
Others on the show’s panel scoffed.
Stearns downplays the foresight by giving credit for the advice to some high-profile friends.
In 2007, George Argyros, chief executive of Costa Mesa-based Arnel & Affiliates, and Paul Folino, executive chairman of Emulex Corp. in Costa Mesa, told him the industry’s boom was ending.
“I’m lucky to have taken the advice of smart people,” Stearns said.
Switching to conservative loans was tough but proved critical as others still were “gobbling up all the loans they could get their hands on,” even those to risky borrowers, he said.
Stearns didn’t come through unscathed.
About three quarters of his loans were “designer”—or to borrowers with interest rates that reset to higher, unaffordable levels after a few years.
In 2007, as the mortgage market began to crash, buyers of Steams’ loans asked him to buy back tens of millions of dollars worth of mortgages when they feared they might go bad, he said.
“Investors began changing the guidelines,” Stearns said.
That year, Stearns Lending lost $6 million as about 2% of its loans went bad, he said. About 200 workers were let go.
The only upside: Things were far worse for competitors.
Rivals SCME Mortgage Bankers Inc. of San Diego, First Magnus Financial Corp. in Arizona and Secured Bankers Mortgage Co. in Los Angeles went out of business.
Stearns Lending was in good enough shape that by late 2007 it opened five offices with 150 former workers from SCME Mortgage Bankers.
“I told the company’s management to keep them there,” Stearns said. “I knew I could expand with them.”
Hiring teams of underwriters and salespeople from competitors is a key part of Stearns’ growth strategy.
In 2008 it opened two offices. This year it’s opened seven.
The company hopes to double in the next three months with an acquisition of four offices.
One of its requirements is that the acquired teams have worked together for more than eight years, Stearns said.
“There has never been so much opportunity in mortgage banking as there is today,” he said. “We have been able to fill a void that has been left wide open.”
The 20-year old company now employs more than 200 people locally and more than 500 at all its offices.
It has offices in 28 states. California makes up 70% of the business.
Stearns Lending used to sell loans to Bear Stearns Cos. and Washington Mutual Inc.—both now part of JPMorgan Chase & Co.—as well as Morgan Stanley, Citigroup Inc., Wells Fargo & Co. and Bank of America Corp.
But these days the big investment banks that now dominate mortgage lending are focused on their own operations and aren’t buying loans from Stearns.
That’s left Stearns to focus on “conforming loans” that meet guidelines set by Fannie Mae and Freddie Mac.
About a third of loans are made under the Federal Housing Authority’s mortgage insurance program for poorer borrowers.
The risk for Stearns is that the funding he uses to bankroll loans might dry up as credit concerns persist.
His prime sources of funding come from Bank of America, National City Bank, part of PNC Financial Services Group Inc. in Pittsburgh, and Detroit’s GMAC LLC, part of General Motors Corp.
“They would make anyone nervous,” he said. “But they’ve actually offered more money, so things seem good.”
Stearns, who lives in Newport Beach, grew up poor in Washington, D.C.
At the age of 14 he fathered a daughter, whom he saw raised by his grandparents. She now runs one of his companies.
Never a strong student, Stearns failed fourth grade and graduated as a C student from Towson State University, just outside Baltimore.
In 1988 he moved to California where he worked as a waiter before getting his lending license.
After working in sales he set out on his own to start First Pacific Financial in 1989.
The company focused on escrow services and consumer loans and then branched out to handle work with the Housing and Urban Development Department.
In the 1993, he started Carriage Escrow, which now is the largest settlement company in the country for HUD.
He also started United Housing Services, an FHA auditing company. He works with credit unions through his CU Partners, a division of Stearns Lending.
Other companies include Carriage Abstract, Desertwide Mortgage and Chief Management.
His wife Mindy Burbano Stearns made her mark after doing birdcalls on “Oprah” and went on to do entertainment reporting for KTLA.
Stearns gained some fame for his stint alongside Mindy in the reality show “The Real Gilligan’s Island.” He played the part of the millionaire, and he ended up winning $250,000, which he gave to charity.
