by Sean McManus
When Ann Mackey and Philip Laren were processing loans a few years ago at HomeSide Lending, the $180 billion servicer of mortgage loans, something caught their eye.
Loans that had a servicing component which was different from the rest, like a prepayment fee or an unusual payment schedule, weren’t fitting into HomeSide’s standard computer matrix and were therefore, to a company that big, undesirable.
“That cut out a lot of the market,” said Mackey from her office inside the Technology Enterprise Center on the Southside. “What we want to do is gather up the little guys that may be more complicated to service and make that our niche.”
Two years ago, Mackey and Laren left HomeSide and started a company called 1st Palm Financial. Designed to service smaller packages of loans and thereby offer better customer service than the big guys, it took only a little over a year before 1st Palm was profitable.
Loans from banks come into huge servicing firms like HomeSide in bundles of thousands of loans. Then the servicing firms (Countrywide and Chase Mortgage are others in addition to HomeSide) extract small sums from each loan which combined equal big profits. The details of the loan are promptly plugged into computers that analyze such factors as credit history and frequency of loan applications to determine interest rates, payment schedules and collection. But this method, while fine for megafirms processing thousands of loans a day, lets potentially lucrative clients with alternative borrowing habits fall by the wayside.
So part of modern mortgage loan theory is to develop systems that judge loans based on a variety of new criteria — not just payment history.
A company like 1st Palm capitalizes on that kind of flexibility. It has purchased off-the-shelf technology that processes loans with a variety of extraneous features and then customer service representatives follow the loan through its lifecycle. 1st Palm can allocate the time and resources for that kind of service because they’re not servicing bundles of thousands of loans, they’re servicing bundles of maybe 30 or 40.
“It’s not really the size of the loan we’re worried about,” said Laren, who specialized in portfolio valuations, acquisitions and risk management prior to co-founding 1st Palm. “We want to find smaller packages of loans that need greater service.”
Now, that better service will come at a slightly higher price. But Mackey and Laren are hoping that the convenience of banks, brokers and huge mortgage lenders like Freddie Mac and Fannie Mae, who need a company to process smaller packages, will attract plenty of business. Freddie Mac was 1st Palm’s first client.
“Most of our clients will be mid-tier investment banks who represent community banks with less overall numbers of loans,” said Laren.
1st Palm will actually originate some loans, but mostly for existing clients. They are touting their website as a place where existing borrowers can get information not only on the status of their loan, but when taxes and insurance were paid. And it will be a place for investor information.
By servicing loans with quirky features, 1st Palm knows that empowering employees to make decisions on their own is the only way to move projects through the pipeline. Currently at 14 employees, they are hiring experienced managers who can make their own decisions on how best to deal with clients and their loans.
1st Palm is in the evolutionary stage of a small company where time constraints impact decisions about whether to raise more money or concentrate of growing the business internally.
“We’ll try to do both,” said Laren. “And eventually we’ll get there.”