Finance America LLC, the three-month-old child of Lehman Brothers and Amresco Inc., is planning a late first quarter securitization in line with a new, quality-oriented regimen, said Peter J. Levasseur, president and chief operating officer of Finance America.
"[Our deals] won't be as large, generally - certainly not in the first few years - because we are not going to do any bulk acquisitions or purchases of whole loans," said Levasseur. "All loans will be originated through our own wholesale and retail distribution channels, and obviously each loan will be underwritten individually."
Currently, officials at Finance America are still gathering the necessary licenses in the states where they plan to do business. Though Amresco's origination operation will be transferred to Finance America, the company is a "completely separate, independent company," said Levasseur.
"Basically, we're starting from scratch," said Levasseur. "We've been actively revamping our entire process, our entire origination operation, including our whole quality-control process, and our appraisal process."
The first few deals will likely be between $300 million and $400 million, said a source familiar with the company. That is consistent with Levasseur's contention that Finance America's deals will be smaller than some of Amresco's past securitizations.
Partial owner Lehman Brothers will be lead manager on the securitizations, with co-managers picked up as the deals move toward execution.
"This Lehman relationship gives us the opportunity to have Finance America become one of the top tier issuers and names out there, so that investors look forward to us when we come to market," said Jan Cott, senior vice president of capital markets at Finance America. "The top tier is not necessarily volume and size, but quality and consistency."
Finance America is currently working on some new products to improve quality on both the structure and origination side of securitization. They've recently introduced a structure they've dubbed "5/25 ARM (adjustable rate mortgages)," which is basically a five-year fixed bond, rolling into six-month Libor.
"Because all these loans will have five-year prepay penalties, they will have better performance," said Levasseur. "We expect that from a credit perspective, they will behave more like fixed rate loans which generally have better credit characteristics and credit performance."
Also on the slate is a 95% loan-to-value product, aimed at higher credit-quality borrowers.
Working to enhance origination, Finance America is replacing the retail branch with high technology lending. "So we're going to be doing the retail lending but will be doing it without the bricks and mortar," said Levasseur, who explained that while sales people will still be involved, the company will cut the costs of operating customer branches.
Though the sale of Amresco Inc. to Sydney-based Lend Lease Corp. is still in negotiation, the effects on Finance America will be minimal. "[The formation of Finance America] is complete," said Levasseur. "Whatever happens with Lend Lease is completely independent of Finance America."