After scrapping its conventional mortgage business, WMC Mortgage Corp. - recast as an internet-only lender - is set to tap the asset-backed market next quarter with a $300 million to $400 million deal backed by online-originated, subprime home-equity loans.
"Being an online lender is going to cut our cost so much that securitization all of a sudden becomes a much more attractive alternative to us," said Scott McAfee, president of WMC.
Though the pending transaction is still in the preliminary stages, WMC is currently talking with Bear, Stearns & Co. as a potential manager, McAfee said.
WMC has done six asset-backed deals since 1997; however, as McAfee explained, the company was mostly closing whole-loan deals last year, and only came to market once.
"We really stopped doing deals last year because we wanted to be cash-positive," said McAfee. "The products were changing so much [since the liquidity crisis of 1998], that we didn't know where the performance of these loans were shaping up, so we didn't want the residuals."
However, with the new product line, WMC is confident and eager to hit the securitization market again.
McAfee argues that loans originated through the WMC's online system are better quality than those originated through traditional methods.
"There's so much less room for human error," McAfee said. "With our automated underwriting system, we underwrite each and every loan, so we know exactly what we've got credit-wise. There are no exceptions. They're underwritten exactly to our guidelines, and we have a much, much higher degree of precision over the level of product we're creating."
Also part of the new system, WMC has entered into a joint venture with Fairbanks Capital Corp., where Fairbanks will act as the servicer for the loans. McAfee says the venture will further help the quality of the portfolio.
"We wanted to get the best servicer servicing our loans, and we researched and found that Fairbanks was rated the best subprime servicer," he said.
WMC first began structuring its online business in 1998, and in the last nine months, has originated more than $1 billion in loans electronically.
"We're not sitting here telling the world we've got a business plan, and that we're going to get rich," he said. "This is actually working technology. We've signed almost 3,500 brokers on already, and we've taken loans in from 2,500 brokers already - so this is working, and we're the first company that's actually changing the way that the whole [business-to -business] mortgage business is being done."