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Loan Servicer Leverages Growth in Alt Lending

When David Johnson was searching for something to rescue him from the doldrums of retirement in 2008, he honed in on First Associates Loan Servicing LLC.

First Associates was a loan servicer working exclusively on mobile home loans, processing monthly billing statements, remitting payments back to lenders and following up on delinquencies. Johnson, a former McKinsey & Co. and Bain & Co. consultant, said he was looking to supercharge a company surrounded by backwards-looking peers.

“The industry was filled with legacy competitors offering a commodity-like service,” Johnson said.

Even though First Associates was small, managing about $30 million worth of loans, Johnson was attracted to the qualities that helped it succeed working with mobile home buyers, who tend to be subprime and often times have difficulty understanding their financial obligations, he said. First Associate excelled at educating consumers and coaching them through a decades-long relationship, according to Johnson.

“That was a core asset we were buying,” said Johnson, who is now the First Associates’ CEO. “But like all competitors, it was using the best technology 1992 had to offer. We more or less put it up on blocks.”

Consumer Lending

Since Johnson’s purchase, First Associates has expanded to most loan industries, with the exception of mortgages and credit card debt, and now services $9 billion worth of loans.

The company focuses on consumer finance and fintech loans, the alternative, online-based products that have sprouted since the recession, and it was one of the first services to get into consumer marketplace lending. David Piotrowski, managing director of Waterford Capital, has worked with First Associates several times, including on one of the first marketplace lending deals when Eaglewood Capital Management agreed to buy loans from Lending Club in 2011.

“Their business has clearly taken off,” Piotrowski said. “I see them in more deals than I see any other servicer in the consumer finance space.”

Mortgages and credit card debt servicing have stricter regulatory hurdles dictating what servicers can say to borrowers, Johnson said, and the sectors are not growing as quickly as marketplace lending.

Private Label Service

First Associates acts as a private label service for most of its customers, which means a negative experience with First Associates staff could ruin a borrower’s relationship with the actual lender.

“Your servicer has to act as the face of your company with customers,” Argon Credit CEO Raviv Wolfe said. “We spend a lot to originate customers, so they have to be good stewards of the brand.”

Argon issues unsecured consumer installment loans through an online platform and uses First Associates as its primary servicer. That stewardship helps lenders keep default rates down, Wolf said, because borrowers are more likely to pay back loans after a positive experience.

“Thinking that servicing is a commodity was proven false during the mortgage meltdown,” Wolfe said. “A bad servicer can put you out of business because your margins are all based upon predicted losses and recovery rates.”

Johnson said his goal is to eliminate any barriers that could stop a borrower from paying on time, including communicating in the medium most likely to get a response: texts for online-savvy marketplace lenders, for example, or letters for customers taking out loans for residential solar panels. He added that the company’s experience in subprime mobile home loans has helped it approach those most likely to skip a payment.

“When working with someone who is delinquent, they may have eight bills and can only pay five,” Johnson said. “We need to sell ourselves into the top five. You can’t be mean or nasty, and you need to make it easy for them to pay.”

First Associates Loan Servicing LLC

CEO: David Johnson

Revenue: Undisclosed

No. of local employees: 110

Headquarters: San Diego

Year founded: 1986

Company description: A loan servicer that’s changed under new ownership from a mobile home loan specialist to a broad-based company with a focus on the fintech industry and consumer finance.

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