| Raising Capital for a Mortgage Operation
How to Rescue Your Bottom Line — Capital! April 12, 2004 By NEIL J. MORSE |
| Driven by the desire to grow their businesses or eliminate yield spread premium disclosures on closing statements, many mortgage business owners are considering ways to acquire capital. It is a seductive notion, but those wizened by the experience caution anyone seeking capital to look carefully before they leap.
“Only seek capital when you absolutely have to because it is expensive and time consuming,” recommended Scott Reading, president, USGlobal Financial, San Bernadino, Calif., speaking at the Annual Conference of the National Home Equity Mortgage Association meeting in Boca Raton, Fla. this month. In a discussion entitled How to Rescue Your Bottom Line — Capital!, Reading and colleague Kevin Rost, vice president, warehouse sales, PCFS Mortgage Resources, Cincinnati, Ohio, addressed the practical issues of raising money. Prior to searching for funds, “make a thorough analysis of what you will do with that capital,” advised Reading, who said financial backing is raised three ways: through debt, through equity exchange and via a merger or acquisition. “Have a very specific plan,” he declared, “because investors will expect to see it.” Reading said fund raisers must realize they will give up a lot when bringing in additional capital. So, “be certain that before embarking on that course you’ve calculated the cost.” Prompted by panel moderator Jerry Barron, executive vice president, PCFS Mortgage Resources, Cincinnati, Ohio, the pair spelled out in detail the most important considerations in seeking financing. “Don’t place revenue above quality,” said Rost, adding: “that’s an easy mistake to make and one that will come back to hit you hard.” Rost offered some words of advice to brokers intent on becoming bankers with acquisition of a warehouse line of credit. “If you’re only trying to avoid the yield-spread premium,” he said, “you’re missing the big picture.” What should be on the minds of brokers looking to move up this way, said Rost, is “raising the level of service and quality, or achieving a competitive advantage.” On the topic of mergers and acquisitions, Scott Reading said, “you really want [to be connecting to] a company that adds value to your existing operations without destroying the identity and personality of your company.” Sounds good, but according to Reading, “it’s hard to find.” Company leaders seeking to attract investors must beware that these investors “have a tendency to want to run your business — if you’re not careful,” Reading warned. In the end, he told mortgage professionals in the audience, “remember that this is not an industry that’s well understood. So make sure you explain it well to potential investors.” |
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Neil J. Morse is a communications consultant and independent writer working exclusively in the mortgage finance industry. He resides in Newtown, Conn. and may be reached by e-mail at:Â morse@ntplx.net |
