COMPANY OF THE YEAR (100 or more employees)
• Founded in 1999.
• A full-service mortgage lender.
• Handled about $1.4 billion in loans each of the past two years.
• Has recovered from the 2007 mortgage crisis and is now expanding.
In 1997, Baton Rouge-based subprime lender United Companies Financial Corp. was riding high, with more than 3,000 employees nationwide. The total value of the company’s home loans surged to a reported $1.5 billion.
By 1999, the secondary market for such loans had dried up, and United found itself, along with several other companies in its sector, filing for bankruptcy. Former employees like Terrell “Tee” Brown Jr. were left licking “significant wounds,” he says.
But Brown, his father, former United Companies CEO Terrell Brown Sr., and three other principals (all former United Companies employees) quickly regrouped and formed GMFS. The latter company opened its doors about 60 days after the older company filed for bankruptcy and about 30 days after everyone who worked there was let go, the younger Brown recalls.
Some of the new company’s revenue came from the retail side of its business: that is, from loans it made to consumers. But mostly, it was a wholesaler, purchasing and repackaging subprime loans from banks, brokers and mortgage companies. GMFS worked with aggregators that would buy its loans in bulk, then repackage them once again for the securities market.
“Everything was sold out completely,” Brown says. “We were kind of the middleman in the process.”
That business model worked pretty well for a while. GMFS grew from 24 employees at the beginning in 1999 to 165 employees entering 2007. And then, the financial crisis arrived, and the world turned upside down once again.
“We saw the market really pull back,” he says. “The opportunity to be able to do subprime—to be able to do wholesale business for the product we were vending—vanished.”
Suddenly, GMFS was stuck with a bunch of loans it had funded that were rapidly losing value. More than 100 employees were laid off, but the story didn’t end there.
“We began the process of reinventing ourselves,” Brown says.
With help from Waterfall Asset Management, a New York City hedge fund, the company recapitalized in March 2008 and adopted a new principle: No more nonconforming subprime loans. The new direction first manifested itself in a greater focus on the retail side, before wholesale opportunities started to open up again in 2009.
Of course, GMFS still sells the loans that it makes: these days, directly to government-sponsored enterprises like Fannie Mae. But, in a relatively new wrinkle to its model, the company retains servicing rights to loans it sells, providing a residual income stream even after it no longer has a loan on its books.
“We maintain that relationship with that customer,” Brown says. “The customer is making payments to GMFS, and we have them throughout that whole process. If they have any problems, they can call us, and they don’t have to deal with a third party.” GMFS also provides “private label” mortgage services for banks too small to do it themselves.
As someone who twice has seen radical changes in the mortgage market—and dealt with the fallout—Brown says the pendulum has swung back from the easy money of the mid-2000s. With the recent federal Dodd-Frank reforms, lenders at least have a definition for what constitutes a “qualified mortgage”, even if they’re not always thrilled with the new rules.
“I think we’ve learned a lot,” he says. “I think were better as an industry.”
Recent efforts to “end Fannie and Freddie as we know them,” as President Barack Obama put it last summer, are unlikely to go anywhere in a congressional election year, Brown predicts. But as those agencies pull back, GMFS is looking for new opportunities to provide “non-agency product” to credit-worthy borrowers.
GMFS now employs about 225 people, and handled about $1.4 billion in loan volume each of the past two years. Brown expects to grow by 15% or more this year by expanding into new markets.
While most of its revenue comes from Louisiana, Alabama, Arkansas, Georgia, Mississippi and Tennessee, in recent months GMFS has expanded into Illinois, Indiana, Oklahoma, Texas, Utah, California and Florida. As other mortgage companies pull back, GMFS is snapping up talent that it hopes will carry it into next year and beyond.
“This business is all about people,” Brown says. “If you get the right people, you can do really well.”