Turmoil in the lending industry resulting in fewer originations has led to the closure of a national vendor management company.<?XML:NAMESPACE PREFIX = O />
Express Financial Services, based in <?XML:NAMESPACE PREFIX = ST1 />Pittsburgh, officially closed its doors Sept. 17. Sources close to the company confirmed the closing.
The death blow may have come about six months ago when EFS lost Countrywide as one of its clients when the lender chose to work with four VMCs on a national level instead of several.
Also taking a toll on EFS was the fallout in the subprime market. EFS had several branch offices serving local markets that relied on brokerage customers for orders. EFS’ customer base dried up as the brokers focused on subprime loans closed shop.
Observers are also surprised EFS was not sold before shutting down. The company still has many attractive assets, including its Magellan vendor management system and several experienced executives.
The news came as a shock to industry veterans across the nation. Several clients of EFS indicated they knew nothing about the closure, but said with several lenders going out of business the ripple effects were bound to hit the settlement services industry — although you would never expect a back-end service provider to close up shop.
Founded and established by Richard Fuchs in 1985, EFS enjoyed more than 20 years as one of the leading title insurance, valuation and settlement service providers in the nation, offering mortgage lenders and brokers one-stop shopping for mortgage information needs. What made EFS unique in the vendor management arena was its diverse business lines, the company said, appealing to large regional and national lenders with its centralized lending platform, National Service Center (NSC), and its network of regional branch offices (decentralized platform) that serve smaller clients with a "higher local touch," including regional loan processing centers, mortgage bankers and mortgage brokers. This diversified client base and workflow demands posed the greatest challenge for the company in its technology overhaul.
Since its inception in 1996, the NSC built a reputation for providing personalized services with associates supported by industry-leading mortgage technology. EFS offered appraisal and valuation products for originators and serves as an agent for title insurance companies such as First American Title Insurance Co. and Stewart Title Guaranty.
Key highlights Fuchs launched EFS in order to offer settlement services, starting with a core staff of five. His company grew to about 500 employees, including eight in-house attorneys.
Originally starting with appraisal services only, Fuchs saw the opportunity to quickly fill a void in the then-primarily untapped market of true settlement services.
"I felt that, as an appraisal firm, we were somewhat one-dimensional, and looked to create a stronger bond for that client," Fuchs said in an interview in 2005. "If we could offer real estate title insurance products, along with settlement services, we would really become the first true vendor management company to offer settlement services in the closing arena."
"In the early stages, we created a foundation for the company to service lenders who closed a lot of their own loans," Fuchs said. "The approach we took early on was one that others followed.
"We don't talk about it much, but we were truly the pioneers in offering real estate closing services," he said. "Other companies at that time just provided the appraisal piece, or a property report or a title report. The closing wasn't anything that anybody offered.
"Unlike most vendor management companies, we were not operating from a centralized platform," Fuchs said. "We had strong brick-and-mortar operations in our local branches, servicing a large geographical setting."
VMC a dying dinosaur?
EFS’ closure leaves only about four privately owned VMCs with revenue approaching near or more than $50 million in the market. Those include Pittsburgh-based National Real Estate Information; ESS, located in Long Island, N.Y.; Data Search, of Baltimore; and Mortgage Information Services, in Cleveland.
The large, national players in the vendor management space have continued to disappear from the market the past couple of years. On Aug. 13, Fidelity National Financial finalized a deal to purchase ATM Holdings. Founded by Fran Azur, ATM has been one of the nation’s most successful VMCs, re-inventing itself over the years to take advantage of market changes. Azur smartly expanded the traditional VMC model into consulting and technology and became one of the first in the business to build large scale VMC operations for some of the country’s biggest mortgage originators. While specifics of the deal were not announced, sources said it was valued around $100 million.
Fidelity was one of the first underwriters to make an investment in a major VMC. In 2003, it snared Pittsburgh-based Lenders Service Inc., which in 2002 produced revenue exceeding $155 million.
KeyCorp announced July 11 it entered into a definitive agreement to sell a 50.1 percent stake in SecoLink Settlement Services, a wholly owned subsidiary of KeyBank National Association, to The First American Corp.
Analysts believe the train has probably left the station for getting premium prices for any VMC property going forward. Most VMCs are reeling from a loss of market share from AfBAs, home equity lenders and now subprime customers.
Mortgage Information was dealt a serious blow to revenues when their largest customer, Ameriquest Mortgage, got in trouble during 2006. And growth prospects are slim based on what customers are left in the market.
The most attractive VMC properties left would likely be National, which is somewhat unique because it has followed the ATM model to a large extent, and has a few major AfBAs it is managing, including a partnership with HSBC.
Trouble all around
Because of the lending turmoil, the large underwriters have laid off thousands of employees since the beginning of the year. The First American Corp. will have reduced personnel by approximately 1,900 through the third quarter. Fidelity National Financial started with roughly 12,400 employees in the title field, but ended the second quarter with less than 11,900 employees — a reduction of more than 500, or 4 percent of its workforce. LandAmerica Financial Group Inc. said it was eliminating 1,100 jobs, or approximately 13 percent of the company's residential and lender services groups and related functions as of June 30, during the second half of 2007. Stewart Information Services reduced its employee headcount in its title division by about 540, or 5.5 percent from the beginning of this year. |