Overcoming Obstacles: Company Changes Its Model By JACQUELINE FOX Staff Reporter Every business has a “road not taken story” to tell. Some end badly. Others, such as that of Woodland Hills-based WMC Mortgage Corp., come with an epilogue to die for. In late 1999, just as the company was preparing to open roughly 80 new brick-and-mortar storefronts, the bottom was falling out of the market for sub-prime lenders and, like its colleagues in the mortgage industry, WMC was struggling to turn a profit. Monthly loan volume had plummeted and limited reserves rendered the company’s expansion plans a financial impossibility. So instead of beefing up their presence on the street, WMC took another path and, in a risky move that many in the industry are still reeling over including WMC executives the company did the unthinkable. It shuttered all 38 of its offices in 2000 and focused on expanding its fledgling on-line operation, becoming the first wholesale business to business lender in the industry to be completely Internet-based. All this, as the bottom was also about to fall out of the dot-com industry. WMC’s brick-to-click transition cost roughly $20 million and, despite rumors to the contrary, did not happen overnight. Revenues did not immediately start pouring back in, but eventually, and after several back-to-the-drawing-room adventures, the new business model took root. WMC’s story has since proved to become one of the best recovery tales in the industry, earning the company a laundry list of acknowledgements including the Business Journal’s Best Company Turnaround award. To put it into perspective, in May of 2000, WMC did $17 million in loan volume. For the same month in 2003, loan volume was $547 million. “When all this process started in early 2000 to change to an Internet-based company, none of our plans envisioned us being where we are now,” said James Walker, WMC’s chief technology officer, who, along with the company’s chairman and former Chief Executive Officer, Scott McAfee, was responsible for leading the transition. “We simply had the goal of getting back to where we were in 1999.” The closures and a 66 percent reduction in staffing allowed the company to begin boosting earnings. Pre-tax income in 2001 was $0.3 million. That figure rose to $72.0 million in 2002 and is said to be on track to hit $19.4 million this year. Today, WMCDirect, the company’s online wholesale channel, provides a direct link to brokers who can access the site to check on every aspect of their transaction from application to funding. Loan volume skyrockets Since its launch, WMC has processed more than $19 billion in online loan submissions and serves more than 14,000 brokers and loan officers. Loan volume for 2001 was $1.3 billion. That figured quadrupled in 2002 to $4.2 billion. “I think the people at WMC made a pretty bold decision in 1999,” said Warren Myer, chief operating officer of San Jose-based Myers Internet Inc., which designs and hosts Web sites for mortgage brokers and is a WMC partner. “Their revenues actually dropped after they decided to go on line and most companies they served considered the move too risky and didn’t want to join them. But we are very impressed with their performance. We think what they have done is come up with a way that has managed to provide brokers with a better way to do business on line.” With the sub-prime markets not only back to normal but flourishing amid record-low interest rates, Myer says WMC is poised to take advantage of a sector of the mortgage banking industry that has yet to come close to peaking. “We are finding that brokers are going on line in a pretty strong fashion,” said Myer. “That’s primarily because consumers are going on line and brokers are being forced to follow suit. I would say that 20 to 30 percent of the more savvy brokers are going on line and they are seeing their businesses and territories expand. So I would say we see the trend continuing.” That bodes well for WMC’s plans to take that expansion path it bypassed in 1999. According to Executive Vice President and Chief Financial Officer David Trzcinski, the company is eyeing new markets. “Things are definitely working out,” said Trzcinski. “And I would say that, with or without a strong housing market, we have plenty of room for growth and we see many opportunities for expansion into new markets going forward.”
