A month shy of its 10th birthday, Darien Rowayton Bank in Darien, Conn., is ready to take its next big step — and once again demonstrate a creativity that more timid, growth-starved banks could learn from.
The $588 million-asset company already operates a nationwide line of business refinancing student loans. Now it is aiming at mortgages. "We've got some pretty interesting ideas about where we're going to take the business," President Robert Kettenmann said in an interview.
Earlier this month Darien Rowayton, which markets itself as DRB, tabbed Santa Clara, Calif.-based Tavant Technologies to build it a paperless, online mortgage origination platform.
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A leading alternative lender has admitted that balance sheets and liquidity matter, and that it is a problem that such lenders need to keep growing lending volumes to prosper.
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Cordia Bancorp recently sold its student lending platform due to concerns about loan concentrations. In doing so, the Virginia company provided another example of why it is difficult for smaller institutions to gain traction in marketplace lending.
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Darien Rowayton Bank used funds from a 2010 recapitalization to start refinancing student loans in a move that, so far, has been lucrative for the institution.
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By broadening its product set, DRB is venturing down a path already traveled by the marketplace lender Social Finance, which offers mortgages and personal loans in addition to its flagship business consolidating student debt. SoFi, which turns five years old this summer, announced in December that it had surpassed $6 billion in total funded loans.
DRB obviously is hoping for a similar level of success. To that end the mortgage site it has in mind is one that can compete with online lenders like Quicken or money-center giants like Wells Fargo, featuring a mobile-friendly, virtually paperless process that combines ease of use with quick turnaround times.
"We're building a brand new mortgage platform to take an experience that's cumbersome and confusing for many borrowers — qualifying for a mortgage and getting to closing — and making it user-friendly and transparent," Kettenmann said.
Though the process is online, it will offer users ready access to personal support via phone or online chats, he added.
The company does not rule out marketing mortgages to the general public — eventually. For now, though, it is setting its sights on its expanding pool of student loan customers.
"We're starting day one with 12,000 qualified customers," Kettenmann said in a recent interview. "That ought to keep us busy for a while. … The way we view it, we set out to solve one problem. A group of customers have benefited tremendously by having their loans consolidated. Home mortgages are the next big step."
A big move to be sure, but at the same time a natural one according to Stephen Dash, founder and chief executive of Credible, a multilender marketplace that focuses on providing student loan options to borrowers.
Credible's market research indicates student-loan borrowers are interested in additional financial services, particularly loans, Dash said in an interview.
"Building an enduring relationship with a customer should be one thing every bank CEO is thinking about, and these customers are really attractive," Dash said. "They're college-educated and likely to be profitable going forward."
Deepening customer relationships is central to DRB's strategy, according to Gary Lieberman, chairman and majority shareholder of Alcar LLC, DRB's holding company. "While DRB started with a national student lending platform, we view mortgages as the next step in our vision of building out a complete set of financial solutions for our customers throughout their lives," Lieberman said in a recent press release.
There is no guarantee of success. Mortgage production and fees have had their ups and downs since the crisis, and even DRB's student lending business — the cornerstone of its cross-selling plans — faces potential pitfalls.
Along with Citizens Financial Group in Providence, R.I., DRB is one of a handful of banks that refinance student debt on a large scale. That number did include the $349 million-asset Cordia Bancorp in Midlothian, Va., but Cordia
Zoeller told American Banker that Cordia's decision to spin off CordiaGrad was due in large part to concerns about loan concentration. Indeed, in the months leading up to the sale, it tapped the brakes on its student lending. The total number of student loans on its books fell 17% last year to $53.8 million. Student loans made up 22% of Cordia's total loans at Dec. 31, compared with 30% a year earlier.
Concentration is a concern for DRB as well, Kettenmann said, noting that "there's a limit to how many [student loans] we can hold onto at one time." The company declined to say how many student loans it originates. Its call report said that at Dec. 31 it had $253.7 million in loans to individuals, a category that includes student loans.
DRB manages the issue by selling loans. DRB announced its fifth securitization of $188 million of refinanced student loans on Feb. 29. Two months earlier, the bank sold a tranche of loans totaling $333 million. To date, DRB has securitized about $1.4 billion of "high-quality" loans. "We feel we can keep up that pace," Kettenmann added.
DRB opened its doors April 24, 2006, as a traditional community bank. Like scores of community banks, it struggled during the financial meltdown, losing nearly $17 million through 2011. The company got a second lease on life in 2010, when a group led by Lieberman recapitalized it with $10.5 million.
