Former executives of the storied subprime lender Money Store are lending again - using the same brand name but a very different model.
MLD Mortgage Inc. quietly bought the handle from Wachovia Corp. two years ago. The Florham Park, N.J., lender was founded in 2001 by Morton Dear, who was the vice chairman and chief financial officer of Money Store, and his son Lawrence.
Unlike its namesake, which originated loans through a sprawling branch network, the new Money Store is lending entirely online and through a call center and mainly to prime borrowers. Though it advertises on television and in print, it is not paying up for celebrities like the baseball player Phil Rizzuto, who helped make Money Store a household name.
The old Money Store securitized its loans, but the new one simply sells them to other lenders, including Washington Mutual Inc., NetBank Inc., Flagstar Bancorp., Opteum Inc., and Thornburg Mortgage Inc.
"It really isn't about bringing back the Money Store," Morton Dear said in an interview last week. "It's a new concept. I don't think the old concept really would work in today's economy."
Alan Turtletaub, who founded the old Money Store in 1967, pioneered second mortgages for people who could not get a loan elsewhere. But today the subprime market is crowded with lenders, and Mr. Dear said that even consumers with low credit scores are better informed about the best rates.
"The customers are a lot more sophisticated today," he said.
"I don't know if there is more money" in prime lending, "but I think the marketplace has changed, and there are a lot more people who have excellent credit," Mr. Dear said.
The average FICO score for his lender's customers hover in the mid to high 700s, and it refuses to accept scores lower than 500. (The median FICO score in the United States is 723, according to myFICO.com.)
His lender's Web site takes a page from lead generators like IAC/InterActive Corp.'s LendingTree LLC. The consumer enters some basic personal information and the kind of loan they want, and the Money Store site provides rate quotes from up to three lenders.
"The mission of the Web site is to empower the borrower," said Phil Mancuso, an executive vice president at MLD Mortgage. "That begins by seeing the rate, getting offers, and printing discourses - all online. It gives them the power to control the process."
At one point the old Money Store had more than 170 branches nationwide, but the new one has only an office in Floral Park housing 60 employees.
It says the cost-effective operating model, and its close working ties with 50 lenders that buy its mortgages at bulk prices, allow the company to offer lower overall mortgage rates. Customers with good credit can get 5.75% on a 30-year fixed-rate mortgage with no fees or points, MLD Mortgage executives said.
(Last week Freddie Mac pegged the national average at 6.4%, plus 0.5% of points and other fees.)
The setup "probably allows us to work for a smaller gross profit than the rest of world," Mr. Dear said. However, the lender's "volume and being based in one office where we can maximize the use of our people" makes the model lucrative.
MLD Mortgage is owned by Lawrence Dear, who also worked at the old Money Store. The company would not disclose its financial results, except to say that volume doubled last year, when it began using the Money Store handle, and the year before.
In 1998, First Union Corp. bought the old Money Store for $2.1 billion of stock. Two years later the Charlotte company shut down the floundering unit. (First Union bought the old Wachovia in 2001 and took its name.)
Wachovia would not discuss why it sold the name, and neither side would say how much MLD Mortgage paid.
A call Tuesday to 1-800-LOAN-YES confirmed that Wachovia still has the number that Mr. Rizzuto and another baseball great, Jim Palmer, used to give in the Money Store ads.
Observers said that buying the name probably lowered MLD Mortgage's advertising expenses enormously, but that trying to use the familiarity of the Money Store name could prove troublesome.
"I think it could save tens of millions in advertising if it's going to be a national footprint," said Clayton Tolley, the president and chief executive of Addison Whitney Inc., a Charlotte branding consulting firm that worked for First Union before it bought the old Wachovia in 2001. However, "as they resurrect the brand and company, they need to make sure they distance themselves from the old brand."
Experts say the challenge will be transforming a brand that is already well recognized as a subprime lender into one for customers with good credit.
The brand "pushes more towards the Costco and Wal-Mart direction and not the Neiman Marcus" demographic, said Allan Schiffenbauer, the chief research officer at the Brand Consultancy in Washington.
"That could be a serious issue for them," he said. "It's often difficult to move in the direction from less upscale to more upscale."
David Olson of Wholesale Access Mortgage Research and Consulting Inc. in Columbia, Md., sounded even more skeptical.
Prime lending is "a very crowded niche" where "margins don't exist," Mr. Olson said. Also, there was "a big gap" between the time First Union shut down the old Money Store and the time MLD Mortgage bought the name, "so I suspect it's been lost in memory land," he said.
Though the old lender "dominated" the subprime market, "the big value was the name itself and all the millions it spent promoting it," Mr. Olson said. "Now they are going to have to build it all up again."
Morton Dear said that his company, currently licensed in 36 states, plans to be operating in all 50 by next year, and that it is prepared to embrace change.
"You have to keep up with the times," he said. "What works one day doesn't work the next day."
