American Residential Mortgage Corporation

American Residential Mortgage Corporation

11119 North Torrey Pines Road
La Jolla, California 92037-1009
U.S.A.
(619) 535-4900
Fax: (619) 535-4939

Wholly Owned Subsidiary of American Residential Holding Corporation
Incorporated: 1983 as ICA Mortgage Corporation
Employees: 1,300
Sales: $5.50 billion
Stock Exchanges: NASDAQ
SICs: 6162 Mortgage Bankers and Loan Correspondents

American Residential Mortgage Corporation, a wholly owned subsidiary of American Residential Holding Corporation, is one of the leading residential mortgage lenders and servicers in the United States. Founded in 1983, San Diego-based American Residential grew to more than 50 branches in 17 states and funded over 250,000 home loans by the end of its first decade.

American Residential began as the mortgage division of a large California savings and loan, the Imperial Savings Association (ISA). John M. Robbins, Jr., a ten-year veteran of the mortgage banking industry, was chosen to develop and serve as president of the subsidiary ICA Mortgage Corporation. The new division experienced significant growth in its first few years. By 1986, ICA Mortgage Corporation originated $4.2 billion in home loans, and although 1986 was considered a banner year for most mortgage companies, ICA Mortgage Corporation continued its impressive performance over the following years, with originations totaling $3.7 billion in 1988 and $3.2 billion in 1989.

During this time, however, new ownership of the mortgage corporation’s parent company brought new priorities, including a shift to high-yield, high-risk investments. Suddenly, the ICA Mortgage Corporation seemed out of place. In late 1987, ISA announced that it would sell the mortgage division to First Nationwide Bank, a San Francisco-based savings and loan that was part of the Ford Motor Company’s financial services division. The sale was finalized in 1987, and while the purchase price was not disclosed, it was estimated to be about $65 million. The following year, ICA Mortgage Corporation changed its name to American Residential Mortgage Corporation to avoid confusion with its former parent, ISA.

First Nationwide’s ownership of American Residential, however, was brief. In a 1991 interview in Mortgage Banking, Robbins recalled that First Nationwide offered American Residential a buyout opportunity in August 1989. First Nationwide wished to sell in order to focus on an internal mortgage operation and considered American Residential as representing a duplication of efforts.

About the same time, the New York investment firm of Welsh, Carson, Anderson, and Stowe began considering mortgage servicing as a potential investment. According to Janet Reilley Hewitt in Mortgage Banking, “Nothing in particular triggered the interest other than the turmoil in the thrift industry.” In addition, several partners at Welsh Carson had backgrounds in data processing and viewed mortgage servicing as a process that would allow them to increase their technology in this field. Thomas E. Mclnerney, general partner at Welsh Carson, noted in Mortgage Banking that American Residential’s firm commitment to technology as an essential part of the business, as demonstrated in a state-of-the-art computer system, was an appealing aspect of the company. In May 1990, the senior management of American Residential and Welsh Carson bought American Residential from First Nationwide for an undisclosed price. Welsh Carson became the majority investor, and Robbins remained as president and CEO. According to Mclnerney in Mortgage Banking, Robbins and his managers continued to run the company; for his part, Robbins reflected that becoming an owner “tends to make decision making more conservative.”

Following the buyout, American Residential faced some difficulties. First Nationwide had retained servicing rights to American Residential’s loans, and Robbins noted in the San Diego Business Journal that the payroll was sometimes hard to meet. Low interest rates helped American Residential by boosting business. More significant, however, was the ability of the management team, most of whom had been together since the early days as an ISA subsidiary, to move American Residential productively through yet another transformation.

In November 1990, American Residential successfully negotiated a warehouse line (a credit line to fund originations) from six of the nation’s largest banks. According to Mortgage Banking, American Residential faced quite a challenge: “In the midst of one of the worst credit crunches in recent history, in the midst of a significant housing slump, there probably could not have been a tougher time to be a new, independent, mortgage banking company looking for a warehouse line.” Despite these difficult circumstances, six banks, including The First National Bank of Chicago and The Bank of New York, established a credit line of $270 million to fund originations for American Residential.

After securing funds for originations, American Residential turned to establishing a servicing portfolio to replace the one it lost when it was sold by First Nationwide. In April of 1991, the corporation entered into an agreement to purchase loan servicing contracts for $3.4 billion in loans from Resolution Trust Corporation (RTC), the savings and loan liquidator. Ironically, the loan servicing contracts of came from ISA, then under RTC conservatorship. As part of the arrangement, American Residential received contracts as well as 175 employees. The deal was implemented in several phases, continuing into 1992.

American Residential also won a contract to assist with RTC auctions of properties from the real estate portfolios of failed savings and loans to prequalified, targeted low- to middle-income households. In competitive bidding drawing more than three thousand applicants, American Residential was one of only two companies selected for national contracts. The company provides a range of functions for customers, including aiding the loan application process, prequalifying buyers, analyzing property, and coordinating the closing. In addition, American Residential counsels prospective home buyers on a number of issues regarding home ownership, including types of loans, insurance, taxes, the qualifying process, and the importance of maintaining a good credit history. American Residential’s numerous regional branches enabled the corporation to provide staff in many of the cities in which auctions were held. Jim Gilcrest, executive vice president of American Residential, explained in the San Diego Daily Transcript that American Residential’s involvement in this program reflected a long standing philosophy of the company, that of promoting home ownership among a wide range of consumers: “This is an exciting program that links business practicality with social purpose. We’re proud to be part of a project team that will make the dream of homeownership a reality for thousands of Americans.”

The year 1992 was remarkable for American Residential. Originations totaled $5.5 billion, up from $2.9 billion in 1991, while the company expanded its service portfolio to $9.7 billion. In addition, net income was increased by 49 percent.

American Residential planned an initial public offering (IPO) of its stock in March of 1992. Because a number of other IPOs were on the market at that time, however, the corporation delayed its stock offering until August. The sale raised more than $37 million, which was used to expand the company’s mortgage origination capabilities and to acquire additional loan servicing portfolios. According to the company, nearly every employee of American Residential owned stock in 1992.

American Residential Mortgage Corporation, which sold additional shares of stock in early 1993, was poised to continue its growth through the 1990s, demonstrating several strengths. Having numerous offices across the country allowed American Residential to withstand regional slumps. Robbins was regarded as an innovative leader who spearheaded the idea for private ownership. And the management team, whose style and strategies have been praised in Mortgage Banking, have clearly weathered difficult changes in the past and seem ready to face challenges in the future.

Further Reading

American Residential Holding Corporation Annual Report, La Jolla, CA: American Residential Holding Corporation, 1992.

Bogan, Christopher, and John Robbins, “Steal This Idea,” Mortgage Banking, December 1992, pp. 55–61.

” ‘Corporate Profiles’: American Residential.” San Diego Daily Transcript, January 11, 1993, p. C9.

Hewitt, Jane Reilley, “A New Venture,” Mortgage Banking, May 1991, pp. 10–18.

Hock, Sandy, “American Residential to Buy Imperial Mortgage Services.” San Diego Business Journal, May 6, 1991, 4; “Robbins Helps Mortgage Company Rise from the Ashes.” San Diego Business Journal, August 19, 1991, p. 10; “American Residential Completes Second Phase of RTC Purchases,” San Diego Business Journal, December 9, 1991, p. 14; “American Residential Postpones Its IPO: Launch Depends on Market.” San Diego Business Journal, May 18, 1992, p. 3.

“La Jolla Firm to Underwrite Loans for RTC-Auctioned Homes.” San Diego Daily Transcript, January 22, 1992, p. Bl.

—Michelle L. McClellan