Carla Rayacich saw the writing on the wall: The message was clear but wasn't good.
If the largest mortgage brokers were filing for bankruptcy, how could her stand-alone business survive? After 14 years as president, founder and owner of Stanford Mortgage in Palo Alto, Rayacich decided to seek a partner.
On Sept. 10, Stanford Mortgage will merge with Guarantee Mortgage - Menlo Park, an individually owned branch of Guarantee Mortgage Corporation, which is headquartered in Larkspur and operates in five Western states. Begun in 2001, the parent company now has 19 operating offices and more than $2 billion in annual business.
"Our business style and approach to clients is very consistent. We do very little advertising. We're a relationship-based lender. Her team seemed to follow a similar thought process," said Jasen Mackenzie, Guarantee Mortgage - Menlo Park branch owner, who managed another Menlo Park financial firm for 14 years until opening the Menlo Park branch last year at 3500 Alameda de las Pulgas.
"Lending has become very segmented over the last 10 years. Many people have tried to do all things," he said, noting neither Guarantee nor Stanford Mortgage does sub-prime loans. He described each as "A-paper lenders. Our business model is sound and we're pretty comfortable with it. The way she (Rayacich) operates with her clients and specifically the types of lending she does lines up very well with what we do."
All five of Rayacich's employees will continue with her at the Menlo Park office, and she'll bring her $84 million loan portfolio -- which placed her #23 on the San Francisco Business Times' Top 25 Mortgage Companies list last year.
Mackenzie projects Guarantee Mortgage - Menlo Park's volume at about $100 million during its first year.
"On Tuesday, July 31, I thought I had the best business model," Rayacich said. But by the time she returned from vacation in early August, ABC Mortgage, the 10th largest mortgage broker in the United States, had filed for bankruptcy. "I knew I had to do something before something bad happened to us. ...I don't want to be the last buggy-whip maker," she said, hitting the phone and sending out feelers.
"Every group I contacted was enthusiastic," she added, pointing to the very difficult business environment in the past year.
"The mortgage industry has had three bad years in a row. That's never happened before," she said.
Rayacich still believes in the success of the mortgage broker business model. "If I go with Bank A, and they cut off half their products, I can go with Bank B. If I work for a bank (selling mortgages) I just have to tell clients I'm sorry," she said.
"Some of our favorite large lenders are really embattled right now. One cut off half of its products over this past weekend, between Friday and Monday. When they cut them off, loans got cancelled," she added.
The loan crisis, which began with people with credit difficulties, now affects everybody, she said. "Buyers cannot go in without loan contingencies," she said because brokers are unable to sell last week's loans on the bond market. And although banks can depend on their deposits to help cover loans, they're still cutting back on what loans they're offering, she said.
One of the reasons she approached Guarantee Mortgage is because it is "a pure mortgage broker," rather than a bank or savings and loan.
At Guarantee Mortgage, Mackenzie will be the top person, and Rayacich will be part of the senior management team. "After 14 years, I'm ready to step back from that role," she said.
Rayacich noted that her company is "not just merging with another independent, but with a branch that's part of something bigger." The merger will bring greater strength to both, with more income generators to pay for overhead and to create market awareness of the business, she added.
"We're moving into more of a tradition-based lending environment; we've seen a tremendous boom in our industry and some has been unhealthy," Mackenzie said. "I advise my clients to their best interest, which will sustain my business over the long haul. They (Stanford Mortgage) are seasoned professionals, they have history in the business. They'll be standing in two years when a lot of competitors will not."