LoanGiant.Com Kanwal Bagri Philippe Burney Steve Chang Srinivas Chitrapu Sita Ram Jonnalagadda Courtney Ruf Company History • World Wide Financial founded in 1990 by four partners. • By 1993, WWF was originating $100 million in conforming mortgages per month. • In 1994 due to the changing interest rate environment, WWF reevaluated their strategy and changed their focus to the sub-prime market. • WWF began doing business as LoanGiant.com in March of 2000. LoanGiant Guarantee “LOANGIANT.COM pledges to be your Lender for Life. We will close your loan faster than anyone else using our instant on-line approval or by phone regardless of your credit and/or financial situation. Each of our borrowers should receive at closing a financial plan or budget to ultimately lead them to financial freedom. LOANGIANT.COM guarantees to beat any bonafide mortgage deal offered in writing to any existing customer. MORTGAGE SHOPPING IS OVER. LOANGIANT.COM IS YOUR LENDER FOR LIFE!” Mortgage Industry • $2.03 trillion dollars of mortgages were originated in 2001 • 67% of Americans own homes • Real estate lending market is changing from a purchase market to a refinance/cash-out market • Mortgage loan applications have more than doubled in the previous three years Current Market •Lowest mortgage rates in years •Real estate lending market has changed from a primarily purchase market to a refinance market due to interest rate environment •Real estate market is also doing well in spite of the economy •Mortgage loan applications have more than doubled in the previous three years Subprime Borrower •Banking regulators consider you to be a subprime borrower if you have a FICO score of 660 or lower; two (or more) 30 day delinquencies in the past 12 months, or one 60 day delinquency in the past 24 months; a foreclosure or chargeoff in the past 24 months; any bankruptcy in the last 60 months; qualifying debt-to-income ratios of 50% or higher; and, "limited ability to cover family living expenses each month“. http://www.hsh.com/cc-showcase.html Industry Players • Mortgage Companies – A firm or individual who, for a commission, matches borrowers and lenders. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing. • Wholesalers/Servicers – A term used by Fannie Mae and Freddie Mac for a mortgage banker or other entity that has met the requirements necessary to sell and service mortgages for Fannie Mae or Freddie Mac. • Investors Investors •FNMA (Federal National Mortgage Assoc.) –The nation's largest mortgage investor created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.) this stockholder-owner corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs. •FHLMC (Federal Home Loan Mortgage Corp.) –Created by Congress in Title III of the Emergency Home Finance Act of 1970 (12 USC1451 et seq.). This stockholder-owned corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential and multifamily properties with mortgage purchase and securitization programs . •GNMA (Government National Mortgage Assoc.) –Created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.), this federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Also called Government National Mortgage Association (GNMA). •Private Investors Life of a Loan 1) Application is taken from the borrower over the internet, over the phone, or in person. 2) The mortgage is underwritten to ensure the borrower is deemed credit worthy. 3) Information is gathered from the borrower, a title company, and an appraiser to support the underwriting decision. 4) The loan is closed. Documents are signed and funds are exchanged. 5) The mortgage broker sells the loan to a Wholesaler/Servicer. 6) If the Wholesale/Servicer does not want to retain the loan, then they sell the loan to an Investor otherwise the Servicer is also the Investor. 7) The Investor securitizes the mortgage in a pool of similar mortgages. 8) The borrower makes their monthly payments to the Servicer which is then passed through to the holder of the Mortgage Backed Security. Plans and Goals •To be our customers’ “Lender for Life”. •Give the same high-quality level of service to all borrowers regardless of credit history. Transaction based vs. Relationship based •A fairly priced sub-prime loan No point, no fee Shop around Business Plan Phase I – Develop a website to approve borrowers on-line, real time regardless of their credit history. Phase II – Enhance the website so that all Internet users can and will be marketed. Phase III – Enhance website so all borrowers located anywhere in the US can be contacted by a local LoanGiant.com agent. Phase IV – Complete the transition of off-line mortgage banking operations to a full-scale on-line Internet operation that offers the full spectrum of financial and household services to any user or visitor to the site. Marketing Strategy The five elements of a typical marketing strategy include: 1. Scope 2. Goals and Objectives 3. Resource Deployments 4. Identification of sustainable competitive advantage 5. Synergy Scope Target Market: -Sub-prime; nonconforming; 25-49 years old Product Line Depth and Breadth: -Jumbo, Second, LTV, FHA,VA, conforming and nonconforming Scope (Continued) Product Market Development Plan: -National Marketing -Complete Online Processing -Web Enabled Contact center -Follow up on uncommitted web users -Complete financial partner and household services provider. Line Extension: Adding value by offering services to existing products. Goals and Objectives •Move towards CRM – Complete Financial Partner •Increased Market Share •Project Low Cost image •Make the loan process less intimidating •Encourage Rate Shop Resource Deployments •Majority of company’s advertisement budget is spent on broadcast and cable television which company finds most effective in reaching its intended audience. •Focus on automation of home loan process. •Online home loan completion through intuitive automated application Competitive Advantages Online presence •LoanGiant has the strongest online presence compared to its competitors. Brand recognition •Andy Jacob’s recognition in the marketplace is very pronounced. Experienced staff •The experienced loan officers at LoanGiant offer the best service. Synergies Industry Consolidation Online Partnerships •Integra, Better Business Bureau, Service Reps, Verisign, and Dell computers. AmWay, term-life, free legal advise Strengths •Automation / Home Equity Software –Efficiency –Two-minute Loans •Technology (potential) –“Dot-com” –Web-site •People –Skills, Talent (Sales, IT, Customer Service) Weakness •Cash Flows –Required for operations •Prospecting –Inability to gauge potential customer Opportunities •Growing internet usage –Over 150 million on-line –75% households on-line by 2004 –On-line spending forecasted at $86.3 b in 2003 •Technology / Security –For on-line transactions –Tracking usage, on-line habits •Closing a gap in the on-line market place –Niche, first-to-market Threats •Predatory Lending –Bigger players have more leverage •Regulations –On fees, points charged and premium •Reliance on traditional channels –Interpersonal experience •Not to be confused with another “dot-com” –SPAM could reduce credibility, increase clutter Threats (continued) •Interpersonal experience more likely to succeed in selling – On-line users less likely to commit to a contract •Cannibalization •Distrust – Of sub-prime lenders •Imitators – Technology can be easily copied Analysis/Recommendations •Acquire customer using a combination of interpersonal and internet experience – Level of commitment expected from customer •Formal CRM to maintaining customer base and a long term relation – Track customers, feedback •Build a strong and publicized alliance – Customer base and cash flow Recommendations (continued) •Moving away from a total dependence on the sub prime market •First Mover needs Large scale entry –Threat of imitators •Ensure excellence in quality and service •Use new technologies to improve business processes and meet expansion needs Recommendations (continued) •Use of Portals –Enhance customer experience –Track customers in more detail Recommendations (continued) •Capitalize on technology - Keep the user engaged - Use relevant pop-up messages - Make the application form as short as possible - Implement a CRM system Recommendations (continued) Target Market •Advertising is key for the sub-prime market •Instill a sense of trust in the borrower Word of mouth advertising •Provide exceptional customer service so customers will pass the word that LoanGiant.com is great •Ideas for developing the peer to peer marketing model -Using a more grassroots approach Recommendations (continued) Business Alliances •LoanGiant.com as a streamline business model allows growth as a stand alone mortgage processing firm •Develop into a lead generating target marketer. 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