Mortgage Companies Took Different Paths to IPO
Two Orange County mortgage companies that filed papers to go public last week could hardly be more different.
Virtual Mortgage Network Inc. in Newport Beach has been a money-losing operation--dropping a total of $13.6 million since it opened in March 1995. It has no significant track record and an unproven video-conferencing system through which borrowers and lenders meet.
Even its accounting firm says that, without the company’s share of the $46.9 million it hopes to raise in its initial public offering, Virtual Mortgage’s financial woes “raise substantial doubt about the ability of the company to continue as a going concern.”
On the other hand, BNC Mortgage Inc. in Santa Ana has earned $7.9 million since it started offering so-called sub-prime home loans in August 1995.
In addition, BNC’s accountants don’t voice any concern about the company’s ability to survive.
Executives at BNC declined to comment beyond a press release the company issued Friday. Virtual Mortgage executives, who filed the company’s offering with the Securities and Exchange Commission on Thursday, also wouldn’t comment.
Virtual Mortgage expects to receive net proceeds of $26.25 million in offering 4 million shares for up to $8.50 a share. Certain shareholders also are selling 920,000 shares.
It will use more than $16 million to pay off debts and other immediate expenses and will use the rest, nearly $10 million, for new product development and general corporate purposes, including working capital.
The company is banking on its proprietary LoanMaker computer system that allows home buyers to review mortgage options at real estate offices and, after selecting one, be hooked up through video-conferencing to a loan officer.
Virtual Mortgage has installed its system in several real estate offices, including Remax in South Orange County.
BNC and its major investor, DLJ Mortgage Capital Inc., are selling more than 5.1 million shares at up to $11 a share for a total of $56.1 million. BNC’s share of the proceeds, about $20 million, would be used mainly to fund more loans to garner a bigger share of the fragmented mortgage market.
Though BNC has enjoyed a financially healthy existence in its short life, it has benefited from its relationship with giant DLJ, which has provided the company money for its loans.
DLJ, which owns about 44% of BNC, recently provided the mortgage lender with a $150-million credit facility that is due two years after the public offering is completed.
BNC also makes riskier-than-usual mortgages. Its sub-prime loans are made to those with less than stellar credit histories, generally to refinance existing mortgages, consolidate debts and finance home improvements and education.
