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Alliance focuses on Internet Mortgages in the Online Marathon. A business to customer direct lender talks about the Internet mortgages,the marketplace, competitors, antitrust , and the future of Online lending.


Norton Shutlz

A free lance writer based in New York City

Spending a day with an online CEO is not my favorite thing, but you do it if you have to go to San Francisco Bay area. My flight arrived at the Oakland airport about 6 AM. As I stepped out in the cool morning I was hailed by someone nice that I didn’t expected to meet till late in the day! Sean Saed was waving at me from the curbside in a burgundy sedan that was about to be ticketed. He knew I was coming. Nothing is more pleasing than a friendly smiling face away from New York.

As we got in the car Sean Saed drove us to Lake Merrit and than we got off at Gold’s gym with me still trailing behind in time zones. How was your ride? He asked me affably and I nodded in approval not knowing if he meant how was my red eye special or the car he drove me.

If you don’t watch him he takes over. But there was absolutely no air about him. He was down to earth as it can get. This was great surprise to me as I have seen other dot com CEO’s and it wasn’t so much fun with them since their egos and walls are already built around them. Sean Saed’s mannerism and friendliness showed a lot more sophistication. He really likes to help.The interview took place part at the gym and part at the office which is located at a modest business park in Hayward right off the San Mateo Bridge.

Tell me how’s Alliance Mortgage doing?

Well it has been a very promising year. There is so much that has been done and there still so much in the bag that has not seen the light of the day and now the year has grown late. There is a sense of urgency to get these projects done but other people are so slow. So overall I would say we have come a long way. Our market share is steadily increasing. Our revenues are riding on a 45-degree upward slant line from left to right.

That would have been great if you were a Public Company unh? The stock price climbing higher making an ideal chart?

Yes. It would be beneficial to all of us. I love those 45-degree slants left to right. I used to do stock trading and I would myself invest in such companies whose stocks have done diagonal chart lines.

Are you plotting a lot of financial graphs these days?

A lot of my time goes into the financial affairs of the company. I plot our financial strategies. I like to manage from the financial point of view. Where is the money? How are we going to get it? And what we have to do every month to get it?

I am a P&L driven manager. I hold a P&L as the highest and most revered document. And in our company that enables us to be able to make the right choices. As a result we are a profitable company among all those hoopla playing online mortgage companies that are billing themselves as the ‘Leading Online Lenders’. None of them have turned a dime nor they will soon! One company has 40 million dollars in losses and a negative stockholder’s equity. My MBA classmates sent an email the other day and told me that I am sticking by that classroom drab 20 years ago and Peter Drucker’s principles. It was good thing to hear that.

Can you name those companies for me?

I don’t want to rub salt into the big wounds. You know them. They are all over the Internet. Leading this, leading that, media manipulating, and swaying journalists and public under the Internet anesthesia cloud and even getting junky awards, who none cares or knows about. Those guys spend more time on PR campaigns and hoopla than anyone else actually doing the loans does. For them the loan business is a sideshow.

But aren’t there other things that are important in the Loan business ?

Keeping IRS, lenders and lawsuits off your back is an art. Keeping the bottom line in black is also another art. You have to juggle all of that at once.

Let me change the subject. The rates have climbed recently how did that effect Alliance Mortgage?

Not much. Those rates always climb sooner or later. We are not a bond market driven traditional mortgage company. Once the bond yield climbs over 5.75 it’s all over for those guys, now it’s at 6.06. I saw that happen to Alliance Mortgage in 1994 and I learnt the lesson. The rates have been climbing since January 99 and the economy is way too good and way too rich. There are severe labor market shortages and lurking fears of inflation. The bond market is choppy and it all points to higher rates ahead.

Because we try to function outside those bond market parameters so we are able to inhale pure oxygen. It keeps us all alive. And our market share is growing. So we … I know this was tricky question actually tied to the first one? (Laughs wiping off sweat from his brows)

Recently in your Press releases you have started naming your competitors isn’t that what most companies would shun to do? Why did you do that? They never mention or acknowledge you as a competitor ?

That makes not an iota of a difference to us since you already know those stumbling, PR driven, venture capitalized companies. So if we mentioned them and people already know them than it changes nothing. I think we wear a badge of honor to be able to stand up and recognize those guys in whom we can poke holes all day long. If they can’t acknowledge us that’s fine. Ignorance is bliss.

Keep on doing that and you’ll be flat broke oneday and no amount of venture money will get you out of that hole.

Well you seem a bit arrogant and loathing here why have you not taken Venture capital yet ?

It’s like asking someone why are you not married? Is that supposed to be prerequisite to success? Many of these venture companies often fail or have to be eventually sold off to get the seed money out at a loss.

I suppose we could do that any day. Our cash flow provides sustained growth and with our monetary management we have done fairly well so far. Remember we are a lender. We know the value of the money.

Our choices are there. People have pushed envelopes under our doors with money but they want a huge slice of the pie. Would you bed with the devil for that? Let me emphasize to you that having a choice partner has not been ruled out and it will be a great asset to our company. We will always welcome a Venture capitalist’s suggestions.

In the Garden of Eden (Silicon Valley) the temptation get quick money is very seductive. But we have been a mortgage company for the last seven years and we’ll be around another twenty years. This is just a phase in the long run.

Talking about the direction that you are taking Alliance Mortgage into the year 2000 is that also a secret or would you share that with me?

Nothing is a secret on the Internet.You are like an open book from cover to cover. Your competition comes to your website like salmons trying to spawn upstream. Countrywide, Norwest bank, Fannie Mae, Department of Justice and various others agencies can all be tracked on our web site following a press release.

But we are seriously trying to break more grounds. We want to be an excellent source for middle class borrowers who can get a mortgages online with ease and with great service. This is a service business. We have cut the red tape and we can help because we have the experience and the technology on our side. We have the expertise in loans which others may never handle. Credit is the main issue. Unless something is done about credit laws we’ll always champion this type of lending.

How about bundling other services like car loans, business loans and credit cards like Eloan or Get smart did?

You mean four lenders will be vying for you loan application and your loan will be auctioned to the best paying bidder? That’s an awful concept.

A mortgage is such a sanctimonious affair that you can’t make a football out of it. We have to consider all the options for the borrower and than suggest a viable investment solution for each and every inquiry. Those who go to such sites often are disappointed because there is no hands on delivery, its all up to the bidders.

We don’t want to be doing all those things since we are doing very well with what we know best -the Mortgages.

One time I made an application with Getsmart in April or May and I am still getting phone calls from psychic hot lines and out dated mortgage brokers who think I am still a lead.

Most of the online companies have other means of income but Alliance is steadfastly still a mortgage only company?

That is right. We are a straight-ahead mortgage company. We specialize in mortgages. We deliver lender to customer direct. We don’t do car loans or personal loans and we are not a pawnshop either.

What do you think of Quicken mortgage buying Rock Financial?

I don’t know why Quicken wants to be in the actual mortgage business so badly. It’s a tough business. They tried to get a Dublin based company last year but they got upstaged. Their egos suffered a blow. So much wounded they were that they got their own website. But without any mortgage experience (in my opinion) they ended up pushing leads while the lead receivers made more money than them. So now they decided why not join as one of them ?

That is how they now got Rock Financial in the cross hairs. I think it has to do with some inferiority complex for not being able to be a direct player in today’s Internet marketplace.

Microsoft Homeadvisor, and Quicken still to this day in the middle of november 1999 are not mortgage bankers or brokers but online pass through lead resellers to a selected group of lenders.

Remind you that Rock financial is a new comer to the Internet market they started in January 1999. It is a bricks and mortar operation. Still a small percentage of revenues comes from its online operations.

We on the other hand are a true Virtual lender in the strictest sense, and we only do home mortgages and all our business is to the customers direct. Our addressable market in this respect is huge.

How about and their IPO they are true Originators and you have included them in your targeted list of competitors so well?

That IPO was a firecracker that didn’t crack. There was nothing exciting and racy done about it. They were not PR driven at all. They are bricks and mortar with an nice Internet name so they flopped. Since than the stock hit single digits and trades under $10 for now.

You see they have pictures of some stuffy looking bankers on their website and you can’t connect that to an Internet investor who needs a racy outlook on an Internet stock. It’s hard to do that. It wasn’t an Internet play.

By the way, no matter how the name sounds to you it is a heavy bricks and mortar operation. They have many bricks and a lot of mortar in those branches.They are very much business to business and not business to customer. They have that provides services to mortgage brokers and now the build websites for them too.

They are not like Alliance Mortgage which is business to customer only and one hundred percent direct.

Want to talk about Eloan?

Oh no! That’s too much exposure for my health and well being (Waves his hands in a defensive Kung fu like funny gesture).

With this millennium coming to close what will you say is the future of online mortgages and what will be in store next century?

There is only about 1.3 trillion-dollar mortgage market out there. It’s huge. It is mind boggling to me. But right now as we estimated with our own research and it corroborates with other data as well, that about 1.5 to 2 percent of mortgages are done via the Internet right now. That is just one to two cent on a dollar if you want to simplify that.In other words its about 20 to 25 billion annually.

The growth is remarkably strong. These mortgages will be anywhere between 20 to 30 percent by the end of year 2003 and the figure may go beyond that.

The bricks and mortar operations will not be wiped out entirely but will be significantly replaced and reshaped and rewired.

Those companies who have taken on an early lead in an effort to control or monopolize this market will fail because it is too big a market to control. You can’t be a Microsoft in this type of operating system. The barriers to entry for many others are nonexistent.

Look no one has a monoply in the conventional mortgage market place to date either.

How about an early capture of online mortgage sources and establishing an overwhelming Internet presence?

And if they do capture the floodgates, than there will be lawsuits and antitrust litigations. Since mortgages involve everyday consumers and their homes and a place to live for you and me, they are heavily regulated as compared to lets say the computer industry.

It’s not a vague computer thing that took our government so long to bring Microsoft to federal court. Antitrust attorneys will jump to bring the gavel down on such lenders or an online monoply minded Internet company. Lenders are a favorite target for litigations anyhow, and the online mortgage companies will not be an exception. I don’t think that will happen though.

Right now no one controls any market share of 7 to 10 percent steadily. Though Eloan and Iown are making attempts to block certain web sites and make them into exclusive web portals so the consumers will go only to those mortgage portals.

We are gaining grounds slowly but surely. It’s a steady climb. Every month our sophisticated web tracking program and the reports reveal that our web site traffic is increasing. That tells me there is more and more demand for our type of online mortgages.

I consider this an Online Marathon and you often don’t run your best miles early in the marathon.