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FirstPlus Will Close O.C. Center

Finance: The Dallas 'subprime' lender will shut down its marketing operation in Mission Viejo, which employs 1,300.

October 16, 1998|DARYL STRICKLAND | TIMES STAFF WRITER

After failing to find a buyer, beleaguered home equity lender FirstPlus Financial Group said Thursday that it will sell off several affiliates, fire 3,000 people and close a major marketing center in Orange County.

The Dallas-based company, one of several "subprime" lenders felled by the global credit crunch and disarray in the mortgage market, said it will move its direct-marketing operations from Mission Viejo to Dallas as part of the consolidation.

The Mission Viejo unit has about 1,300 employees, but it was not clear how many jobs would be eliminated or transferred.

William Joiner, president and chief financial officer of the Orange County unit, could not be reached for comment. FirstPlus executives in Texas did not return several phone calls.

Two potential buyers have walked away from the troubled Dallas lender, which has seen its stock plummet more than 80% in about two months as its access to capital virtually dried up.

FirstPlus, which uses Miami Dolphin quarterback Dan Marino to pitch loans of up to 125% of a home's value, said it's selling its loan servicing business to Superior Bank FSB and that it has accepted an offer for its United Kingdom-based business. The transactions are valued at a total of $130 million.

"This investment allows them to keep their doors open, but the fact of the matter is that no one wanted to acquire the whole company," said Michael Abrahams, an analyst for Sutro & Co. "The whole issue is being driven by liquidity. They were running out of cash."

Lenders like FirstPlus make most of their money by bundling loans and selling them as securities. But investors, such as banks, pension funds and insurance companies, have been fearful of buying such loans because of higher default rates in the event of a recession, as well as reduced interest revenue as borrowers refinance at lower rates.

Others in the industry, including the Money Store, Green Tree Financial and United Companies Financial, have been unable to avoid similar pitfalls and have been bought or put up for sale. FirstPlus also was seeking to be acquired by a company with a good credit rating that could have lowered its borrowing costs. But those efforts failed.

The company's stock closed at $4.63, up 63 cents a share, on the New York Stock Exchange.

FirstPlus already has shuttered its FirstPlus Direct marketing operation, housed in a former K-Mart store in Mission Viejo. The move is part of an effort to save $85 million in employment costs, the parent company said.

The Orange County unit initially began as a separate company in 1994 in Laguna Hills. Then known as Capital Direct, Joiner built it into a major player in the home-equity lending field, appealing to homeowners who wanted to consolidate their consumer debts.

In an unusual twist, the firm owned the mail facilities that produced its advertising. Every 40 to 50 days, for example, Californians received mailings on the company's loan products. At one point, the aggressive advertising generated 3,000 calls a day, Joiner said in an earlier interview.

In 1997, FirstPlus acquired the company, which had 200 employees at the time.

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