GlobeSt.com: To what extent is what you are doing now based in your experience at Nomura?

Scavone: So much. From a pure infrastructure standpoint, Nomura was a pretty amazing thing. We had the ability to process a tremendous number of loans in a very high-quality way. As COO of Nomura's conduit program, I was responsible for that infrastructure and analyzed the most prudent ways to support the business--what's necessary and how to make the process as efficient as possible.

GlobeSt.com: Looking back, how do you see the demise of Nomura?

Scavone: It's still sad. Nomura was really misunderstood. People thought it was due to bad underwriting or silly lending activities, and those things had nothing to do with it. Capital America--the real estate finance subsidiary--became such a large company, but our capital base was too small for the platform we had created. And this was made evident by Asian and Russian credit crises.

GlobeSt.com: Did the parent firm pull the plug too quickly?

Scavone: The credit markets did come back, so there would have been equity there. The situation would have gotten easier. It's sad because Capital America was such a good franchise. We were doing things far beyond what any of the other guys were doing in terms of loan originations, databases and pipelines and underwriting methodologies.

GlobeSt.com: So relate your infrastructure concerns of the time with what you are doing now.

Scavone: We've converted lenders from being processors into being purely investors.

GlobeSt.com: How so?

Scavone: Lenders get paid for committing their balance sheet. They get nothing for processing that loan. But consider the process that's involved. The way the mortgage banking industry works now, the mortgage banker will collect information from the borrower they represent, summarize it and send it out to a number of different lenders. Those lenders will look at the preliminary information, give a preliminary indication of pricing and deal terms in the form of a quote and the broker will take that quote back to his borrower. They will pick one and then initiate an application; a due diligence; and, ultimately, a commitment.

The borrower must select a lender to run with, experience both application fees and due diligence before he knows how firm a lender may be on those terms. His leverage is lost from the time he initiates the process with the lender. He's a captive participant, hoping the lender comes up with the same answer he did at the quote stage.

Then there are the marketing influences. As a lender, you've got to understand your machine in terms of how much you can make. But outside influences were forcing those margins down. Expenses are going up because manufacturing capacity is high and the dead-deal costs are high--especially when you consider that most lenders get maybe one out of 20 deals they look at.

GlobeSt.com: So?

Scavone: So, instead of the mortgage banker preparing a package and looking for those quotes, he brings the deal to us. They go through one application process, and at the end of the due-diligence period, we take the information and put it out to lenders. So those lenders come in and compete for that loan on a much more credible and comprehensive--more commitment-ready--level. So when they bid, they don't bid a soft quote. They're bidding binding commitments.

GlobeSt.com: Are we talking time savings or value increases?

Scavone: In terms of time, we had a $15-million deal go into auction, and in four hours we had more than $90 million in bids--firm capital commitments from the likes of Morgan Stanley and Salomon. In terms of value, increases are impossible to measure. But value is very much about liquidity, and if real estate debt markets are relatively illiquid because of the time frames required to secure debt, we've shortened the time--from 60 days to 10--from when you show a deal to a lender to binding commitment. In a perfect world, all loans should have enough information maintained in a credible and standardized format such that they are auction-ready. This applies to new originations, but it should also apply to existing loans on the balance sheets of all types of lenders. In that way you maximize liquidity on new originations as well as on secondary-market whole-loan trading. The other thing we've done is provide a standardized set of underwriting criteria. They've just been published by McGraw-Hill. So we have a platform everyone can rely on.

GlobeSt.com: And this helps relieve the processing costs you referred to before.

Scavone: There are a whole bunch of lenders out there with tremendous lending capacity who have to feed their shops. They won't make their numbers in '02. We're giving them an alternative channel.

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