The former senior management of bankrupt lender Delta
Financial Corp. is launching a new mortgage company that may open retail
offices - and some employees might even be sitting at their old Delta desks.
Reliance First Capital Llc will be based in Woodbury for the next six
months or so as a small staff works on start-up initiatives, such as getting
state banking licenses, former Delta chief executive Hugh Miller wrote in a May
8 posting on dfcconnect.com, a Web site for ex-employees.
Not only is Miller recycling his old title at the new outfit but Reliance
has also bought about $40,000 in assets from the defunct subprime lender.
"We did sell some assets, equipment and furniture, to Reliance ...
computers, office furniture, things like that," said Mark Power, partner in the
Manhattan-based Hahn & Hessen law firm, which represents the creditor
committee in Delta's bankruptcy case.
Delta, founded in 1982, was ranked as the ninth-largest subprime mortgage
lender by National Mortgage News until the Woodbury-based company filed
bankruptcy in December, when its court papers listed $7.2 million in assets and
$7.1 million in liabilities as of Sept. 30. It laid off most of its 1,300-plus
workforce late last year.
In his Web posting, Miller said the company has paired with Wexford
Capital, a Connecticut investment firm. It specializes in distressed and
bankrupt businesses and manages about $7 billion in hedge and private equity
funds. Miller and Wexford did not return calls.
On Friday, the company added an accounting manager post paying up to
$100,000 on CareerBuilder.com. "You will have an exciting opportunity to make a
significant impact as you work closely, in a start-up enterprise, with a
seasoned executive management team that has over 20 years of mortgage and
consumer finance related experience located in Long Island, NY," the posting
A key question is how a newcomer can thrive in a mortgage industry still
reeling from the billion-dollar subprime collapse.
Miller's posting hinted at a plan: reusing Delta's last-ditch strategy to
focus on government-backed loans from the Federal Housing Administration.
"I know I needn't tell any of you that the markets are still in terrible
condition," Miller wrote. "As a result, it is our intention that Reliance will
be focusing on FHA lending as well as some other alternative products out of
the gates. Since we will obviously be starting out in a smaller capacity, we
will not have the ability to hire back everyone we would have ideally wanted
to, but we are hopeful that we might have the opportunity to speak to many
former Delta and Fidelity employees about employment as we continue to grow and
A New York State banking department spokeswoman said no "complete
application" for Reliance has been filed.
The new venture comes as trustees and attorneys for creditors in the Delta
bankruptcy case begin reviewing all claims and liquidating what may be up to
$14 million in assets.
Some watchdogs said the company, once accused of predatory lending, had
cleaned up for the most part and was focusing on fixed but high-interest loans
when the subprime market collapsed. That dried up Delta's key funding sources.
Dean Hartman, chief planning officer of Continental Home Loans in Melville,
said Miller's "alternative products" sound like subprime, but it could work
because most lenders have run away from subprime.
"There's a void in the market," he said. "They can do pretty well if
they're careful and not become cowboys again."
HOW DELTA COLLAPSED
Timeline of Delta Financial Corp.'s demise
Aug. 9, 2007: Reported second-quarter earnings of $777,000, way down from
$4.9 million in first quarter
and $7.2 million a year ago
Aug. 14: Negotiates $60-million loan from top shareholder, hedge fund
manager Angelo, Gordon & Co.
Aug. 27: Suspends third-quarter dividends
Sept. 5: Bundles for sale bonds backed by $900 million in mortgage loans so
it can get money to make more loans; bonds sell at a $56.2-million loss
Nov. 8: Lays off 450 workers and reports a $39.6-million net loss for third
quarter and outlines restructuring plan that focuses on federally backed loans
Dec. 5: Key funding source stops cash flow
Dec. 17: Files for bankruptcy and reorganization
Dec. 26: Nasdaq delists Delta stock
- ELLEN YAN