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Second Life

The chief executive of Silverado Financial Inc., the upstart Pleasanton, Calif., subprime mortgage lender with an unusual history, said it would use its acquisition of a Chicago mortgage brokerage to grow even further.

Silverado paid $3 million in cash, preferred stock, and structured debt last week for Core One Mortgage Inc. and half of Liberty Settlement Services Inc., a related Lancaster, Pa., title company. The deal closed May 5 and was announced Monday.

John Hartman, Silverado's president and CEO, said in an interview that Core One's Chicago, Pittsburgh, and Baltimore branches will become three of the eight or nine "hub" offices Silverado expects to run by the end of next year.

Over time each hub probably will be staffed up with 100 or more employees, he said. Silverado already has hubs in San Jose and Phoenix. (It also has a few smaller "spoke" offices elsewhere, and it will probably expand that network, too.) It is looking to open or acquire two more in Denver and Florida this year, he said.

The plan -- for each hub to handle borrowers in a few surrounding states -- will work better than using more-centralized call centers to reach customers farther away, Mr. Hartman said.

Silverado generates leads through telemarketing, direct mail, and some outreach to realty firms. He mentioned H&R Block Inc.'s Option One Mortgage Corp. as one lender whose model it is eyeing.

With the acquisition, Silverado now has between 150 and 175 employees, which it hopes to increase to about 1,000 as it expands, Mr. Hartman said. Last year Core One originated about $120 million; Silverado did about $100 million, but Mr. Hartman expects it to fund $300 million or more this year.

Until bringing him on in 2002, Silverado had been called Rhombic Corp., and "primarily focused on the acquisition of the rights to intellectual property that could lead to the development of innovative technologies," according to a securities filing.

In the past it had patents and other interests in "Diamond Film Forced Diffusion," "Inertial Electrostatic Confinement and Neutron Monitor" and the "Micro Wave Driven Ultra Violet Lamp." In prior incarnations, it had been Toledo Medical Corp., Almaz Space Corp., and Ready When You Are Funwear Inc. It entered financial services by buying Financial Software Inc. in 2002.

Before joining Silverado, Mr. Hartman had been the CEO of Next Advisors Inc., which provides various brokerage and other services to "family offices," small businesses that meet wealthy families' financial needs. His real estate experience includes jobs at Realty Capital Partners and Grubb & Ellis.

In the interview, he said he remade Silverado after sensing an opportunity in the mortgage business. (Silverado plans to eventually branch out into auto lending, banking, and other businesses aimed at credit-challenged individuals.) "It's my belief the mortgage industry is going to go through the same type of consolidation that the registered investment adviser [sector] did a couple of years ago," he said. To deal with increased regulatory burdens and other issues, brokers will have to "join somebody with some scale to them, or they're going to perish." His goal: To use Silverado "to take advantage of those changes. …