Magazine article American Banker

Ex-Fannie President Forms Securitizing Firm

Magazine article American Banker

Ex-Fannie President Forms Securitizing Firm

Article excerpt

A former president of Fannie Mae has formed a company to expand the fledgling activity of securitizing bank loans to small businesses.

Initially, Small Business Funding Corp. plans to securitize credit scored loans of between $50,000 and $250,000, and expand into the unguaranteed portion of Small Business Administration 7(a) loans and loans secured by commercial real estate.

"Big banks know all about securitization and are using it extensively, but we want to offer it to community banks and regional banks," said James Murray, chief executive officer of Small Business Funding.

Mr. Murray was president of Fannie Mae, formally the Federal National Mortgage Association, from 1981 to 1983.

Washington-based Small Business Funding, founded this month, is the second such venture. Earlier this year a bank software company joined with a California securitizing firm to form a company, nicknamed Lori Mae, to securitize loans made by community banks.

And a third is in the works. Jack Singer, senior vice president and chief investment officer of California's Imperial Bancorp, said his bank plans to buy small-business loans from other banks and securitize them in 1998. Then Imperial plans to securitize a new pool of loans every six months.

"We think there is a significant market out there that will develop over the next several years," Mr. Singer said.

Proponents praise securitization because it allows lenders to sell their loans to generate additional money to fund new loans and generate fee income from servicing the loans without risking additional capital.

But securitization of small-business loans has been hampered by a lack of standard loan terms and the scarcity of long-term performance data. Mr. Murray said credit scoring will help predict loan performance.

Small Business Funding plans several securitizations to total between $200 million and $300 million next year and plans to securitize as much as $600 million in several years. …

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