That's what I set out to determine after learning this week that the former president of LendingTree.com and founder of other online mortgage companies is back in action with a new Internet lending startup, LoanDepot.com. My conclusion, after speaking to Hsieh -- he's all of the above.
Maybe that's necessary for a venture like LoansDepot. It seems like a strange time to get back in the mortgage game given the state of the housing market and lenders' generally low reputation these days. But Hsieh thinks the new firm can position itself for what he expects to be a rebound in real estate over the next several years.
LoanDepot's greatest challenge may be erasing the tarnished image of mortgage companies, which stand accused of contributing to the biggest real estate bubble in U.S. history. Mortgage providers of all sort pushed adjustable rate and interest-only loans, cash-out refinancing, and other gimmicks that are today linked with housing speculation. They also peddled products to customers with weaker credit, drawing charges of predatory lending.
The industry's Internet players have drawn their fair share of criticism. In the years leading up the crisis, such lenders touted their ability to help consumers get loans quickly and with a minimum of fuss. That recipe often involved chucking out traditional banking standards.
"There's no doubt that the mortgage industry has been tainted over the last 24 months because of activities in our industry," Hsieh, 44, told me in an interview, acknowledging that much of the bad press is deserved.
"The secondary market got so sophisticated and injected so much cash in the industry that some, and perhaps most, lenders forgot their fundamental objective -- lending to people you believe are good credit risks on the loans you make," he added. "The objective changed to making loans that could be sold in the secondary market."
Surf's up While lenders' reputations have taken a hit, Hsieh has proved adept over his career at riding the real estate market's ups and downs. In 1989 he founded mortgage originator LoansDirect.com, which started as a conventional brick-and-mortar firm, just as the Internet sector was beginning to lift off. He sold the company two years later to E*Trade (ETFC) for $35 million shortly before the dot-com deluge.
After leaving the brokerage company and taking time off to indulge another passion, marlin fishing, Hsieh was back in action in 2002 with a new online mortgage firm, HomeLoanCenter.com. The direct lender grew quickly based on features such as live interest rate quotes and loan offerings tailored to a borrower's credit profile. Like LoansDirect, which had a sizable subprime loan operation, the company emphasized its willingness to find loans for customers with spotty credit.
"For the first time, any visitor, even those with credit challenges, can find out which programs they are qualified for and receive instant credit approval along with live rate quotes," Hsieh said in a statement when HomeLoanCenter launched.
Hsieh notched another payday in 2004 in selling HomeLoanCenter to LendingTree, then a unit of IAC/InteractiveCorp (IACI). He stayed aboard as president of LendingTree and became a media fixture, appearing regularly as a mortgage expert on CNBC, CNN and Fox and showing up in The Wall Street Journal, USA Today and other papers.
Hsieh's stint at LendingTree may have boosted his career, but the deal ended up badly for IAC. LendingTree was sued for allegedly failing to shop loans, with plaintiffs charging that the company siphoned mortgage applications to its HomeLoanCenter direct lending unit. LendingTree also began racking up losses because of the slowdown in housing sales.
Hsieh left IAC in 2007 amid a wave of layoffs at LendingTree. To stem the damage, CEO Barry Diller spun out the unit in 2008 into publicly held Tree.com (TREE) as part of a broad corporate restructuring.
Grand illusion After leaving LendingTree, Hsieh returned to the water for another hiatus from mortgages. He bought a Newport Beach, Calif., luxury yacht vendor, reportedly investing $30 million of his own money to stock up on new boats to sell. Indeed, despite the recession, a 2008 profile of Hsieh in The Orange County Register describes him as living in style in a "Newport Coast hilltop mansion."
A Rolls-Royce Phantom, Porsche Carrera and Enzo Ferrari park in the underground garage. He owns vacation homes in San Diego, Cabo San Lucas and Kona.But Hsieh, who still owns the yacht company, saw another opportunity to profit from the roller-coaster home finance business, even during its historic slump. In the summer of 2008, as home prices in Southern California were cratering, he started Grander Financial. Calling itself an "alternative mortgage" provider, the company didn't provide loans -- rather, it offered homeowners cash in return for up to a 50 percent stake in the value of their home equity. It made money when the owner sold the home for a gain and shared the loss if the value of the property sank.
Hsieh rejects any suggestion that Grander sought to capitalize on people's desperation to keep their homes. The service allowed homeowners to extract equity without taking on more debt, he said, noting that the business was also potentially lucrative. Yet Grander had a fatal flaw -- it was a joint venture with AIG. The giant insurer's problems, along with the plunge in home prices, doomed the firm. Hsieh said he sold Grander to a family member to focus on LoanDepot.
Responsibility sells LoanDepot is different than LendingTree, which acted as a broker in taking mortgage applications from consumers and shopping them to banks to secure the best rate. By contrast, LoanDepot itself makes loans. The company offers fixed rate, jumbo, FHA, home equity and other loans. It also provides ARM and so-called negative amortization products, which remain controversial.
To allay concerns, LoanDepot highlights its commitment to "responsible lending" and pledges to "champion" customer rights. Hsieh cites the company's federally registered, state-licensed mortgage brokers and said the firm supports legal and regulatory efforts to clean up the mortgage business and safeguard consumers. The message? We've changed.
Most important, Hsieh said LoanDepot won't commit a cardinal sin common among lenders -- offering financial incentives to sales staff to put consumers into pricier or riskier loans. LoanDepot's brokers are paid the same regardless of the loan's value or terms, he said. "We're the only company among online Internet originators that has an absolute no-steering policy. We have no incentive to up-sell or steer people to any particular loan program."
Hsieh also defends the record of his previous startups. No more than 16 percent of HomeLoanCenter's business ever came from subprime loans, while at LoansDirect it was less, he said. And the executive denies that balloon loan, interest-only and other products associated with the crash are inherently risky.
Hsieh may be in the minority on that score. He places what comes off as a surprisingly naive, or decidedly cynical, faith in the power of free enterprise to cleanse the mortgage industry of its sins. "My view today is the same as it was in 2002 and 2003," he said. "If you're not a responsible lender, you're not going to be around very long."