Lender Faces Merger Problems, Without the Merger

By Duff Mcdonald  |  Posted 05-05-2005 Print Email
After years of letting its front office and back office operate independently, Novastar tries to unite disparate IT structures to make them coordinate smoothly as one company.
Unless you had your head under a rock for the past ten years, you've heard more than once about the nation's seemingly endless housing boom. Kansas City, Mo.-based NovaStar Financial is one of the many companies that enjoyed a substantial increase in business thanks to the low-interest-rate environment that spurred it.

The company, which originates and securitizes sub-prime mortgages, pulled in net interest income in 2004 of $171 million, capping a three-year period of 97 percent annual top-line growth. Net income grew from $32.3 million in 2001 to $112 million in 2003, though it fell slightly in 2004, to $109.1 million, thanks primarily to the rise in short-term interest rates.

As of the end of 2004, NovaStar managed a portfolio of $12.2 billion in loans, up 69 percent from just a year earlier.

The company essentially does business in two different directions. On the front end, its retail arm, NovaStar Home Mortgage and NovaStar Mortgage, generates 25 percent of the company's mortgage business, with the other 65 percent coming through a wholesale network of independent mortgage brokers.

On the back end, NovaStar packages those mortgages and sells them in the financial markets.

To date, the different sides of the operation have had vastly different information technology requirements, and the IT team has focused primarily on isolated tasks, such as the quick introduction of Web-based customer-facing loan approval applications that provide a competitive edge, and singular process improvements that speed up the decision of whether, and at what terms, the company will provide loans.

Such decisions allowed the company to continue gaining market share in the first seven years of its existence. But in 2004 management realized that to continue its growth without coming apart at the seams, NovaStar's IT strategy needed to incorporate a more holistic view of the entire business, rather than merely focusing on the speedy growth of its separate lines of business.

Lynn Ryan was hired as the company's new chief information officer in September 2004 to do just that. And she's approaching that task by focusing on three primary components of the company's information processes: the data itself, the transport of that data, and the applications that make use of it.

Ryan's primary goal is to rethink the company's multiple repositories of data, from its business and customer pipeline to the costs of doing business, daily changes in the pricing of mortgage securities on the financial markets, and even regulatory reporting information. "We are struggling with the ability to look at point-in-time critical information easily," she says. "We need to be able to go across multiple databases, extract data from each, and build reporting results that enable us to be more effective."

If interest rates make a sharp move in one direction or the other, for example, one of Ryan's goals is to speed up the company's ability to decide whether to keep certain loans in the company's portfolio, or to securitize them and sell them into the secondary market. It's a decision the company has long been making on a day-to-day basis, but by tying together its data infrastructure, NovaStar hopes to make such decisions much more quickly.

To do that, she thinks NovaStar will need to create a warehouse information model that would give executives a comprehensive understanding of how the company's component parts interact. Add to that the ability to measure employee performance—how quickly the company can process and approve a loan, how salespeople perform relative to particular products or in particular markets—and it's easy to see how one moving part can affect the entire company.



 

Submit a Comment

Loading Comments...
 
 
 
 
 
 
Thanks for your registration, follow us on our social networks to keep up-to-date