Capital's Money Store helped drive subprime loan boom

There is a moment almost 20 years ago that John Wagner still recalls vividly, a scene from a Money Store focus group in Old Sacramento.

A participant suggested the term "less than perfect credit" to describe the then-emerging business of subprime home equity lending. Executives recognized it immediately as a perfect catch phrase, one to replace the negative marketing images usually associated with "problem, spotty or blemished credit."

It was one small innovation among many that the local pioneers of subprime lending fondly recall about their fast-track industry – and a time long ago before it all became so thoroughly discredited.

It's been nearly a decade since the Money Store, which once employed 3,600 people, closed at its distinctive ziggurat-shaped headquarters on the West Sacramento riverfront. But after a spectacular U.S. housing crash in which subprime lending played a large role, some believe the humbled industry – which charges higher interest for riskier loans – may eventually veer back toward its older Money Store roots in Sacramento.

That could mean a return to subprime lending practices that seemed fast and flashy in their time, but in retrospect seem old-fashioned: marketing aggressively, lending conservatively, managing risk and servicing its own loans.

Nine years after the business closed, Wagner and other former Money Store executives talked recently about their company's early role in the subprime lending business, and their growing alarm in the past decade as they watched their former industry turn into an increasingly undisciplined "wild wild West" actor.

"Compared to what evolved, we were buggy whip makers," said Wagner, a former executive vice president. "It changed so rapidly. The Money Store was a pioneer of securitization. It showed Wall Street that it could be done. Then the investment guys just kept pushing the envelope," he said.

In the annals of lending history, the Money Store might be considered Subprime 1.0. The firm, founded in New Jersey as the Modern Acceptance Corp. in 1967, moved to a Victorian in midtown Sacramento in 1984 and became publicly traded in the early 1990s.

Through it all, the company boasted an innovative, fast-paced, get-it done culture where advancement could be quick and new ideas become loan products within weeks. Inspiration came from Chief Executive Officer Marc Turtletaub, son of the firm's founder.

In 1989, Turtletaub, an attorney with roots in the counterculture, helped form a Sacramento business coalition supporting a successful measure to shut down the Rancho Seco nuclear power plant. Later, Turtletaub commissioned and built the 11-story ziggurat building, reminiscent of an ancient Mesopotamian temple, that became a symbol of the Money Store's success.

Bill Templeton ran the Money Store's largest division, home equity lending, through much of the 1990s. He said the Money Store proved that subprime lending could be done carefully to minimize risks to lenders and maximize benefits to borrowers.

"In the big days when we were a multibillion corporation, we never exceeded 5 percent delinquency of all the loans we originated," he said.

Subprime 2.0 was a different creature, however. It was largely centered in Orange County, thriving for a while before imploding from its loosened standards, which allowed people to borrow with no money down nor any proof of income, passing the risky loans along to Wall Street for high fees.

"It was that kind of lack of discipline and lack of risk management that caused the industry to collapse," Templeton said.

The Money Store was the first national provider of home equity loans to people with damaged credit. Stepping into a riskier sector where banks wouldn't go, it shined brightly for years in the financial universe, its brand pitched far and wide by former New York Yankees shortstop Phil Rizzuto and ex-Baltimore Orioles pitcher Jim Palmer.

Then, almost as fast, it disappeared alongside many rivals in the late 1990s.

Source Sac Bee