ROCK NOW OFF THE ROCKS AND RIDING HIGH: INTUIT BUYS TROUBLED WEB-BASED MORTGAGE LENDER TO THE TROUBLED

In just a year, Rock Financial Corp. has gone from being just another troubled credit lender for those with credit problems to the Internet’s number one loan originator.

But Rock announced early this month a buyout by Mountain View, Calif.-based Intuit Inc., which is best known for its Quicken line of financial applications.

Intuit has quietly grown a large Internet home lending presence over the past 18 months. Its Quicken Mortgage subsidiary originated more than $1.2 billion in home loans in the 12 months that ended July 31.

Bingham Farms, Mich.-based Rock, meanwhile, closed all but three of its branches this year in a major shift to the Internet for its loan originations.

Intuit’s $23-a-share offer isn’t much of a premium to Rock’s recent market price, which was trading around $21, well below its $35 peak during the height of the Internet stock silliness in April.

But just compare it with Rock’s stock price a year ago, pointed out an admiring competitor, Timothy Ross, president of Oak Park, Mich.-based Ross Mortgage Co.

Mr. Ross says Rock’s abortive 1997-98 foray into mortgages to buyers with bruised-credit ratings – so-called B and C borrowers – through a subsidiary called Boulder Lending, has since been sharply cut back.

almost a penny stock

“If we go back to the third and fourth quarter last year, when Rock and all of those B and C stocks fell apart, Rock got down to three or four bucks a share,” Mr. Ross says. “I wouldn’t call them a phoenix, but this is an incredible play for them to have done this. Certainly their commitment has been to Internet lending and they were already a player, but I think this absolutely makes them the powerhouse they wanted to become.”

Daniel Gilbert, who founded Rock in 1985, said he had been talking to Intuit through most of 1999 on possible partnerships. But he says it wasn’t until early summer that the talks turned seriously toward combining Rock with Quicken Mortgage, which is the ultimate aim of the buyout.

Gilbert says he didn’t think he’d have any trouble persuading Rock shareholders to accept $23 a share in Intuit stock.

“Our stock had advanced quite a bit in just the last few weeks,” he says. “So we still think this is an excellent price, very fair, and it’s tax deferred because it’s a stock-for-stock pooling of interests. Intuit is a company we believe in, and we think our shareholders will, too.”

Quicken Mortgage was essentially a portal site, connecting borrowers to 17 participating lenders for the actual loan closing, says Mark Goines, senior vice president of Intuit’s consumer division. But with Rock on board, he says, “we can now handle the customer all the way through to the closing table.”

Until the buyout closes in late December, Mr. Gilbert says, Quicken Mortgage will simply list Rock as a new participating lender. After the closing “the tech teams of both companies will integrate our two sites, choosing the best of breed from both sides,” he says. “It’s really going to be one company, one state-of-the-art mortgage website.”

Combining the Internet lending volume of both sites will create the web’s No. 1 lender, surpassing eLoan.com, Mr. Gilbert says.

on hunt for a year

Mr. Goines says Intuit has been looking to purchase a mortgage bank for a year or more.

What nobody knows quite yet is just how big a role the Internet is going to play in home lending. Forrester Research of Cambridge, Mass., predicts that virtual lenders will originate $167 billion in loans a year by 2003, compared with about $25.7 billion this year. That’s still only a fraction of the market.

Mr. Ross says the predictions he’s seeing call for web lenders eventually to capture a quarter of the mortgage market.

But it won’t be for everyone.

“Particularly the first-time home buyer continues to need expert help that can hold their hand through the process,” he says.

“Other people are just not hooked up (to the Internet) and may not ever be. Others just aren’t comfortable dealing with the process themselves.”

Mr. Gilbert says the buyout won’t affect his plans to move into a new 110,000-square-foot new headquarters in Livonia, Mich., late this year. “That space is going to serve as the central foundation and nerve center of Quicken Mortgage,” he says.

Mr. Gilbert will be CEO of Quicken Mortgage, reporting to Mr. Goines.

Crain News Service