ditech.com: Information from Answers.com

Company Perspectives
People are smart. It's our mind that kept us from becoming dinner for prehistoric carnivores. It's our intellect that enabled us to place a robot on a planet a couple hundred million miles away. And it's our ability to apply knowledge that tells us it's not a good idea to stick a fork in a light socket. Or fry bacon in the nude for that matter. When you stop to think about it, proof of our smart is everywhere. We prove theorems. We build skyscrapers. We buy low and sell high. We cure diseases. We split atoms. And if we're really smart, we split aces and eights. It's true--people are smart. And it's the customer's smart that we respect and strive to live up to; because people know what they want in life. They know what's best for them and their family. And they know that if we offer competitive home mortgages and smart financial solutions, together, we can make the most of our smart. That is, if we're smart about it.
Key Dates
1995: J. Paul Reddam establishes DiTech Funding Corporation.
1999: Reddam sells his company to GMAC Mortgage.
2005: Control of the company, operating as ditech.com, becomes the purview of Residential Capital Corporation.
2006: Richard D. Powers is named ditech.com's leader.
2007: A new marketing campaign, aimed at distancing the company from the subprime lending sector, is launched.

Type: Wholly Owned Subsidiary of Residential Capital LLC
Address: 3200 Park Center Drive, Suite 150, Costa Mesa, California, 92626, U.S.A.
Telephone: (714) 800-5800
Toll Free: (800) 803-7656
Fax: (714) 800-5801
Web: http://www.ditech.com
Employees: 400
Sales: $150 million (2006 est.)
Incorporated: 1995 as DiTech Funding Corporation
NAIC: 522292 Real Estate Credit
SIC: 6162 Mortgage Bankers & Correspondents

Ditech.com provides mortgage loans to consumers through its web site and via telephone, operating as a direct-to-consumer lender on a national basis. The company offers first mortgages, fixed-rate second mortgages, and home equity lines of credit, conducting the bulk of its business with borrowers who are charged the prime interest rate. The company is organized as a business unit of Residential Capital, LLC, which controls the mortgage-related subsidiaries owned by General Motors Corporation. Cerberus Capital Management, L.P., a New York-based private equity firm, holds a 51 percent stake in Residential Capital, which is often referred to as "ResCap."

Reddam Strikes Gold

Ditech.com enjoyed nationwide exposure early in its development, joining the elite tier of companies whose brands were household names. The widespread recognition of the company could be credited to its founder, John Paul Reddam, a professor of philosophy, Thoroughbred owner, and, after his achievements with ditech.com, one of North America's most successful consumer loan experts.

Born in 1955 in Windsor, Ontario, Canada, Reddam left his hometown with a bachelor's degree and a passion for horse racing. He earned his degree in psychology from the University of Windsor and cultivated his love for horse racing at the Windsor Raceway, where he frequently could be found watching harness races. Reddam attended graduate school at the University of Toronto, where he earned a master's degree in philosophy before earning his doctorate from the University of Southern California. He remained in California after completing his education, eventually joining the faculty at California State University, Los Angeles, where he taught philosophy. Reddam also actively joined the sport of horse racing after moving to California, purchasing his first Thoroughbred in 1988, the first of more than 60 racing and breeding horses he would acquire through the years.

Reddam began creating a name for himself in the residential loan sector in January 1995, the month he formed DiTech Funding Corporation, the name of his company at its inception. DiTech, a portmanteau of "direct" and "technology," was created to participate in the retail mortgage market, but unlike nearly all other competitors in the market, Reddam's company conducted its business without traditional retail offices. DiTech became one of the first companies to offer mortgages online, which, along with a toll-free number, served as its means of conducting business with the public. The approach could work, but only if his marketing efforts convinced borrowers to switch from using traditional brokers and enter the more ephemeral realm of online mortgage banking.

Marketing Leads to Early Growth

To succeed, Reddam's business plan needed to broadcast its message to a large audience. Initially, his efforts to market DiTech's services were limited to Southern California. He began in April 1995, when he started originating, selling, and servicing mortgage loans tied to the prime interest rate. The ambitious nature of Reddam and his business model soon spread DiTech's presence beyond the confines of California, extending the company's operating territory to seven states by the end of the year, an abbreviated one in which the company originated $302 million in loans. Quickly, the geography of the company's area of influence broadened, spilling out to include customers in 46 states by the end of 1996, when the company originated $621 million in loans. By the end of the following year, DiTech originated $1.2 billion in loans secured by properties in 49 states. Within two years, the company had become a rising force, a new competitor in the field that owed its prominence to the power of marketing.

During the first three months of 1998, DiTech originated more than half the total amount of loans it originated in the previous year. The company was growing, and it was growing at a rapid pace. Reddam delved into other business areas of his chosen field, offering subprime rates to borrowers in 1996, but the reasons for his success went beyond which types of loans he was offering. Marketing propelled DiTech forward, giving it the volume of customers required to fuel its geographic march. Reddam advertised on radio, on billboards, and, most extensively, on television, airing commercials on several national cable channels. The commercials featured an exasperated loan officer continually frustrated by losing business to DiTech, prompting him to utter the marketing campaign's tagline, "lost another loan to DiTech." The advertisements turned DiTech into a household name, generating a wealth of business for the young company.

As his business grew, Reddam began servicing other types of loans, diversifying beyond DiTech's first product, prime first mortgage loans. He dabbled in subprime lending, but spent most of his energy marketing prime high-loan-to-value (HLTV) second mortgages. To convince consumers to replace their adjustable-rate real estate loans with fixed-rate loans, Reddam introduced a $395 flat-fee program, touting loans that enabled consumers to borrow up to 125 percent of their home's value, 125 LTV loans, with no restrictions on how the money was spent.

New Owners in 1999

DiTech attracted customers in droves. In 1999, the company originated nearly $4 billion in loans, a volume of business that attracted the attention of GMAC Mortgage, part of the financing arm of automaker General Motors Corporation. One of the largest residential lenders in the United States, GMAC Mortgage acquired DiTech in 1999, a deal that reportedly netted Reddam $80 million. Reddam stayed with DiTech until the following year, leaving to pursue business interests that eventually led to his formation of another California-based finance company, CashCall, Inc.

Under the control of GMAC Mortgage, DiTech turned into ditech.com, but the slight change in name did not weaken the awareness of the company's brand. The widespread recognition of the name represented one of the primary reasons GMAC Mortgage completed the purchase, giving its already stalwart position in the residential mortgage market the added boost of a well-known brand name, not to mention a nearly $4 billion addition to its loan portfolio. For its part, ditech.com enjoyed the vast resources possessed by the General Motors Corporation family of companies. It was able to invest in the development of new loan products, new technology, and in its customer-service infrastructure.

Within the folds of General Motors Corporation, ditech.com became a difficult company to track financially. It reported its loan production figures through GMAC Mortgage, making assessments of its progress during the first years of the decade more speculation than calculation. The company was profitable, however, at least according to Michael McCarthy, ditech.com's leader. Although no longer heavily involved in providing 125 LTV loans, ditech.com maintained its appeal among consumers, particularly those looking to refinance their mortgages.

Organizational Changes in 2005

After a lull in notable events, significant developments occurred as ditech.com celebrated its tenth anniversary. In 2005, General Motors Corporation reorganized its mortgage subsidiaries, putting the companies under the control of Residential Capital Corporation, a holding company that converted into a limited-liability company the following year. In November 2006, one month after Residential Capital Corporation became Residential Capital, LLC, General Motors Corporation announced it was selling a 51 percent interest in its finance arm to New York-based Cerberus Capital Management, L. P., a private equity firm.

Powers Takes Command in 2006

Amid the restructuring efforts, ditech.com gained a new leader. In mid-2006, McCarthy resigned as the company's general manager, which led to the appointment of Richard D. Powers to the company's top office. Under Powers' control, ditech.com would undergo the most substantial changes in its identity since the early days of Reddam's leadership. Powers joined ditech.com from Metrociti Mortgage Corp., where he served as president of the company's western division. Before working for Metrociti, Powers served as president of homebuilder KB Home's mortgage unit, a post he accepted after serving as a senior executive at Charter One Mortgage, an affiliate of Charter One Financial.

Shortly after joining ditech.com, Powers altered the message the company broadcasted over the airwaves. The biggest news in the mortgage industry at the time was the developing crisis in the subprime lending sector, a debacle of profound proportions that threatened to inflict heavy damage on the rest of the mortgage industry and the national economy as well. Subprime lenders, their fortunes tied to borrowers with suspect credit histories, were foundering in bunches, creating a maelstrom of negative publicity that stained the mortgage industry's image. Powers, who took the helm of ditech.com as the subprime sector began to reel, moved quickly to mitigate the damage incurred by his new company.

A New Marketing Message

For roughly a decade, ditech.com had relied on a frustrated loan officer to convey the company's message to the public. The commercials were ingrained in the minds' of consumers, but Powers realized the company was delivering the wrong message. By surveying focus groups, Powers discovered consumers believed ditech.com was a subprime lender, precisely the last message the company wanted to send. Despite public perception of its involvement in the beleaguered sector, ditech.com only flirted with subprime lending, generating just 13 percent of its business from loans made to those with shaky credit histories, a percentage that was 7 points below the national average for mortgage lenders.

Powers sought to change public perception of ditech.com and distance his company from the troubled subprime sector by ordering a new advertising campaign. "We are doing a full-blown review of the various channels we utilize for getting our message out," Powers said in a November 26, 2006, interview with the Orange County Register. "We are making some changes." The company launched its "People Are Smart" campaign, which stressed making prudent decisions based on expert advice given by the company's loan consultants. Also, for the first time, ditech.com mentioned it was a "GMAC company" in its commercials, both onscreen and in a voice-over, thereby tapping into GMAC's reputation as a disciplined lender.

Product Offerings

As ditech.com pressed forward, the company continued to retool its loan offerings to attract customers. Among its products was its "Real Life Plan," a three-in-one finance tool launched in 2007. The plan combined a fixed-rate, 30-year mortgage, a no-fee home equity line, and a no-fee MasterCard, enabling customers to pay down their loan principal at an accelerated pace. "We had all three products independently in the past," Powers explained in a June 2007 interview with Origination News. "GMAC introduced a credit card that pays back a mortgage. Following that a few competitors launched a couple of products, which tells me that there's something there, that we're on to something."

Ditech.com also enjoyed success with two other types of loan packages, which along with its Real Life Plan, ranked as the company's three most popular products as it prepared for the future. The company's "Sleep EZ Loan" was a 30-year loan structured to allow customers to pay only the interest for the first ten years of the loan. Ditech.com also offered "Equity Builder," which it claimed could save $68,000 in interest payments on a $250,000 loan over a 23-year period. Along with its stable of new products, the company also offered the $395 flat-fee home loan that had made it famous during the 1990s. The loan offerings, coupled with 24-hour, seven-days-a-week sales support and a strong Internet presence, were the tools Powers hoped would lead to a successful future for ditech.com. The company had demonstrated a direct-to-consumer lender could succeed. In the years ahead, ditech.com intended to solidify its position in the mortgage industry and entice more consumers to take the direct approach to securing a home loan.

Principal Competitors

Countrywide Financial Corporation; E-LOAN, Inc.; Quicken Loans Inc.