Pepper Homeloans to target self-employed with $5bn mortgage portfolio

Non-bank lender Pepper Homeloans says it will target small business owners and the self-employed after purchasing a $5 billion mortgage portfolio from GE Capital.

The deal was completed yesterday at a slight discount to book value. A final price was not disclosed, although Pepper Homeloans managing director Patrick Tuttle has described the deal as “transformational”.

“This acquisition really leverages Pepper’s core skill in underwriting residential mortgages and also servicing residential mortgages,” Tuttle says.

“It presents us with a unique opportunity to further expand our existing business model into prime residential lending, extending our specialist product suite.”

Pepper Homeloans chief operating officer David Holmes says Pepper’s push into the SME market follows its sale last June to US-based investment firm Aladdin Capital.

“We are looking for opportunities to move into equipment leasing, commercial financing and debt management [as well as] further debt servicing opportunities,” Holmes says.

Pepper also writes home loans to borrowers who fall just outside the credit criteria of major banks, and is working to overcome broker hesitation about selling low-doc loans under new consumer credit laws.

The National Consumer Credit Protection Act, which came into effect on January 1, requires greater scrutiny of low-doc clients and has made many brokers and lenders cautious about dealing with such clients.

The laws are expected to have a severe impact on self-employed borrowers, as it is typically more difficult to assess the financial position of these borrowers.

Holmes said Pepper would continue to service niche markets outside the major banks, including self-employed borrowers.

“There is a lot of growth potential in our mortgage business as credit access from major banks remains difficult,” he said.

This article first appeared on StartupSmart.