A-1 Mortgage Company Gets New Management

A contract management company is taking over the operations of A-1 Mortgage Co. of Rogers.

Managers from First Colonial Bank Services Inc. of Atlanta and A-1 signed a memorandum of understanding last week and a senior vice president from First Colonial joined the staff of the company last Tuesday.

Under the agreement, First Colonial agreed to manage the mortgage lender for 18 months with an option to assume or purchase 70 percent of the company’s stock after that period. First Colonial isn’t receiving a fee for its services and all money the company makes during the period will go to A-1.

Final details of the deal won’t be completed until later this week. ‘The board of directors for A-1 must pass a corporate resolution approving the deal, which must then be approved by the board of directors of First Colonial.

“We don’t have much time,” says Reggie Johnson, the senior vice president with First Colonial who has moved to Rogers. “If they don’t have the resolution in the next few days, it won’t matter anymore. This company needs to get back on its feet.”

A-1 has been faltering for the last several months. The company once had plans to have 100 branches in three states by the end of this year and reached a peak of 26 offices with almost 100 employees earlier this year. Last week, the company had just 12 full-time employees and a single office at 100 N. Eighth Street in Rogers.

“It got to where it is by a serious case of overoptimism,” says Tom Waggoner, president of A-1. “I was trying to build a dream and it didn’t work.”

Currently, all the employees are working for reduced wages and some are working without pay completely in an attempt to keep the company operating, Waggoner says. Johnson is receiving only living expenses at the time but may receive a salary eventually.

First Colonial is assuming about $1 million in debt by taking over the operations of A-1, Johnson says. The company has negotiated with several people who have filed lawsuits against A-1 and agreed to pay the claims, Johnson says. The company also plans to pay a $100,000 claim filed against A-1 by the Internal Revenue Service, he says.

A-1 was sued in May by Davis Cox & Wright, a Fayetteville law firm, to collect $8,660 in legal fees from the company. William Jackson Butt Jr., an attorney at the firm, represented A-1 in its effort to contest the IRS claim. The company later agreed to pay the IRS, Butt says.

Butt says he has been contacted by officials with First Colonial and has given the company written confirmation that he will drop his lawsuit if the company pays the bill. First Colonial has agreed to make monthly payments until the debt is settled, he says.

A-1 also is being sued by Charlton Development Co. of Rogers. The company filed a lawsuit May 8 accusing the company of violating a lease agreement on an office A-1 rented in Bella Vista. Charlton claims A-1 moved out of the office before the end of its lease, didn’t pay the last two months of its $1,300 monthly rent and failed to pay its utility bills the last three months.

Last November, A-1 was ordered to pay almost $4,500 to Credit Bureau Data Services of Rogers. The company sued A-1 last September after the company failed to pay its monthly bills for the credit reporting services.

Four former employees of A-1 also have filed wage claims against the company with the state Department of Labor. The former employees claim the company owes them back wages ranging from $275 to $838.

“The lawsuits are of almost no concern to me,” Johnson says. The debts are small compared to other problems the company is facing, he says.

Besides settling the debts against the company, First Colonial plans other major changes. The company will no longer open dozens of one-person offices in small towns surrounding Rogers. A-1 had been working from a philosophy of putting a loan officer in every town that had a Wal-Mart store.

“That’s a thing of the past,” says Johnson.

The company still will have loan officers working outside the Rogers office in a three-state area, but the employees will work from their own homes with laptop computers, Johnson says. The loan officers will meet customers at their jobs or during lunch hours to gather information for loans, he says. The change will reduce the company’s overhead, he says.

Also, A-1 will change its market focus, Johnson says. The company will concentrate on loans to customers who have less than perfect credit, he says, which is a readily available and large market.

“We have to concentrate on generating large amounts of revenue in the shortest amount of time,” he says.

The company also will begin giving its loan officers a four-week training course before allowing them to process loans, Johnson says. The size of the staff also may be reduced further, he says.

“There will be some modifications,” he says. “We are top-heavy.”

Johnson refused to comment on the role Waggoner will play under the new management.

First Colonial has several deadlines to meet within the next month to settle the company’s debts. The IRS has given the company until June 30 to settle its debt, he says.

“The next 30 days are absolutely critical,” Johnson says. “If that payment (to the IRS) isn’t met, there won’t be a business here.”

First Colonial currently is in the process of incorporating in Georgia, Johnson says. Four investors, all former mortgage bankers or bank presidents, are forming the company and A-1 is the first company that First Colonial has managed, he says.

A-1 Mortgage was organized in January 1996 after a split between the two founding partners, Tim O’Connor and Waggoner. The two had formed Advantage One Mortgage Brokers Inc. in November 1993 and incorporated the following February. Waggoner says the two split the partnership because he wanted to expand the company and O’Connor wanted to keep it small.

Not so, says O’Connor.

“My main point was to get out of there,” O’Connor says. “His method of operating was totally different from mine. I got out of there just in time. I didn’t figure he would last a year.”

O’Connor says he had to pay about $26,000 in unpaid bills to get out of his partnership with Waggoner.

O’Connor had operated Advantage One Mortgage Brokers in Tulsa before joining with Waggoner. After the two separated, O’Connor kept the name and opened an office in Rogers where he continues to operate. Last month, he closed about $7.2 million in loans, he says.

Waggoner took the name A-1 and operated from the former Linkway Furniture building in Rogers. He began opening branch offices almost immediately. By the end of the first year, A-1 had 12 offices in Arkansas and Missouri.

The expansions continued rapidly. The company opened ten more offices in February and March of this year and expanded into Oklahoma, following Wal-Mart.

“If there’s a Wal-Mart, we know it will support a branch,” Waggoner said at the time.

The company put a single loan officer in each office and depended on video conferencing to connect the loan officer and borrower with the company’s underwriters. The company advertised that it could get loan approval within days instead of weeks.

Waggoner says he expected to raise up to $5 million from investors this spring to finance the expansions, but it didn’t materialize.

“The capital market wasn’t as receptive to our business plan as we expected,” he says.

By April, the company was spending $250,000 a month and making about $40,000 a month, he says. By the middle of April, the company had depleted its initial starting capital and the cutbacks began, he says.

By May, the lawsuits were being filed as the company failed to pay its bills. Waggoner began looking for investors who could settle the debts and save the company. He found First Colonial.