Ex-Delta chief starts mortgage company

The former senior management of bankrupt lender Delta

Financial Corp. is launching a new mortgage company that may open retail

offices - and some employees might even be sitting at their old Delta desks.

Reliance First Capital Llc will be based in Woodbury for the next six

months or so as a small staff works on start-up initiatives, such as getting

state banking licenses, former Delta chief executive Hugh Miller wrote in a May

8 posting on dfcconnect.com, a Web site for ex-employees.

Not only is Miller recycling his old title at the new outfit but Reliance

has also bought about $40,000 in assets from the defunct subprime lender.

"We did sell some assets, equipment and furniture, to Reliance ...

computers, office furniture, things like that," said Mark Power, partner in the

Manhattan-based Hahn & Hessen law firm, which represents the creditor

committee in Delta's bankruptcy case.

Delta, founded in 1982, was ranked as the ninth-largest subprime mortgage

lender by National Mortgage News until the Woodbury-based company filed

bankruptcy in December, when its court papers listed $7.2 million in assets and

$7.1 million in liabilities as of Sept. 30. It laid off most of its 1,300-plus

workforce late last year.

In his Web posting, Miller said the company has paired with Wexford

Capital, a Connecticut investment firm. It specializes in distressed and

bankrupt businesses and manages about $7 billion in hedge and private equity

funds. Miller and Wexford did not return calls.

On Friday, the company added an accounting manager post paying up to

$100,000 on CareerBuilder.com. "You will have an exciting opportunity to make a

significant impact as you work closely, in a start-up enterprise, with a

seasoned executive management team that has over 20 years of mortgage and

consumer finance related experience located in Long Island, NY," the posting

said.

A key question is how a newcomer can thrive in a mortgage industry still

reeling from the billion-dollar subprime collapse.

Miller's posting hinted at a plan: reusing Delta's last-ditch strategy to

focus on government-backed loans from the Federal Housing Administration.

"I know I needn't tell any of you that the markets are still in terrible

condition," Miller wrote. "As a result, it is our intention that Reliance will

be focusing on FHA lending as well as some other alternative products out of

the gates. Since we will obviously be starting out in a smaller capacity, we

will not have the ability to hire back everyone we would have ideally wanted

to, but we are hopeful that we might have the opportunity to speak to many

former Delta and Fidelity employees about employment as we continue to grow and

ramp up."

A New York State banking department spokeswoman said no "complete

application" for Reliance has been filed.

The new venture comes as trustees and attorneys for creditors in the Delta

bankruptcy case begin reviewing all claims and liquidating what may be up to

$14 million in assets.

Some watchdogs said the company, once accused of predatory lending, had

cleaned up for the most part and was focusing on fixed but high-interest loans

when the subprime market collapsed. That dried up Delta's key funding sources.

Dean Hartman, chief planning officer of Continental Home Loans in Melville,

said Miller's "alternative products" sound like subprime, but it could work

because most lenders have run away from subprime.

"There's a void in the market," he said. "They can do pretty well if

they're careful and not become cowboys again."

HOW DELTA COLLAPSED

Timeline of Delta Financial Corp.'s demise

Aug. 9, 2007: Reported second-quarter earnings of $777,000, way down from

$4.9 million in first quarter

and $7.2 million a year ago

Aug. 14: Negotiates $60-million loan from top shareholder, hedge fund

manager Angelo, Gordon & Co.

Aug. 27: Suspends third-quarter dividends

Sept. 5: Bundles for sale bonds backed by $900 million in mortgage loans so

it can get money to make more loans; bonds sell at a $56.2-million loss

Nov. 8: Lays off 450 workers and reports a $39.6-million net loss for third

quarter and outlines restructuring plan that focuses on federally backed loans

Dec. 5: Key funding source stops cash flow

Dec. 17: Files for bankruptcy and reorganization

Dec. 26: Nasdaq delists Delta stock

- ELLEN YAN