BOFI a very red flag?

Hi all,

Can’t believe my eyes when Seeking Alpha sent me this piece about some claims against Bofi:

The accusations against BOFI in The New York Times include what we believe may be a potential pending whistleblower action that could blow the lid off this “bold lending operation”.
This point is compounded by FOIA requests into the SEC that suggest there may be an ongoing and undisclosed SEC investigation into BOFI.
To back up our claims, we have accessed public records and analyzed hundreds of BOFI’s loans in detail.
In this article, we provide actual BOFI loan documents that demonstrate BOFI’s lending standards and LTV “gimmicks”.
BOFI has overearned by under-reserving and funding high-risk brokered loans with high-cost deposits. When the California housing market turns, we think BOFI will be a “black eye” for regulators.>>…

Maria (Long Bofi so far)


Can’t believe my eyes when Seeking Alpha sent me this piece about some claims against Bofi:

I can, its seeking alpha.

1dms- long BOFI

1 Like

Now that I’ve observed a few short attacks, I would say this sounds like one.

Hold on to your seat!


1 Like

Yeah Maria, I read the same article. Of course it’s a short attack, and yes, it’s published by SA, an organization with an editorial policy of “is it written in reasonably passable English?”

Yet, it is disturbing. There might be some truth to it and it references a rather damning NYT article, an organization with a somewhat more rigorous editorial policy.

This article coupled with the GlassDoor comments I recently became aware of was sufficiently unnerving for me to place 10% trailing stop loss orders on my BOFI holdings. I rarely use stop loss orders, but this seems like a smoke and fire situation sufficiently worrisome to warrant a bit of protection.


Hi brittlerock!

For the same reasons you mentioned, and because it’s all about trust in the management I’ve just sold half of my position in BOFI at the open. The other half is on the benefit of doubt.

Sorry BOFI it’s not you its me!




BOFI was my 2nd largest holding. I’ve been more actively trading the last two weeks, which I don’t really like. Trading was good to me this week, the best being NFLX, up 25%. Maybe that is affecting me. Anyway, I did sell all but the odd 3 shares which makes it easy to track the result (I know, I shouldn’t do that). I spread much of the proceeds among AMBA, ANET, AAPL, others… My thinking is that BOFI will underperform for a few days. It was an IRA account. I’ll reflect on it over the weekend and into next week.

Being here in the Philippines where billions disappear in untraceable ways, the hints of compliance issues made me nervous. So also, it is just me. More comfortable to take my bagger and move on. Thought about some plain vanilla put protection or short/long combination but nah, keep it simple.


1 Like

I also just sold my BOFI. The article makes some very good points. The main sticking point to me is:

Why, if they are lending at 50-60 LTV, would they be getting higher rates?

If you are lending at lower LTV’s that means you are much more secure. That makes me wonder the quality of the person they are lending to or the quality of the appraisils they are getting.

Anyhow, there are so many great companies out there that I love and that are a little bit easier to understand (SBUX being my favorite). I’d rather move on and put this company in my “too hard too understand” bin


1 Like

As for the compliance issues I think that when the H&R Block deal was being investigated by the US government they looked heavily into BOFI’s lending practices. The fact that it was approved signaled to me that BOFI is compliant. The share price seemed to reflect this as well as shortly after approval was announced the PPS slowly ascended.



Check out Fletch’s latest post on BOFI board. To me, he is the banking expert and has done extensive analysis on BOFI over a rather long period of time. His quarterly analysis of BOFI business performance is thoroughly and deep.…



Good point on the H&R Block approval. I suppose the left hand knows what the right hand is doing, even at government level.

Anyway, Friday night, fiesta in full swing down at the beach; early seminar tomorrow, so off to bed with the aircon generating white noise to cover the music; and my sleeping well with my BOFI in someone else’s portfolio.


For those who don’t have Rule Breaker access, Fletch, the expert on BOFI and banking in general notes there is no new information in the NYT article that the SA piece is based on and that all the same claims were made back in April of this year.

In addition the SA piece, is written by an anonymous author, Friendly Bear, who specializes in “shorts.”

Not much more to say,



Why, if they are lending at 50-60 LTV, would they be getting higher rates?

In part it’s because they are non-conforming jumbo loans – that is, too big for the government agencies to buy. That’s very common in California given the high housing prices, and that’s where BOFI does most of its mortgage business. So those loans either have to be held on the books or sold on to private investors: it’s not as simple as just originating them, collecting fees, and passing them off to government agencies like most banks do. As a result, higher interest rates can be demanded. If you search around for explanations of jumbo loans, you’ll see that’s very common.

Here’s what the CEO said in an interview with TMF:

We’ve always been very good at the asset (loan) side of the business. We’ve got an excellent network of brokers who aren’t necessarily the cheapest but who can bring us the kind of business that makes sense. 5/1 Jumbo residential loans are the only ones we intend to keep on the book. Right now, we’re getting about 57% LTV on those at yields that are 4.5% or higher. On the C&I (commercial and industrial) side, we’re getting 5.5% - 6% yields on mostly secure paper. That’s a great business for us. We sell almost all of our 15/30 fixed, agency-backed (conforming) loans because they just don’t satisfy our 15% ROE (return-on-equity) bogey.…

And here’s what Fletch said about this when responding to a short attack 1.5 years ago that made many of the same allegations:

BOFI does make non-conforming “jumbo” loans, and a lot of them are in Southern California. I believe “jumbo” loans are loans above $417,000. I have relatives who live both in the LA and San Diego area, and I don’t know how most people down there would be able to buy a house without needing a “jumbo” mortgage. Heck, most people in Portland these days need a “jumbo” mortgage to buy anything in the city.

And having a K-1 for your income isn’t a bad thing. For example, a partner in a law firm or a business owner likely receives most of his or her income via a K-1 as a business owner. It is not a stretch to think that some of the people in Southern California buying more expensive homes may be business owners, partners in firms, etc. That doesn’t mean they are somehow bad credits. And BOFI doesn’t make “no doc” loans, which the author also implies.…

One thing I notice is that all of these articles and short attacks imply that if a traditional bank isn’t willing to take on a loan, then it must be riskier. But that’s not necessarily true. Here’s what the CEO said in the latest earnings call:

We originated high-quality loans in the fourth fiscal quarter. The average FICO for a single-family agency eligible production was 765 with an average loan-to-value ratio of 66%. The average FICO for the single-family jumbo production was 708, with an average loan-to-value of 62%.…

Those don’t sound like low-credit borrowers to me, but that’s what those articles want you to believe. Furthermore, how does anyone know that other banks wouldn’t make those loans? There seems to be this implication that because BOFI made the loans, nobody else would. Again, more FUD (fear, uncertainty, and doubt).

Finally, why do you own BOFI? Seriously: why do you own this bank, out of all the other banks? The reason is that they have a competitive advantage. What is that advantage? It’s a combination of primarily two factors: (1) they are very data driven, and (2) they are willing to use that data to go after very profitable niche business that other banks are ignoring.

The data-driven part is very important. What is it about a FICO score of 700 that magically makes a borrower credit-worthy? Nothing. Nothing at all. We sort of take this for granted, but that FICO score is simply an analysis of various metrics that provides a single data-point. Who is to say that it’s the only way, or even the best way? Who is to say that BOFI is not better at analyzing the quality of borrowers? Certainly the one yardstick we have for measuring that outcome – loans in default – looks very good.

Remember, too, that “risk” – at least if we’re calling it permanent capital loss, which seems like the most reasonable definition to me – requires more than just default. It also requires an inability for the bank to get back its loaned-out capital through repossession and sale of the property. And that’s where the low loan-to-value comes in. Again, the CEO on the latest call:

At June 30, 2015, the weighted average loan-to-value of our entire portfolio of real estate loans was 56%. The very low average loan-to-value ratios in our loan book are not obscuring risk in the tails of our portfolio. For example, in the bank’s entire single-family loan portfolio, both jumbo size and below, excluding loans originated for sale for the government sponsored entities, there is only one loan that was originated at greater than 80% loan-to-value. We have had a direct pledge of liquid collateral that would reduce the collateral exposure levels below 80%.

The advantage of BOFI as an investment, in my opinion, is exactly the behavior that the shorts are attacking: their willingness to be different and their drive to be excellent at being different. Here’s one more quote from the CEO from that TMF interview:

Bankers spend a lot of time trying not to be different, not taking risks. And a lot of banking is ultra-structural.

“I saw an industry ripe for disruption.” I did all my learning at Goldman Sachs and McKinsey. I was ready to be a leader and have a big impact. I felt I could have a larger impact at a smaller organization like BofI where I would have an opportunity to put in the right culture.

What’s the right culture? It’s about empowering individuals, demanding excellence, and focusing on shareholder value. For us, it was also about being very data driven.

If you’re investing in a disruptor, it goes with the territory that they’re going to do things differently. Some people don’t understand that, while others try to use it against investors to spread fear and make a profit. I think the best thing we can do is to understand our investments as well as possible so that we can make our own informed decisions, acknowledge the risks of being wrong, and then allocate appropriately to manage those risks.

Just my 2 cents.



Thanks, Neil. Very well said.

I can speak from experience because I am the type of customer that most regular banks won’t lend to. I think that I would be a target customer for BOFI.

Around May 2009, I was trying to get a mortgage. I wanted the cash to invest in stocks. I tried for several years, but no bank would lend me money.

Here was the situation:

  • wanted LTV of about 30% on a home with no mortgage
  • had no W-2 income (left my day job in 2007)
  • had liquid assets (stocks) worth more than the value of the mortgage
  • credit score over 800
  • owned residential property since 1994 with not a single missed or late payment on any mortgage…ever
  • no credit card debt, car owned outright

I could not find a bank to lend to me. Not a single bank. If I had known about BOFI they might have lent to me. I kept trying and finally in 2013 I was able to get a mortgage but Wells and BofA still wouldn’t touch me. As Neil said, these banks sell off their loans and there are set in stone requirements (absolutely no flexibility even when the borrow posses virtually no credit risk). I just refinanced my 2013 mortgage a few months, and I am paying 0.5% more because I wanted the extra cash. Yes, I accepted a higher rate because I am confident that I can average more than 4.5% in the stock market over the next 30 years. I imagine there are people like me who don’t really care much if the rate is 4% or 4.5%…it’s more important to just get the loan if rates are set to start rising soon.

Another story: my dad moved back to the US in 2003. He had lived in Asia and Australia for about 30 years so when he arrived here he had no credit score. He bought his house for cash and he had plenty of other assets. When he bought a new car, they wouldn’t give him a loan. He couldn’t even get a credit card with more than a $400 limit! How ridiculous is that!

These stories illustrate how “stupid” banking institutions in the U.S. can be. They follow their rules for lending which as largely based on credit scores or other factors that need to be met for loans to be sold off. Yet, there are many people who don’t meet these standards but bring a very low risk of default; these people want to take advantage of historically low rates. Some are people with unique circumstances, some are overseas real estate investors (BTW, I heard somewhere that 30% of home buyers in the SF Bay Area are from overseas), some are new immigrants, some are people with some blemishes on their credit.



Hi Maria,

It is always possible that there is some (or even complete) truth to the article. And, it is always good to seek out opposing points of view in order to validate your expectations for a companies worth. However, before reading any Seeking Alpha article, I always check the authors view of the market. In this case we have –

The Friendly Bear
Short only

So, this person always views the world through the lense of looking for something which might blow up. And, they may even be trying to light it on fire and blow on the flames.

BlazerMania (Fletch) is the local expert on BOFI having followed it for a long time and has been providing a lot of great insight into BOFI over time.

Fool One Guide
long BOFI


Certainly appears to be a short attack, per Neil and others. If the story hasn’t changed and the 'whistleblower" is really a short who wants to sow fear and unrest, the article may do that. It’s unfortunate that SA allows such a forum from a fear standpoint, and an opportunity (potentially) for those bullish on the company to augment their long positions with some income from selling juicy puts.

I’m going to check out pricing Monday morning with the idea of seeking my own alpha. We’ll see.


Sorry-I’m long BOFI

1 Like


To support your point on California real estate, I went to I checked house prices in six cities. I looked up the number of properties selling for $10,000 or more, and also selling for $850,000 or more. Now, with your memory that jumbos are $417,000 or more and dividing by, I guess, 60% LV, that is where I assumed that for BOFI, a “non-conforming” loan would typically be for a house in excess of $850,000. Whether or that is accurate, here is the data on house prices (sorry about the formatting, there was a post in the last few days explaining this. I wrote down the bold and italics but not the making of tables):

City >10,000 >$850,000 % of market > 850,000
La Jolla 337 271 80%
Los Altos 23 22
Los Altos Hills 32 31
San Jose 1,489 460 31%
San Diego 3,072 703 23%
Palo Alto 56 49 88%

So, just answering one of my earlier questions, just how big is the market for these loans?.. well, pretty big.
So now, I get more over my head, but I googled debt to income ratio for jumbos it said 36%. Another site talked about monthly mortgage payment to monthly income of something like 43%. That seems to mortgage payment versus stable monthly income. Clicked on a run-of-the-mill Palo Alto home, $2.85 million with estimated $13,832 monthly mortgage payment. That would be $27,000 to $40,000/month income depending on how much the lender bent toe 35% or 43% rule. Plenty of people with that income on w-2’s, I think.
Lot of people with w-2 income at that level, and I’m sure a lot of people with that income not documented by w-2,

More to think about.

Also, thinking what if those compliance employees that no longer work there were let go? Don’t remember if it said they quit. Anyway, if “let go” for cause it would be cause to line up an attorney in case there is an investigation later.



Chris, most of us can relate similar tales involving people we know. I usually pay off debt early and have been informed that it actually hurts my credit. Also I do not have any department store credit cards.
(why would I want them?)

Despite these I have a very high FICO score, based mostly on never missing mortgage payments or credit cards. If I had not used or needed these, my FICO would be low. but I would still ay off loan.

Bank loans are strictly based on a formula which works well enough in good times.The real estate bubble pop shows how badly they cam work at atypical times.
No doubt small banks can derive their own formulas that will work as well. Personally I think wealth , unencumbered liquid assets, counts for a lot in ability to pay back loans… Small banks can also skip states where laws are too much in favor of borrowers.


with your memory that jumbos are $417,000 or more

Conforming loans are up to $417K. In California, there are high conforming loans which are up to $625,500. These are not Jumbo loans.

1 Like

OK,OK, selling at once half of my oversized position (18%) in BOFI could be my mistake!

Thank you everyone for providing so good insights and analysis. I love this board because all of you are smarter and more experienced investors than me, and so generous to share it!

Wait a moment! a guy who is cheating and mistreating his employees (GlassDoor ratings) could cheat his shareholders?

No so red flag, but something to pay attention, IMHO

Thanks again!


1 Like