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NY Mortgage Trust founder launches bank

November 24, 2009 06:00PM By Amy Tennery

Steven Schnall thinks that 1,000 community banks will close in the next year.

Even so, he's confident the one he's starting won't.

Schnall, a mortgage finance expert who founded New York Mortgage Trust, has redesigned the erstwhile Golden First Bank in Great Neck under the name QuonticBank, with initial capitalization of $12 million to $13 million -- half of which came out of his own pocket.

Despite his bleak community bank market outlook, Schnall said that smart lending will help his enterprise eschew failure. He said his background in mortgage financing was a key motivator in his decision to launch Quontic ("ontic" coming from the Greek word "ovtoc," meaning factual existence, and "qu" being the prefix for the word "quality," according to a Schnall spokesperson).

"The reason these banks are failing -- in almost all cases -- [is] bad loans," Schnall said. "Our philosophy is, 'we're here to lend, but you have to be credit-worthy and you have to have skin in the game.'"

Schnall already plans to open a branch in Astoria in the next three to four months and says he would consider expanding to 10 or more branches within the next five years.

Luckily for Schnall, he's gotten businesses off the ground before. In addition to New York Mortgage Trust (note: correction appended), Schnall helped launch a dot-com startup in the late 1980s that is still in operation, and he's currently working on a startup health club business, the details of which are currently under wraps.

His experience with start-ups could come in handy, given Golden First's background.

After opening in 2005, the bank's former owner David Bijan Movtady was the subject of scrutiny from the Office of Thrift Supervision. The OTS ultimately prohibited Movtady "from participation, in the conduct of the affairs of Golden First Bank," in a filing dated Aug. 31, 2009, after finding that Movtady "engaged or participated in… violations of laws [or] regulations" including a misapplication of Department of Housing and Urban Development escrow funds, eschewing "restrictions on extensions of credit benefiting insiders," and engaging in "conflicts of interest" germane to the bank.

Numerous attempts to contact Movtady were unsuccessful.

Golden First's short life span, however, could work in Schnall's favor, the new owner contended.

Quontic won't carry the baggage that other, longer-running banks do, Schnall said. Because Golden First only operated for a short amount of time, it didn't accrue the same level of toxic loans the way other community banks have. And with the former owner buying up the remaining six bad loans from its portfolio on his way out, the bank has a clean balance sheet, as well.

"My goal is to start out with a pristine balance sheet," Schnall said. "I have a healthy respect for credit risk."

In his mind, the loans the bank takes on will fall into two categories: ones it wants on its balance sheet and ones it doesn't. The ones it doesn't -- many 30-year fixed mortgages at 5 percent, for example -- will be sold off to third parties.

"It's fresh -- new brand, new ownership -- all remnants of Golden First will be gone," Schnall said of his new company. "It's tantamount to a new bank."

Tags: Steven Schnall astoria david bijan movtady golden first bank great neck new york mortgage trust office of thrift supervision quonticbank

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