Then he noticed it was 10 p.m.

"I knew I was going to have to do this every day until the end of time," Flaherty said of the mortgage brokerage firm he had purchased and renamed in 1995. "It was fine when I was 31 or 32, but did I really want to be driving home from Batavia at 10 o'clock at night when I'm 52?"

That's when the president of Flaherty Funding Corp. realized he and his wife Molly needed to build their business on something more substantial than the equity of their sweat.

They accomplished that goal in 2000, when Tom Flaherty was awarded a mortgage banking license, which he said gives the firm direct access to "the big boys," lenders with names like Citibank, JPMorgan Chase and Bear Stearns.

It wasn't an easy process. The Flahertys had to reinvest in their company until its net worth was at least $250,000. They also had to obtain an industry-specific credit line that gave them immediate access to millions of dollars.

"It was a proctology exam," Flaherty, 42, said of getting his first warehouse line of credit, a necessity for operating a business like Flaherty Funding. "It was easier to save $250,000."

Flaherty said his fellow mortgage brokers told him he was crazy to go to such trouble. But the former accountant said he saw developments in the brokerage industry that told him it was going to become increasingly difficult to earn a profit \u2014 including state regulations that capped commissions and increased costs.

The move turned out to be more fortuitous than he expected. Last year's collapse of the subprime mortgage market forced the closure of more than 200 mid-level lenders, or mortgage wholesalers, which gives brokers fewer options.

Flaherty doesn't claim to have predicted the 2007 shakeup. But he said the timing of those events has hastened his plan to expand Flaherty Funding into a national mortgage bank.

For the past several years, he has been recruiting brokers from around the country to sell exclusively for his company using a Web site that gives them direct access to his mortgage portfolios. The brokers keep their companies' names, which become DBAs of Flaherty Funding.

In recent months, the brokers have become much more receptive to that pitch, he said.

"They get to keep the name that took them years to establish, but in reality they're a branch of Flaherty Funding with access to our support and sources."

Robert D. Manning, a professor of finance at Rochester Institute of Technology, said the Flahertys' plan has promise if they don't overextend themselves.

Manning predicted it will take at least three years, including a period of recession, for the mortgage industry to right itself.

And there are still unanswered questions about what regulatory changes the U.S. government will enact along the way.

But when the dust settles, there's a good chance that small regional companies like Flaherty Funding will survive because they have reduced their overhead with computer automation and a sales force paid by 100 percent commission.

"It sounds like an operation that can take advantage of change," Manning said. "It could have a lot of potential."

So far, Flaherty Funding presides over a network of brokers in eight states and has the infrastructure to support a sales staff of more than 300.

Revenues average about $3 million a year and the work force includes 12 salaried employees and a commission-only sales staff of 37.

As vice president of marketing, Molly Flaherty built the company's name recognition and established a reputation for community support by sponsoring such charities as Christopher's Challenge and School of the Holy Childhood.

Tom Flaherty, who is awaiting the birth of his seventh child, said he spent a lot of sleepless nights considering whether to invest more than $100,000 on the recent technology upgrades. But he said he has learned not to dwell too long on decisions.

"You hit a home run or strike out," he said. "You can't do either one in the dugout."

PFLANIGA@DemcoratandChronicle.com

This story ran on Rochester Democrat and Chronicle on January 6, 2008.