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Rapidly Growing Lender Defaults

ClearPoint Funding defaults on warehouse lines

March 16, 2012

By staff

A firm that just last year announced plans to grow from a 12-state lender to a national operator has defaulted on its warehouse lines of credit.

In January 2011, ClearPoint Funding Inc. operated in 12 states and the District of Columbia. Staffing at that point stood at around a hundred people.

The Marlborough, Mass.-based company, however, broadly expanded its aspirations when it was acquired by a New York investment banking firm.

That firm was Gleacher & Company Inc., which made the January 2011 acquisition through newly created subsidiary Descap Mortgage Funding LLC.

Mark Pappas, who co-founded now-defunct Mortgage IT Inc., was named president of Descap. At the time of the merger, Pappas said that ClearPoint would be used as a platform to build a national franchise and grow through acquisitions.

But the strategy has apparently turned sour.

In a filing Friday with the Securities and Exchange Commission, Gleacher disclosed that it would be late in filing its Form 10-K annual report for 2011 because of developments at ClearPoint.

"These developments involved defaults by ClearPoint under its short-term, secured mortgage warehouse lines of credit," the filing said.

However, the subsidiary has completed discussions with its three warehouse lenders and obtained default waivers on Thursday.

Gleacher explained that ClearPoint started experiencing liquidity constraints as a result of the rapid expansion strategy coupled with an unanticipated decline in purchases by the primary lender that acquires its loans -- clogging up its warehouse lines and forcing it to come up with cash to clear the lines.

"In March 2012, ClearPoint was found to be in default under certain provisions of each of its three warehouse lines of credit concerning covenants relating to liquidity, net profit/loss and certain notices for various periods from October 2011," Gleacher stated. "These defaults also resulted in cross-defaults by ClearPoint under each warehouse line."

Gleacher said that it has stepped in to guarantee some of the mortgage unit's obligations tied to warehoused loans. Its exposure tied to curtailment guaranties for loans funded on or after Feb. 29 was raised from 5 percent to as much as 100 percent depending on how long the loan has been warehoused and the current market value of the loan.

One of the warehouse lines that was slated to expire on March 10 has been extended by 120 days.

Gleacher expects to recoup its outlays when the warehoused mortgages are sold. It says that the market for the loans is "highly liquid." It expects no material adverse effect on its own financial standing unless the market dries up.

ClearPoint has established a plan to rectify the defaults and relieve Gleacher of its expanded obligations.

Gleacher expects to file its financials no more than 15 days after the deadline.

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