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5 More Halt New Business

BrooksAmerica, Charter One among latest casualties

November 27, 2007


photo of Patrick Crowley

Five more mortgage companies have fallen victim to the mortgage meltdown. Among them are Charter One Bank's specialty lending group, Valley Vista Mortgage and New State Mortgage. The other two, BrooksAmerica Mortgage Corp. and Paul Financial, hope to be operating again soon.

Charter One notified its brokers today that it has decided to exit the wholesale mortgage lending business. The message explained new applications will no longer be accepted as of today, and any loans in the pipeline must close by Jan. 4, 2008.

Among recent programs offerings by the company, a indirect subsidiary of the Royal Bank of Scotland Group, were debt ratios to 50 percent and credit scores down to 640, according to a program matrix.

"During the last few months, Charter One has realigned its residential lending business," the message said, adding that the company will now "emphasize our direct to consumer business and continue to offer our retail consumers best in class mortgage products and services."

Just three years ago Valley Vista Mortgage was the third largest brokerage in San Diego, processing more than 1,400 loans that totaled $344 million, according to a ranking that was published in the San Diego Business Journal.

But the company, which had about 50 employees according to online business tracking site, has closed and is no longer originating or funding loans. In a posting on its Web site the company sites a "perfect storm" of unfavorable factors that led to its demise.

"The current liquidity crisis, with the resulting vastly depressed production levels and demands imposed by the secondary market have created a 'perfect storm' in which we are no longer able to survive," Valley Vista said in its statement. "Many other great firms have suffered the same fate, and though we hoped conditions would stabilize, it appears the liquidity crisis will continue for the foreseeable future." was unable contact the company's management. A message on the company's voice mail indicates the company has closed after seven years in business.

Meanwhile in Indiana, New State Mortgage, a subprime wholesaler that employed about 50 people, is shutting down and no longer taking loan applications for subprime.

In what has grown to be a standard practice in the industry, the company's management did not return phone calls to comment but did post a Web site message.

"I have decided to permanently cease all wholesale lending operations," CEO Gary Aloia said in the posting. "Beginning immediately we will not accept any new loan originations."

In 2005, New State did loan volume of about $510 million, according to, which tracks industry activity.

Aloia said the company withered under the pressures present in the industry, namely the difficulty to placing loans.

"We all know many lenders who have ceased to purchase loans due to the pressures of under-performing portfolios," Aloia said in the statement. "That being the case it has been very difficult for New State to find investors for the primary product that we have been known for.

"Loan purchasers seem to expect unreasonable yields or have put so many restrictions on the product that it is difficult to originate," he added. "In addition, there seems to be no guaranty regarding the purchase of these loans at the time of consummation of the loan pool sale."

At its peak, New State operated in 14 states. During its nearly decade in business the company heavily marketed its "ZeroIn" 100 percent LTV loan.

"As the first lender to offer 100% financing with one loan and no mortgage insurance we took some risks that others feared," the company said. "It clearly paid off in that our securitizers and investors enjoy portfolios today of high performing, high loan to value products."

Those loans, however, aren't paying off for the company any longer.

Wholesaler BrooksAmerica Mortgage Corp. of Irvine, CA., said it is not going out of business but has decided to "temporarily suspend new loan originations", according to an announcement posted on its Web site.

"Jumbo A and Alt A loan products that BrooksAmerica has successfully offered for years have become overly restrictive to the point where they have become unviable from which to operate our present business model," the company said. "Despite the fact the company remains financially healthy and in good standing with each of its warehouse banks and investors we have chosen to take a brief respite from the present market."

There is no indication of how many of the firm's 110 employees are impacted by the move. CEO Michael Brooks did not return messages to comment.

BrooksAmerica does plan to be back in the wholesale business when "financial markets return to a more rational pattern," the company said.

"After a brief period of rest, reinvention, and reengineering BrooksAmerica anticipates entering the market in the spring of 2008," it said.

BrooksAmerica announced in May that it began allowing 60 percent debt-to-income ratio for alternative and niche loans of up to $1 million on alternative solutions and niche products. The program offered a six-month prepay option and is available to loan prospects who have credit scores of at least 640.

In July of 2005 the company set out on a path to double its loan volume by entering the subprime market, pledging to grow loan volume to over $500 million in 2006. reported at the time its annual Alt-A loan volume exceeded $1 billion.

The company's total loan originations hit $1.3 billion in 2005, according to

Paul Financial issued a statement it would temporarily halt new loan submissions yesterday. Loans in process will reportedly be evaluated based on current underwriting guidelines to determine if they will be completed.

"Unfortunately, the ongoing seizure of liquidity in the secondary market for residential mortgage loans has limited the company's ability to continue to bring new programs to market," the statement read. "Paul Financial continues to believe rational thinking will return to the secondary market, however, and the company intends to continue to work on sourcing alternate resources to bring back its innovative loan programs in the near future."

Patrick Crowley is a feature journalist and blogger for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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