A once-booming mortgage company that specialized in subprime refinances has shut down. The Ohio-based company's demise appeared to be tied to its lack of government loan programs.
In February 2006, Coldstream Financial Services Inc. had 80 employees, including 60 loan officers, co-founder Nolan Marx told MortgageDaily.com in an interview at the time. He noted that the mortgage broker recruited most of its new loan officers and other staff at college job fairs.
Just this year, Coldstream was still actively recruiting from colleges. In March, it participated in a career fair at the University of Cincinnati. A few months earlier, it was a recruiter at the Bowling Green State University Career Fair.
That left Coldstream with only a Kentucky license that was scheduled to expire on Dec. 31. But in 2006 Coldstream was cited by that state for allowing three brokers to repeatedly violate state and federal laws, including originating mortgage loans on properties within the state without being registered with the state's Office of Financial Institutions. In August 2007, it agreed to settle the complaint by paying a $5,000 fine.
|Originations at the Cincinnati-based company -- which was founded in 2003 by Marx, J. Scott Thompson and Jeff Herr -- were $246 million in 2005. About 80 percent of the business was subprime.
In the 2006 interview, Marx projected 2006 production would double over 2005.
Coldstream had promoted itself as Cincinnati's largest lender.
But the broker was not approved to originate loans insured by the Federal Housing Administration -- leaving it excluded from just about the only current growth area in the mortgage industry.
The lack of FHA programs was apparently fatal.
Calls to the company's main office yielded busy signals. Calls to Herr at his home were not returned.
The closure came as Coldstream lost its licenses in two of the three states in which it was licensed.
Coldstream's Indiana license was revoked on Aug. 5 after it failed to meet a July 5 deadline for the state's requirement to register the principal manager of its mortgage broker business, an official in the Indiana Secretary of State's securities division told MortgageDaily.com.
And Coldstream failed to renew its Ohio license, which was then canceled on Oct. 3, a state Division of Financial Institutions spokesman said. The renewal deadline, he said, was April 30, with a one-month grace period.
Without FHA approval, Coldstream saw its subprime business rapidly decline. Many loan officers began leaving early this year.
"I quit before they shut down because I had a gut feeling on my part," one former loan officer, who did not want to be identified, told MortgageDaily.com. "That was months before it happened."
He estimated that more than two-thirds of Coldstream's originations were subprime refinances.
An active mortgage broker for 14 years, who was also a Cincinnati real estate agent, told MortgageDaily.com that he often discussed declining business with vendors when they visited his office.
"Vendors told me Coldstream was basically down to two or three people and that was months ago," the broker/Realtor, who asked not to be identified, said.
He further noted that Coldstream officials had boasted in local media that as much as 90 percent of their originations were being funded through subprime lender First Franklin Financial Corp.
First Franklin was shut down last March by new owner Merrill Lynch. Merrill had acquired First Franklin from National City Corp. on Dec. 30, 2006, and began laying off workers by Sept. 2007.
"Coldstream did well during the boom period but they didn't have sustaining power," the Cincinnati mortgage broker concluded. "Their business was focused on subprime. They would push all their clients into subprime whether they would qualify for conventional loans or not. So it was just a matter of time.
"If you're not doing a real service for your clients you're not going to last."
|Key to One Ohio Mortgage Banker's Success
Bridal shows and home improvement shows are just some of the places one Cincinnati-based mortgage banker drums up leads for its originators. But before they start on the leads, salespeople, who are recruited from a local university, must first endure a 3-month boot camp.