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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.

First Magnus Finished

New business halted on Thursday

August 16, 2007


An Arizona-based firm -- which was among the fastest growing U.S. companies in 2004 and added hundreds of new employees last year -- and its subsidiary are out of business. As a result, thousands of employees are without a job.

Privately held wholesale lender First Magnus Financial Corp., with more than 5,500 employees in approximately 300 offices and more than $17 billion in loan fundings this year, has shut down all of its operations.

"It's pretty much the end of the day for most of the First Magnus employees," an official who worked on special projects for the Tucson-based lender told "It impacts every one of them."

First Magnus, which originated loans in all 50 states, stopped funding loans already originated but not yet funded and also stopped accepting new applications on Thursday, according to a message left on all of its Tucson phone numbers and on at least some of its local offices.

That statement, and a statement posted on its Web site, said this action was being taken "in light of the collapse of the secondary mortgage market."

"We explored all options before taking this action but were left with no viable alternative," the message said.

Employees calling the company were told to leave a message for information regarding "benefits and other resource matters."

Brokers who had submitted loan applications that were not yet funded were told to either leave a message or contact their local First Magnus offices. But those phones also played only the same message. Its Web site notice told brokers: "We are saddened that we will no longer have the opportunity to work with you."

And borrowers in a phone message were told: "If your loan has not funded, First Magnus will not be able to fund your loan. Leave a message and we will contact you to see how we can assist you." If their loans have already been funded, the message further stated, "this situation will not impact you," and those borrowers will be contacted by the servicers of their loans.

First Magnus' retail division, Great Southwest Mortgage, which originated about 30% of its business, also apparently has shut down. Its Scottsdale office, which had 18 loan officers according to its Web site, had not opened on Thursday, according to the building's manager, who told, "I have no idea what's going on."

About 70 percent of First Magnus' business was wholesale, with about 40 percent of that in Alt-A and 60 percent in conventional, according to estimates by the special projects official who asked not to be identified. Its retail business, through Great Southwest, was mostly conventional. Few of any of either company's loans were subprime, he said.

Great Southwest is a HUD-approved lender and its loan products included reverse mortgages, according to its Web site.

First Magnus said it was founded in 1996 with 12 employees working from 2,000 square feet of office space. In 2003 it reportedly received the National Association of Mortgage Broker's Affiliate of the Year award and in 2004 it was recognized by Inc. magazine as one of the nation's 500 fastest growing privately held companies.

Prior to its closing, it described itself as the nation's largest privately held mortgage bank and the 17th largest mortgage banker overall. Early this year, it even opened a new branch in Tucson, where it was a major presence.

In July 2006, a First Magnus executive told the wholesaler had hired about 600 employees nationwide so far that year alone and did not intend to halt recruiting. The hires included branch managers and account executives.

Last year, First Magnus filed a lawsuit against six businesses and 28 individuals -- including several mortgage brokers and originators -- alleging that it has been the victim of a complex sting operation, causing the company to approve 19 loans that have all defaulted.

Describing First Magnus as "a really well run company," the special projects official called its demise "a tragedy, just a bummer."

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]
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