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Coverage of new and existing net branch operations. Programs, payouts and other details. Profiles of brokers and net branch lawsuits.

200-Branch Operation Closing

First National Mortgage Sources winding down

February 28, 2008


A Kansas-based bank is shutting down a net branch subsidiary with around 200 offices. But some branch managers are baffled by conflicting messages from the company as well as another mortgage lending subsidiary the bank recently opened.

First National Mortgage Sources, which had billed itself as "one of the fastest growing mortgage brokers in the U.S.," is operating only long enough to close out existing pipelines and then is expected to shut down, according to branch managers and an e-mail sent to them and others.

Overland, Kansas-based First National Mortgage, a subsidiary of privately-held nationally chartered First National Bank of Hays, Kan., has some 200 offices through its branch partnering program and offered a full range of prime and subprime products in all 50 states, according to its Web site and a profile on Google Finance.

An estimated 1,000 people were employed by the firm.

"We still have several loans that have locked-in interest rates and that's what they key is," Kory Costello, manager of First National Mortgage's Chesterfield, Mo., branch office, told "We should probably have our pipeline cleared out within 35 days."

Costello, like other branch managers, received an e-mail shortly after 12 noon on Feb. 22 from the company that stated, "Please be advised that First National Mortgage Sources LLC has been removed from the operating subsidiary Web site by the office of the Comptroller of the Currency. FNMS will not lock any new loans after the close of business on February 22, 2008, at 5:00 pm local time (the 'Lock Deadline')."

But Costello said it wasn't the first e-mail regarding the company's operations he had received in the previous two months.

"We received an e-mail at the end of December that they were going to go out of business. They dropped the bombshell that they needed more reserves and First National Bank wasn't going to back that up when it came to First National Mortgage Sources," Costello explained. "Then the president of the bank got rid of the top three people at First National Mortgage Sources and brought in his own general manager."

Costello noted that another e-mail sent out in January indicated the company was doing business as usual and not going out of business.

Then, 24 days later, came that Feb. 22 e-mail.

"But it was so vague that the first thing I did was call the corporate office," Costello said. "They didn't say they were going out of business. But you'd have to be a moron not read into that [e-mail] that they were going out of business. I just wanted a confirmation. But they wouldn't give me a confirmation."

Similarly, Jack Schechter, manager of First National Mortgage's Suffern, N.Y., branch, told that although he has not had any official word, "I think they're going to be closing down within the next 30 days.

"I'm closing out whatever I have within my pipeline and then I'll be making a transition to another company in the very near future."

Costello said that after receiving the December e-mail he began researching other net branch opportunities for himself and his seven loan officers and applied for an affiliation with one company in early February. He said his office had been one of the All Fund Mortgage's net branches that had been closed last September.

A spokeswoman for First National declined to comment.

Neither Costello, Schechter, nor other branch managers contacted by, said that any of their loans had gone without funding.

"We're not out any money at the moment other than some deposit money that's to be sent back to us. We sent in an initial deposit and we're just waiting for that to come back," said the manager of an office in Utah, who didn't reveal the amount.

In addition to First National Mortgage, the bank's subsidiaries are American Guaranteed Mortgage LLC, National Billing LLC, Cottonwood Inc. and Bank Mortgage Solutions, which boasts "We lend across America!" The latter, which apparently began operations last year, has yet to be listed as a subsidiary on the Office of the Comptroller of the Currency's Web site.

The Web site for Bank Mortgage Solutions says that in 2006, First National Bank's subsidiaries closed over $3 billion in residential mortgages.

Both Costello and Schechter told that they were unaware of any subsidiaries other than First National Mortgage.

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

e-mail Jerry at [email protected]
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