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Hundreds Terminated at WA Company

Merit Financial releases most of staff

May 3, 2006

By PATRICK CROWLEY


photo of Patrick Crowley
Washington state regulators are probing the sudden and spectacular fall of a 410-employee company that claims to have originated billions of dollars in mortgages and now appears to be teetering on the brink of collapse.

The Washington Department of Financial Institutions wants to know the reasons behind Merit Financial's move to fire most of its employees last week, Chuck Cross, the department's director, told MortgageDaily.com.

Regulators also want to determine if Merit, which is based in Kirkland, WA, can complete the business it has in its pipeline while making sure that consumers are protected, Cross said.

"We have no reason to think there are any problems with violations," Cross said. "This company did not generate a lot of consumer complaints.

"But we decided to take a look ... because of the size of the company and the suddenness and unannounced downsizing," he said.

Cross said Merit is still operating with just a fraction of the 410 employees it had last week before announcing that it would cut most jobs and consider a possible financial reorganization.

Cross said he does not know if the company will file for bankruptcy, though published reports out of Seattle have indicated that is a possibility.

Merit CEO and founder Scott Greenlaw and CFO Ryan Kidd did not return repeated phone calls requesting comment and an explanation of what happened to their company.

Cross said the company, which had heavily depended on its refinancing business, ran into trouble when interest rates began edging up.

"They had tons of staffing overhead, a lot of originators," Cross said. "Most of the originators were younger, junior originators who had not developed a lot of personal contacts through the industry."

Merit had spent heavily on advertising, but when the business stopped coming in it could no longer afford its large employee base.

"They had staffing and marketing costs and no business coming in," Cross said.

Merit had originally operated as a lender but in recent months had only been brokering loans.

In a press release issued in December of 2003 Merit, which was founded in 2001, boasted of having 300 employees and "funding" more than $1 billion in home loans. At the time the company was announcing the opening of a $13.5 million corporate headquarters and touting its growth of 400 percent since opening just two years earlier.

"Our commitment to our customers has directly affected our success and put us in a position where we are able to own the building that will centralize all of our divisions," Greenlaw said in the statement, "ultimately providing our borrowers with a less stressful loan experience and opening up much-needed job opportunities."

Cross said Merit will be closely scrutinized if it attempts to reorganize and reestablish itself as a mortgage lender. The company continues to answer its phone, but its Internet Web site is no longer operational.

"Their intent is to move forward," Cross said, "but they will have to be solvent and we'll make sure they are liquid before we say okay to that."

The state has subpoenaed Merit's bank records to make sure, among other things, that payments for credit reports and appraisals are being made, Cross said.

"We also want to find out if they can complete customers' loans," he said.

Since 2004 Merit has been using an independent company to handle escrow accounts "so we don't think there is any problem there," Cross said.

"We've talked to their lenders and at this point none of lenders have pulled their relationships," Cross said.

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

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