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

Branch Operation Struggling to Survive

Vanguard Mortgage on brink of insolvency

May 28, 2008 (revised 5.29.08)


Accusations are flying at a financially troubled Pennsylvania-based mortgage company with 25 offices. The top executive has been ousted, creditors are being asked not to file litigation and the warehouse line is being closed. The company hopes to retain most of its branch managers, though some are defecting and others have closed shop.

Vanguard Mortgage & Title Inc., which had been unable to fund new loans after being put into a net funding situation due to its failure to pay interest on its lines-of-credit, will now get funding from Taylor, Bean & Whitaker Mortgage Corp. Loans that already have closed loans will receive funding under the old warehouse line-of-credit, but Vanguard will have to rely on table funding for all new loans, was told by the new chief executive officer, Joseph W. Nocito Jr.

Vanguard is still trying to pay division office expenses for which it is responsible as well as cover past due payables owed to its vendors, he said, but declined to say how much was owed to Taylor Bean, vendors and office managers.

"Our objective is to become cash flow positive within the next 60 to 90 days," Nocito said.

The HUD-approved company is licensed in 36 states plus the District of Columbia and has "about 170 people on payroll," he added.

Nocito replaced Michael Knight as CEO on April 4 after he and partner Frank Fernandez, who is now chief operating officer, provided a much needed cash infusion of $200,000. On May 19, Nocito closed Vanguard's Littleton, Colorado headquarters and laid off its 15 employees and moved the company's headquarters to smaller quarters in Pittsburgh, where he and Fernandez are based. That staff is being paid and will receive final paychecks on May 29, Nocito said.

This change, on top of Vanguard's financial problems, have created turmoil, with Knight and Nocito exchanging accusations and office managers frustrated over lack of funding for loans and office expenses.

"You can't submit anything; you can't close anything," one division manager told before the new funding agreement took effect on May 26. "It's been like a slow death.

"Vanguard was a nice thing. We were a growing company," he noted, and pointed out that he has been talking with "some other net branch type companies."

Mounting financial problems became apparent early this year when he had to push corporate headquarters to receive reimbursements for office expenses, he said. Then in March, he and others stopped receiving reimbursements at all.

"I lost about $80,000," he said.

Vanguard also stopped paying its monthly dues to the National Association of Mortgage Brokers, someone close to NAMB told

Knight, in a May 21 28-page e-mail "to all investors and to all partners" that challenged Nocito's charges against him, admitted that Vanguard had been "perilously close to insolvency since November."

But as late as April, Harlan Accola, manager of Vanguard's Marshfield, Wis., division office, said, "Knight was asking Vanguard, a company that was having difficulties, to pay for his $85,000 country club dues at a Denver golf course."

Nocito said he repeatedly met and talked with Taylor Bean President Ray Bowman, with both sides finally mutually deciding that "table funding would be the best scenario -- the most strategic step."

Bowman, reached by, declined to comment on the negotiations and agreement.

Nocito said he is now working with some of the vendors that are owed money to "come up with some type of solution" for getting them paid.

"They have an interest in working with us and helping make Vanguard a success by not filing any judgments against us," said Nocito.

Vanguard is not a net branch company, Nocito emphasized. It purchases brokerage offices, buying the assets under a defined asset purchase agreement, issuing common stock on the basis of origination volume for the previous three years, he explained. Additional stock is made available based on ongoing originations.

"It's a great model that Mike Knight developed," he commented, pointing out that offices then are divisions of Vanguard instead of branches and the corporation assumes the liabilities of each division.

"The idea," he added, "is to aggregate volume and establish additional lines-of-credit and get volume incentives from these different warehouse line providers and eventually take the company public."

He said he sold his company, Pittsburgh-based Castle Mortgage Co., to Vanguard last October and purchased additional stock because he "believed in the model" and wanted to become involved with a mortgage banking operation.

However, further acquisitions -- he said half a dozen were under consideration -- are on hold right now, including of Grand Rapids, Mich.-based Van Dyk Mortgage, with whom he had entered into a letter of intent, Nocito explained. But he did invite Van Dyk officials to make a presentation on May 21 to division managers offering an opportunity to leave Vanguard and join Van Dyk, though no one has yet made that move.

He did admit, "There are divisions that don't particularly care for the changes that Frank and I have instituted."

But prior to Nocito's takeover, some divisions had left Vanguard, apparently over funding and other financial problems. Calls by to numerous offices -- Nocito said there currently are 25 division offices -- found that at least eight have either been closed or are now affiliated with other mortgage companies.

In addition to the financial problems and the changes at the top -- Knight was dismissed under a termination with cause after declining to sign a termination agreement, according to Nocito -- many became disgusted by the verbal wars between Knight and Nocito.

Knight has maintained in e-mails that Vanguard is out of business and that Nocito was not an "angel investor" but a "ruthless corporate raider" who forced him out. In response, Nocito, in a barrage of e-mails to division managers, has threatened legal action against persons responsible for providing false information about Vanguard and warned that "disciplinary action" will be taken against Vanguard employees that share his e-mails with anyone outside the company.

Knight, in a conversation with, declined to comment further, explaining, "I'm under the very watchful eyes of attorneys."

Nocito further warned in one e-mail: "There is to be no communication with any members of the media. Please direct any calls to me."

"These two are involved in a big pissing contest," one division manager, speaking off-the-record, told, explaining that he was cynical about both sides. "You've got Mike on one side and got Joe on the other and somewhere in the middle is the truth. It's a mess."

Even Van Dyk Mortgage Senior Vice President Charlie Sundstrom, who spoke at the May 21 meeting along with President and CEO Thomas L. Van Dyk, sounded puzzled when interviewed by after the meeting.

"It seems like a lot of slinging is going on and that's not the kind of organization we are. We like to stay under the radar and let the bickering happen," he said, but added, "We'd love to put a deal together to help these folks out."

It's a situation that has left many confused about what is going on and whether they should work with Vanguard in its new incarnation.

"There's a lot of fighting going on," said Accola, the Wisconsin manager, "between Joe and the guy that we kicked out -- the CEO who ran off with some money and basically didn't manage things well. He [Knight] was the problem that created some of the cash-flow problems. Our division was funding loans itself.

"We," he continued, "are looking at several options right now. There's conversations going on right now with lenders. We had all the people at the meeting Wednesday [May 21] and I assume all of them are going to be in business. But whether some are going to jump to different net branch companies, I don't know.

"As a group we don't exactly know where everything is going. But we are in business, funding loans individually.

"There are some issues that could be a problem," he added, "and some of the business may be eventually moved to another company or to other sources."

Another division manager, speaking off the record, asked, "Will Vanguard be around two-three years from now, or even two-three months from now? Probably not in its present form."

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

e-mail Jerry at [email protected]
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