Bankrupt Firm’s Owners Establish Employee Fund

More than $1 million has been pledged to assist some former employees of First Magnus Financial Corp. by the mortgage company’s shareholders and executives.

The privately-held, Tucson-based company, which originated more than $17 billion in loans this year, shut down on Aug. 16 and filed for protection under Chapter 11 of the U.S. Bankruptcy Code on August 21.

Although First Magnus had nearly 6,000 employees in more than 300 offices nationwide, monies from the “assistance fund” will be provided only to the approximately 800 employees who worked in its Tucson headquarters, according to a spokesman.

“We, as shareholders and executives of First Magnus,” President and CEO G. S. Jaggi explained in a statement, “are committed to doing what we can to personally help those individuals in Tucson who will suffer the greatest hardship.”

This is because the Tucson employees lacked the loan origination skills of employees elsewhere, the spokesman said.

The company also has helped arranged a job fair for former Tucson employees, which will be held Monday, August 27, in a Tucson hotel, which is donating the space.

When First Magnus told employees that it was halting lending operations, it told them to expect a delay in the payment of wages and that those payments would be mailed out as checks rather than made by direct deposit, according to a spokesman.

Now, making the payments that were scheduled to be made on August 20 is in the hands of the bankruptcy court, Gary Baraff, senior vice president, marketing, told MortgageDaily.com, pointing out, “We have asked the bankruptcy judge to make that his highest priority and make those funds available for the [Aug. 20] payroll prior to any other creditors being addressed.”

No complaints regarding unpaid back pay had been filed with the Arizona Department of Labor as of late Tuesday, a department spokesman told MortgageDaily.com.

Meanwhile, the Arizona Department of Financial Institutions has suspended the licenses of First Magnus and its six subsidiaries — Great Southwest Mortgage, Charter Funding, Gold Mortgage Center, Frost Mortgage, Colonial Home Loans and First Magnus Home Loans, all of which shut down when First Magnus Financial ceased originating and funding loans.

A hearing to permanently revoke those licenses has been scheduled for October 1, according to the department’s order of summary suspension.

“Despite the department’s request,” the order states, “respondents have not provided any information involving loans in process, loans that closed, but not yet funded for Arizona borrowers, and have not provided any information to the department relating to their financial condition.”

This lack of responsiveness by “the largest, privately-owned mortgage lender in the state of Arizona,” the order states, “demonstrates an immediate threat to the public welfare of the citizens of Arizona and any borrowers nationwide.”

First Magnus retail division Charter Funding is being acquired by Troy, Mich.-based Flagstar Bancorp Inc.

In a statement to employees, brokers and borrowers, First Magnus blamed its shut down on the lack of a secondary market for its loans.

Related:

First Magnus Finished
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.