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Failed Lender's Execs Regroup: After Laying Off 1,800, They Start New Firm(Hartford Courant, The (CT) (KRT) Via Thomson Dialog NewsEdge) Mar. 19--Even as Mortgage Lenders Network continues closing down after filing for bankruptcy and throwing hundreds of people out of work, the company's top executives are quietly trying to re-enter the mortgage business through a brand-new company that already has a website. The new business -- InHome Capital LLC -- is being organized in some of the same office space in Middletown where Mortgage Lenders had conducted its business, sources said. InHome has yet to apply for mortgage licenses or to incorporate itself with the state. Recruiting, however, has swung into high gear. At least two-dozen employees have already been hired, say sources familiar with the plans. Former Mortgage Lenders co-founders Mitchell L. Heffernan and James Pedrick are playing key, behind-the-scenes roles in the new company, the sources said. Other Mortgage Lenders officials including Randy Roberge, the former chief financial officer, and Michael S. Simeone, the former chief information officer, also would be key executives in the new company. Sources said Roberge would be one of the company's leaders. What they are doing is legal, bankruptcy experts say, as long as money from the defunct Mortgage Lenders -- which is still unwinding its operations -- is not being funneled into InHome. But the start-up is rankling many former Mortgage Lenders employees who lost their jobs and health benefits as the company careened toward last month's liquidation. It was an unceremonious ending to a company that was once touted as being a model for job growth for the state's financial services industry. "You wonder how in the heck they can do something like this," said one former employee who is familiar with the plans. "You're in bankruptcy with one company and they can so quickly reposition themselves with a new company." The implosion of Mortgage Lenders Network is costing about 1,800 workers their jobs, roughly half of them in Connecticut. Sales representatives lost hundreds of thousands of dollars in commissions, and most employees saw their health benefits severed, some saddled with unpaid medical bills. The developer of a new, $100 million headquarters for Mortgage Lenders in Wallingford is left seeking other tenants for the building, which is still under construction. The source of funding for the new company wasn't clear Friday. But sources familiar with the plans said each executive joining in had to contribute significant start-up capital for the project. Heffernan confirmed in a brief telephone interview that he and other Mortgage Lenders executives are involved in InHome, but downplayed his role and denied he is a principal in the start-up. While acknowledging the pain to employees in Mortgage Lenders' collapse, Heffernan said pursuing a new company so quickly was not wrong, morally or otherwise. "It's a good thing, going back into business and employing people," Heffernan said. The website Friday announced that InHome Capital would be "Coming, April 2007." Unlike Mortgage Lenders -- which specialized in customers with tarnished credit, the so-called sub-prime market -- the new company, InHome Capital, would focus primarily on borrowers with good credit. The company, at least initially, would act as a broker presenting various loan options from different lenders to customers. But Mortgage Lenders' recent history with regulators in Connecticut could make the road to obtaining a license a rough one. When told of the plans Friday, State Banking Commissioner Howard Pitkin said approving a license -- needed to operate legally in the state -- would likely be "problematic" because of the involvement of Heffernan and Pedrick, even if they weren't principals in the new company. Mortgage Lenders is a leading example of the collapse of the sub-prime lending industry that some experts say could threaten the U.S. housing market. Rising interest rates, declining home values and the expiration of low-rate mortgage deals are combining to leave hundreds of thousands of homeowners in default. Hardest hit are those who had tarnished credit to begin with, those that Mortgage Lenders, Irvine, Cal.-based New Century and other companies specialized in serving. Pitkin's department ordered Mortgage Lenders to stop making loans in January, after the company abruptly shut down its largest lending division on Dec. 29, leaving hundreds of borrowers in the lurch. The mortgages were closed, but never funded. The company's own sources of financing for those loans had dried up. Troubles in the sub-prime market, just surfacing when Mortgage Lenders spiraled downward, have exploded nationally in recent weeks, hitting much larger lenders with heavy losses. The industrywide cracks in the sub-prime market were compounded at Mortgage Lenders by loans that were priced too low, draining the company's capital, officials at the firm have said. Although Pitkin said he would have to review any application, he said Mortgage Lenders was still under a cease-and-desist order and had not been fully cooperative when the state investigated the company's troubles. Despite the pronouncement of an April opening on the website, Heffernan said Friday that the company is still "months away" from doing any business. The company must obtain licenses from all the states in which it intends to do business. Heffernan described his role as a "consultant." He said he wouldn't be among those applying for the licenses. His role could change in the future, but first, he said, he has to "clean up my mess with MLN and the banking department." Although Heffernan distanced himself from the new company as a consultant, sources familiar with the plans say Heffernan and Pedrick are key to the start-up efforts. A telephone call to Pedrick's home wasn't returned Friday. Roberge and Simeone couldn't be reached. Bankruptcy experts said it's not uncommon for executives in troubled companies to turn around and try again. One high-profile example is John W. Meriwether, the founder of Long-Term Capital Management, which rocked the financial markets with its implosion in 1998. A year later, Meriwether quietly opened shop again, starting JWM Partners. Thomas Gugliotti, a bankruptcy attorney at Updike, Kelly & Spellacy in Hartford, said as long as there are no "non-compete" clauses, there is nothing that "precludes them from starting another business." Contact Kenneth R. Gosselin at [email protected]. Copyright (c) 2007, The Hartford Courant, Conn. Distributed by McClatchy-Tribune Business News. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |