Connecticut Mortgage Company’s Implosion Shakes State

When completed, the 310,000-square-foot structure along Interstate 91 in Wallingford, Conn., will be a striking blend of arched rooflines, cubic office blocks and glass.

But its occupants won’t be who was originally supposed to take over the building. Earlier this month, signs trumpeting the would-be owner of the building - Mortgage Lenders Network (MLN) - were taken down.

Even as hardhats braved freezing temperatures to install the structure’s environmentally friendly elements, the Connecticut mortgage company filed for bankruptcy, then revealed its intentions to liquidate.

A home loan lender once touted as one of the state’s brightest hopes for job growth is now facing complete disintegration, with customers, creditors and employees alike threatening legal action.

How did a company that drew Gov. M. Jodi Rell to the groundbreaking of its new headquarters less than a year ago fall so far, so fast?

One clue can be found on a website illustrated with big red letters and an image of an explosion: “The Mortgage Lender Implode-O-Meter.”

The site, run by a self-described “scientist, mathematician, entrepreneur and activist,” devotes itself to tracking the fate of the 20 mortgage loan providers that have “gone kaput” just since December of last year.

Many of the casualties specialized in so-called subprime lending, or bad credit mortgage loans to those with poor credit. Subprime lending took off in the recent housing boom as a high-risk, high-profit niche in a business with traditionally low margins.

But home loan lenders who leapt into the subprime lending field now find themselves suffering as those homeowners fall behind in a tough housing market and job market.

Fueling the crisis is a clampdown by those who keep the money flowing behind the scenes. Big commercial and investment banks keep smaller firms afloat with sa o-called “warehouse” line of credit until they can sell their loans to investors.

But when mortgage payments flag, those banks can pull back, threatening the smaller lender’s viability. In addition, inferior underwriting and risky financial moves have added to the woes of many mortgage lenders, according to Allen Puwalski, financial analyst at the Center for Financial Research & Analysis in Maryland.

“It’s a combination of a lot of competition in the sub-prime lending space during 2005 and ‘06. They started loosening their underwriting standards - the kinds of loans they were underwriting became dependent on home prices appreciating at a pretty rapid pace. When that stopped, the underwriting issues came back to haunt many of the players,” Puwalski said.

Despite its recent growth, Mortgage Lenders Network (MLN) suffered for its lack of financial heft, Puwalski says.

“They were vulnerable because of their size and their concentration in that kind of lending. You’re going to have a shakeout of weaker players,” Puwalski said.

MLN, which started with just seven employees in 1997, followed a trajectory similar to that of many of the recent failures: rising high with the housing market boom and then going into free fall with the downturn.

By early 2006 the mortgage lender had expanded to 1,300 workers in five U.S. states, and the 650-person Connecticut workforce was expected to balloon to 1,200 strong by the time MLN moved into the Wallingford headquarters at the end of this year.

The company’s high point was probably the groundbreaking of the Wallingford headquarters last May. Town and state officials praised the company and its promised $2 million contribution to the town’s grand list.

“MLN is a model for job growth in Connecticut,” Rell said at the event. “MLN’s decision to build their new headquarters in Connecticut speaks volumes about the state’s high-skilled workforce and diversified financial services industry, as well as our ever-improving business climate.”

By then the housing market had weakened and foreclosures nationwide were inching up. But MLN continued to add workers through the fall, to a total of 850 in the state at its peak, and was on track to make $3.3 billion worth of bad credit home loans in 2006.

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