Nevada Mortgage Company Collapse Leaves Many in Limbo

The Las Vegas Business Press tells the story of Tony Antoine, a seller who very much looked forward to moving into a $400,000 Palm Beach County, Fla., home.

The Florida home seller who sold him the place was even more relieved. His home was finally purchased after nearly six months on the market.

The next day, Antoine could hardly believe the news. His mortgage lender, Silver State Mortgage of Las Vegas, had gone belly up.

Although the papers were signed the day before and the money ostensibly was in the title company’s account, Antoine couldn’t pay the seller his money and was stuck in limbo.

“My loan officer worked very, very hard on that loan. It took almost 30 days to accomplish,” said Antoine, a Haitian-born businessman, and himself a former mortgage broker.

“The money is in his (title company) account. But he is afraid Silver State will file for bankruptcy and the trustees will ask for the money back.”

The writing was on the wall for months.

Employees at the mortgage company’s office in Addison, Texas (the division that packaged and sold loans to investors through securities traders), were seeing second mortgage loans being sold for losses of millions. Employees then warned executives that things would have to change - and fast - but were rebuffed.

Last month, Silver State CFO Tom Edington quickly resigned, citing personal reasons. Again, employees were told there was no need to worry.

“We were told everything’s fine. That the owners have deep pockets,” said one, a five-year veteran of the Nevada mortgage business, who is 12 weeks pregnant and now finds herself out of a job. Between 800-1,000 employees worked for Silver State nationwide.

The day before Silver State closed, pricing-support unit employees finally got the confirmation in a company-wide e-mail that the end was near, despite management’s calm denials throughout the previous weeks.

Employees were assured that everything possible was being done to make any transition as easy as possible. Silver State closed the following day. Employees have not received any further communication from the company, not even their final paychecks or payment for accrued vacation time.

“I heard the owners were told not to come to the office, that they received death threats,” onr Texas employee said.

Silver State joins a host of high-flying companies - 22 have gone under since December - that took advantage of expansion in the bad credit home loan market in 2001 to offer mortgage to a wide variety of borrowers who would be denied credits in less-robust economic times.

Scott Bice, commissioner of Nevada’s Mortgage Division, which is currently in the process of investigating Silver State’s collapse, says he remembers seeing outrageous home mortgage loans being made by alternative lending companies.

One borrower, he says, took out a $1 million loan with no down payment and received the money despite having a very low credit score.

“Because of the (high) default rates, the market has changed,” Bice said. “A home loan you could get six months ago are no longer available. The credit market has tightened up.”

Silver State not only made such loans, it also served as a clearing house for other mortgage brokers. The company packaged the loans and sold them to investors as mortgage-backed securities.

At one point, the company held more than $500 million in home loans. But when the housing market began to slow (housing starts in January were the lowest recorded in more than a decade), borrowers started defaulting and investors forced Silver State to buy back the loans, which then could not be resold without significant losses.

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