Mortgage Lender First Magnus Shutting Down
First Magnus Financial, a national mortgage lender that was on track to fund $36 billion in loans this year, stopped originating new loans Thursday and said it was suspending operations.
Company officials said the Tucson-based lender was caught in the credit liquidity crunch now causing a meltdown in the mortgage industry, even though it was not engaged in selling "sub-prime" mortgages that sparked the crisis in recent months.
"We're not funding loans right now and we're not certain what the future holds at this juncture," said Gary Baraff, the company's senior vice president for marketing.
First Magnus, which calls itself one of the largest privately held mortgage banking operations in the country, funded more than $30 billion in loans in 2006 and has more than 300 offices and 5,500 employees. It had operations in all 50 states.
The company's retail outlets include Great Southwest Mortgage and Charter Funding, recently renamed First Magnus Home Loans.
Employees Sent Home
The majority of the company's workers were sent home Thursday after clearing out their offices, and although Baraff said they technically were not laid off, "what it means practically is that for a lot of them this was their last day at the company."
Bertha Wicker, a loan officer in Aiea, Hawaii, who joined First Magnus subsidiary Charter Financial about two months ago, said the announcement came completely out of the blue.
Employees were assuming their jobs were permanently gone now, she said.
"The job was very, very important and it's just something that came with no warning for us," Wicker said of the closure. "I guess we'll all have to find new jobs now."
First Magnus originated home loans and then sold bundled loans into the secondary loan market.
"The line of credit available to us became sparse, and also we had issues selling loans that we had already funded on the secondary market," Baraff said. "So it's the liquidity issue that you've been reading about. Ironically we do no subprimes, so it's not that."
A bankruptcy filing was possible, Baraff said.
First Magnus was founded in 1996 by Tom Sullivan Sr., Tom Sullivan Jr. and G.S. Jaggi and is one of the largest national companies based in Tucson. The senior Sullivan is the current chairman of the board and personally put about $10 million into the company in recent weeks to try to keep it afloat.
The company's troubles are the latest in a series of meltdowns in the nation's mortgage industry which are blamed on delinquencies and other problems in the subprime lending market.
American Home Mortgage quit writing home loans Aug. 3 and filed for bankruptcy protection three days later, blaming its troubles on margin calls from banks that had provided it with the cash necessary to write mortgages. Last week, regional mortgage lender HomeBanc Corp. filed for bankruptcy protection in U.S. Bankruptcy Court in Delaware.
Leading lender Countrywide Financial Corp. said Thursday it had borrowed $11.5 billion from a group of 40 banks to fund loans, a move that shows just how deep the lending crisis has become.
First Magnus is still trying to determine what it will tell customers who have pending loan applications with the firm. The only notice for applicants Thursday was a message on the company's telephone line and Web site.
"In light of the collapse of the secondary mortgage market, First Magnus will not fund any mortgage loans after Wednesday, Aug. 15, 2007," the message said. "Additionally, we are no longer accepting any mortgage applications or funding any mortgage loans previously originated but not yet funded."
Baraff said executives are also trying to determine the status of employees' pay and benefit issues.