The Las Vegas Business Press. “The writing was on the wall for months. Employees at Silver State’s loan pricing office in Addison, Texas (the division that packaged and sold loans to investors through securities traders), were seeing second-lien loans being sold for losses of millions of dollars. Employees warned company executives that things would have to change, and fast. They were consistently rebuffed, they say.”
“Last month, Silver State CFO Tom Edington abruptly 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 mortgage business, who now finds herself out of a job. Between 800 and 1,000 employees worked for Silver State nationwide.”
“The day before Silver State closed its doors, 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.”
“Michael Stoddart, the company’s CEO, wrote on Feb. 13: ‘I know everyone is out there wondering if we are closing our doors today. The honest answer is maybe. We will either get capital infused today from a long term partner, to make sure we (have) cash flow and have breathing room, or we will close our doors if it does not happen.’”
“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.”
“Another Addison-based employee, who also wished to remain anonymous in hopes of getting paid for her last two weeks there, said she understands that employees in the Las Vegas headquarters were so upset that computers and other office equipment were stolen, and Silver State’s owners were threatened.”
“‘I heard the owners were told not to come to the office, that they received death threats,’ the Texas employee said.”
“Silver State joins a host of high-flying companies, 22 have gone bankrupt since December, that took advantage of expansion in the credit market in 2001 to offer loans 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 investigating Silver State’s collapse, says he remembers seeing outrageous 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 reported. ‘Loans 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 $500 million in home loans. But when the housing market began to slow, borrowers started defaulting and investors forced Silver State to buy back the loans, which then could not be resold without significant losses.”
“‘Who wants to buy a loan they know will be defaulted on,’ one of the Addison employees asked, summing up the general feeling among employees handling this part of the business.”
“Three months ago, Silver State’s big institutional investors, among them Bear Stearns, began to jump ship and refused to buy any more loans, an employee in Silver State’s loan pricing division says. Washington Mutual was eventually forced to pull the plug before it too lost significant amounts of money.”
“Stoddart detailed why the company was going under in his e-mail to employees. ‘Our issues have to do with stale loans. These stale loans are in an under-curtailed position, making the warehouse lines freeze our incoming cash flow until the loans are purchased.’”
“Stoddart told employees the company needed an immediate infusion of $5 million. He acquired a $3 million guarantee. It wasn’t enough.”
