Mass layoff at LI home lender amid federal probe

Melville-based Lend America closed its loan-making operation Tuesday and laid off most of its 600 workers, a day after federal officials revoked its license to make loans insured by the Federal Housing Administration.

FHA-backed loans made up at least 90 percent of the company's business. After the subprime loan collapse two years ago, the FHA became the primary insurer for nonprime mortgages; if an FHA-backed loan defaults, the government takes the hit.

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The top generator of FHA loans in the metro region, Lend America was about to ramp up business, taking loans from brokers and also pooling FHA loans from lenders to sell to investors - with a goal of selling $500 million in mortgages each month by the middle of next year.

But late Monday, federal authorities pulled its license in the wake of a 155-page civil complaint, filed in October, accusing the lender of shoddy underwriting and lying about borrowers' credentials to get FHA backing. Weeks ago, federal prosecutors sought but lost a temporary injunction to stop the firm from making more FHA loans.

The FHA on Monday fined the company $512,500, and federal officials said a criminal investigation and arrests have not been ruled out. A senior official for the regional office of the Department of Housing and Urban Development said investigators are looking deeper into alleged scams at Lend America, including a suspected mortgage fraud ring that led to charges from the U.S. attorney's office in Manhattan and 12 arrests in October. Among those arrested were a Lend America loan officer and contract employee.

With the firm's license gone, executive vice president Michael Ashley met with senior management Monday night to discuss options, said John Lovallo, a spokesman for the firm. He said Lend America executives declined to comment. "At this point, there's a skeleton crew," Lovallo said. "They are working to try to find qualified lenders for applications in the pipeline."

Tuesday, Lend America had taken down all of its Web pages except for the home page, which had a link giving borrowers instructions on how to transfer applications to other lenders.

Last year, Lend America closed 6,986 loans, or $1.36 billion in loans, Lovallo said, and for this year it projected 12,500 loans closed, for about $2.5 billion. The company serviced about $1.8 billion in loans, he said, and it is not clear whether it will continue to provide that service.

Ashley, a former car racer, had pleaded guilty in 1993 to three counts of conspiracy to commit wire fraud in connection with numerous cases of mortgage fraud while employed by Liberty Mortgage Banking Ltd., which was later convicted of wire fraud. Over the years the FHA had penalized Lend America for various violations.

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