Central States Mortgage - Agency, FHA/VA, Reverse

Update - 2009-03-30: Central States Mortgage Company announced on 2009-03-27 that it had filed for receivership with the Wisconsin Department of Financial Institutions. Quoting Dean Wilson, chairman of Central States' board of directors, BizTimes reported:

"A voluntary Chapter 128 receivership is a Wisconsin state court proceeding for the orderly liquidation of a company and its assets under the supervision of a receiver. The proceeding helps ensure that everyone involved is protected and treated as fairly as possible in the process."

Fox6Now reported the Wisconsin Department of Workforce Development has filed a $3 million lien against Central States Mortgage Company "to cover the possible law violations it is investigating" in conjunction with the abrupt closure of the office on 2009-03-09 which left 107 employees without jobs.

Central States has been working with Troy, MI based AmeriCU Mortgage Company to complete mortgage loan applications that were pending when Central States ceased its operation. AmeriCU closed and funded 66 loans exceeding $10.5 million, announcing the opening of a new operations center in Milwaukee, WI in a press release on 2009-03-29. AmeriCU is a division of Towne Mortgage Company.

Update - 2009-03-13: The story surrounding the sudden demise of Central States Mortgage continues to evolve, after $2.37 million in loan funds in a Muskego credit union were frozen — funds that allegedly belong to Associated Bank (one of Central States' warehouse lenders). According to the Milwaukee-Wisconsin Journal Sentinel, Associated Bank filed suit, having discovered 12 of 13 loans it funded had been sold but the proceeds were not used to pay down the outstanding mortgage amounts.

"The Associated lawsuit said Central States tapped the line of credit between Christmas and New Years Eve - about two months after it was told the credit line would be closed by Associated on Jan. 5.

Central States made weekly payments to Associated until the week before the mortgage lender shut down, the suit said."

That article goes on to state that 23 Wisconsin credit unions wrote off millions against their investments in Central States Mortgage during the fourth quarter of 2008.

Also part of this ongoing story is a rebuttal of allegations made against former Central States Mortgage executives by Attorney Steven Kravit, representing founder and former CEO Richard Jungen and three other former executives with Central States and its parent company CSMC Inc. The Business Journal of Milwaukee published a portion of the statement on 2009-03-09. We obtained a copy of the complete 4-page release from Kravit's office, which included a cover letter to the Implode-O-Meter with the following statement that had been sent to (but was not reprinted by) other media outlets:

"We represent Richard and Elaine Jungen, Jerry Poehnelt and Chuck Miller in reference to the Central States matter. The attached press release was issued yesterday, but was not carefully reviewed or reported by the Journal Sentinel. The Credit Union Times story yesterday was not accurate to the extent it suggests that my clients had anything to do with the closing of Central States yesterday, or in the repeated false statement that my clients somehow caused $15 million in damages to that company, just because that raw number was placed in a pleading filed by Central States.

You should know that the so called damages stated in the Central States complaint violates Wis. Stat. Section 802.02(1m)(a) which states: "With respect to a tort claim seeking the recovery of money, the demand for judgment may not specify the amount of money the pleader seeks." The $15 million figure was placed in Central States' complaint precisely to have the press repeat that baseless figure over and over..."

Original Listing - 2009-03-10: In what the Credit Union Times described as a "surprise move," Central States Mortgage of Wauwatosa, WI suddenly announced it had ceased operations on 2009-03-09. The Milwaukee-Wisconsin Journal Sentinel reported employees were met by a note on the door and sent home by executives. Visitors to the company's web site (view cached) were greeted with this brief announcement later in the day:

"Central States Mortgage has suspended operations effective March 9, 2009. Further details will be provided at a later date."

Central States Mortgage was part of a Credit Union Service Organization (CUSO) that provided mortgage origination and servicing along with other financial products to some 250 credit unions according to Credit Union Times. In 2007 the company's average monthly origination volume exceeded $26.6 million. A "locations" page still viewable on Central States' web site indicated there were 17 offices. While the exact number of affected employees is not known, one source told us they had about 80 loan officers at the time of the shutdown. From their "About" page:

Currently in its twenty-fourth year operation, Central States Mortgage is the retail mortgage-banking division of CSMC, Inc., a Wisconsin-based Credit Union Service Organization (CUSO). The CSMC, Inc. family of businesses focuses on building communities through homeownership by offering a full suite of services under a single umbrella to suit most any lending or homeownership need.

To this end, our companies include Direct Mortgage Funding (a wholesale correspondent lending division that focuses on non-conforming products), Premier Title and Closing Services, Coldwell Banker — Home Sale Realty, and Equity Commercial Real Estate.

An exact reason for the closure was not suggested, but the Milwaukee-Wisconsin Journal Sentinel indicated Credit States Mortgage had been involved in "numerous controversial dealings." Most recently on 2009-02-04, it was reported that Credit States Mortgage had filed a lawsuit accusing founder and former chief executive officer Richard Jungen and four other executives of racketeering, claiming the five "conspired to defraud the company of at least $15 million."

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