StoneWater Mortgage Corp. - Retail, Wholesale - Agency, FHA

On 2009-09-10 the Arizona Daily Star reported that Caliber Funding LLC of Scottsdale, AZ had agreed to buy the software platform and other operational assets of the Tucson, AZ based lender. Today, StoneWater Mortgage Corp. sent out an official announcement that they were ceasing operations:

"We are pleased to announce StoneWater Mortgage Corporation and Caliber Funding LLC executed an agreement under which Caliber will purchase substantially all of StoneWater's assets. The sale is set to close on September 25th, 2009. The purchase will include StoneWater's H20nline platform as well as StoneWater's operational policies and procedures. StoneWater's employees will transition to Caliber.

As a result of the acquisition, StoneWater will not accept any new submissions, locks, lock extensions, or re-locks after Friday, September 18th. All StoneWater loans locked as of Friday, September 18th, must fund no later than Friday, October 2nd."

StoneWater Mortgage Corp. was founded by an executive team that came from failed Alt-A giant First Magnus Financial Corporation a month after that company filed bankruptcy in August of 2007. No price was given for Caliber's acquisition, but the software platform had been the subject of a $1 billion dollar lawsuit filed by the U.S. Bankruptcy Trustee on behalf of First Magnus creditors. The suit was later dismissed with prejudice. Caliber Funding LLC is wholly owned by Loan Star Funds V of Dallas, TX -- the investment group that in October of 2007 purchased and attempted to relaunch the now defunct Accredited Home Lenders. Loan Star Funds also took over the remains of Bear Stearns Residential Mortgage in June of 2008.

Tipsters have indicated StoneWater Mortgage Corp. laid off as many as half of their sales force in mid-May, contracting to some 20 AE's nationwide. The layoffs came on the heels of StoneWater's 2009-04-15 announcement that it would no longer be doing FHA loans. Days later it was reported that the executive team (many of whom were formerly with First Magnus) would voluntarily resign as of May 1, 2009. One reader emailed this account:

"While the initial spin was they were stepping down to defend themselves against the Billion dollar lawsuit that was brought against them and StoneWater insiders have admitted the true reason is that GMAC has elected not to renew their only warehouse line. This is evident in the fact that as a TPO they have decided to "pull out" of government loans, the only loans that afford enough margin to keep a wholesale lender afloat, and focus on agency business."

President Karl Young readily confirmed the foregoing in a statement he gave the Arizona Daily Star regarding the announcement:

"This lawsuit has given a black eye to StoneWater,"" Karl Young, president of StoneWater. "If someone has the choice of several different wholesale lenders to work with and they see this suit out there naming the executives of StoneWater, they are going to think twice about it."

StoneWater Mortgage Corp. only originated eight FHA loans over the span of its operations. They hit a production milestone in March of 2009 achieving $100 million in overall volume. Sources familiar with the company tell us there were roughly 50 employees at the company's headquarters in addition to an estimated 20 AE's.

MortgageDaily is reporting the deal with Caliber Funding as a merger in the absence of any price information, but based upon Loan Star Funds' previous acquisitions we have yet to see any purchases made at greater than firesale prices. Email us if you can provide additional insight.

Editor's Note - 2009-09-17: Classification of First Magnus' business corrected to Alt-A vs Subprime.