A Lack of Merit

I’ve previously mentioned the demise of mortgage company Merit Financial, but as a number of you pointed out in the comments, this weekend Ms. Rhodes wrote a lengthy piece detailing all the saucy details of Merit’s rise and fall that’s definitely worth mentioning.

Former Washington Huskies football player Scott Greenlaw led the mortgage company he founded to dizzying heights — 400 employees, a sprawling new headquarters and kegs of beer at staff meetings. Now he’s selling his house to avoid bankruptcy as creditors line up with lawsuits.
…
It seems a quick turn of events for a former college football star who’d cobbled together $225,000 to start a company in 2001 that grew to more than 400 employees. Merit claimed to write more than $2 billion in loans and Greenlaw basked in its glow as it made him a millionaire publicity magnet.

Now all of that is gone. However, pointed questions about his lack of leadership and poor judgment, including his buying kegs of beer for business meetings, remain.

Some wonder if the company’s demise hinged on its practice of hiring jocks and stunning but inexperienced young loan officers and managing them loosely. Still others questioned whether Greenlaw’s litigious and financially draining divorce and his romance with another woman distracted him.
…
By early 2004, Merit was such a powerhouse that Greenlaw spent $13.5 million to buy a headquarters, complete with a gym and a waterfall, in a Kirkland office park. In the lobby, a photo mural captured the company’s spirit. On one side, under the caption “That was then,” was a dowdy couple in a stiff dance embrace. On the other, under the words “This is Merit,” were a scantily clad dancer and her partner bending in a sensual tango move.
…
When interest rates rose and the lucrative refinance business slowed significantly, Greenlaw gambled that he could increase revenue by adding loan officers who could complete more complex loans. That didn’t work, and the overhead sank him, he said.

Was it really that simple? Pressed, Greenlaw admitted it wasn’t.

“Buybacks were high,” Greenlaw said, without giving details.

In other words, Merit’s loan officers executed mortgages that were so flawed that the investors who bought the loans from Merit forced them to buy them back.

A longtime broker not affiliated with Merit said such buybacks are “extremely rare.”

I tend to agree with those commenters yesterday that pointed out the eerie similarity between this story and tales of the dot-com era of the late ’90s. Lavish spending, inexperienced employees, super-laid-back environment… Sounds like a recipe for success to me!

After reading about how fast and loose these guys ran their business, I think what is surprising and newsworthy is not so much that Merit Financial went out of business, but that they were able to keep up the charade for as long as they did. If the housing market and mortgage industry were healthy and sane, how could a shady business with this high a profile have gone on for so long?

(Elizabeth Rhodes, Seattle Times, 12.03.2006)