Scores of mortgage borrowers left in lurch

Potentially hundreds of Massachusetts home buyers and other mortgage borrowers are being left in the lurch after Mortgage Lenders Network USA Inc. of Connecticut reneged on funding loans it promised to make, banking and government officials said yesterday.

Mortgage brokers said some customers who appeared at their attorneys' offices on Friday to close home-purchase or refinancing loans had no warning their transactions were no longer being funded, causing severe problems for buyers, sellers, and their agents expecting to complete normal transactions.

Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said yesterday that he received complaints from some 20 lenders or brokers and issued an "alert" to association members that Mortgage Lenders Network was no longer funding some loans.

"I am thinking hundreds" were affected, Cuff said, estimating the toll on Massachusetts customers.

Mortgage Lenders Network of Middletown, Conn., is known as a "wholesale" lender, providing about $12 billion in loans nationwide arranged by other lenders or by mortgage brokers. After financing loans, it then resells them in the secondary mortgage market, bankers said.

In Massachusetts, the company made 1,140 mortgages worth nearly $240 million in 2005, state regulators said.

While about 85 percent of its business is wholesale, another 15 percent of loans are made directly to home buyers or people refinancing their homes.

Mortgage Lending Network's executive vice president, James Pedrick, yesterday attributed the cessation of the wholesale business to "turmoil" in the subprime market. In December, subprime lenders Ownit Mortgage Solutions of Agoura Hills, Calif., and Sebring Capital Partners LP of Carrollton, Texas, halted operations, according to Bloomberg News.

Subprime loans, typically made to people with poor credit ratings, are the majority of Mortgage Lenders Network's business, Pedrick said. The firm has been unable to resell some packaged, subprime loans on Wall Street, he said. This apparently interrupted the stream of financing necessary to make the next batch of loans, brokers said, though Pedrick would not elaborate.

Massachusetts brokers said some of their prime customers' loans were also affected.

"We didn't have the choice to fund those deals," said Pedrick, but are "working as hard as we can to place those loans with other lenders."

Confirming prior news reports, he said "we suspended our wholesale operation" on Friday, but "still have our retail business active."

State regulators mobilized to address problems at the company, which, according to its website, is building a headquarters campus in Wallingford, Conn. The Massachusetts Division of Banks is overseeing negotiations between the lender and "third-party investors" who could finance loans that closed or are in the pipeline. David Cotney, the department's chief operating officer, said the outcome of negotiations will determine whether other remedies and regulatory actions are necessary. "Our number one priority is to get these loans closed and ensure that consumers are not harmed," he said.

Connecticut's Department of Banking sent investigators to the company last week who are "taking a look at their financials to make sure they're viable," said James Heckman, department spokesman.

Donald Lambert, president of Mortgage Group Ltd., a Dartmouth broker, said eight of his customers' loans worth more than $2 million fell through, including some that apparently closed last week but were never funded. And a home purchase scheduled to close Friday fell apart, driving the buyer and seller into a legal dispute over the deposit. Customers "are pretty upset," he said.

The affected loans were for his top-rated -- not subprime -- customers. "We had no inkling this was going to happen until Friday," he said. "No warning."

Brokers said they were trying to find new financing for customers but interest rates locked in in early December were difficult to replace because rates have risen.

"We're going to try to honor the rates," said Paul Matos, owner and president of South Coast Mortgage & Investment.

Kimberly Blanton can be reached at blanton@globe.com.