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Lend America: Disaster Just Waiting to Happen

Now that Lend America has been (more or less) closed by the Federal Housing Administration, the questions are coming fast and furious as to how this company - headed by a fast-talking manager with (shall we say) an "interesting past" - managed to get this far in the business.

After all, it's generally assumed that if your company has survived this far you must be doing something right. But it would appear that Lend America (and all its dba's) was doomed to fail. If you read the notice of charges filed against the company by the Justice Department and Department of Housing and Urban Development you would assume that the company - a 20-year-old nonbank - was a disaster waiting to happen.

It's all there - allegations that raise red flags: failing to document income, omitting liabilities from the underwriting analysis, paying excessive mortgage broker fees, and my personal favorite, exceeding HUD requirements in calculating the maximum insurable loan amount. As MBS co-inventor Lewis Ranieri once said, "Mortgages are about math." If you can't add and subtract you don't belong in the mortgage industry, especially now. (That's why we have computers and calculators.) Lend America and its reputed owner Michael Ashley have yet to give their side of the story. (I say "reputed" because it's still not clear who actually owns the firm. Mr. Ashley - by design, I'm told - doesn't appear on its incorporation papers in Albany.) Seven weeks ago it beat back a court order filed by the Justice Department, which hoped to pull the plug on the firm. The judge in the case made it clear that he wasn't about to shut down a company that employed 700 workers (then) without hearing more evidence.

But FHA, which has the power to pull its Eagle from lenders, last week moved ahead without a judge's consent, telling the company it was through. Lend America has three weeks to respond.

Meanwhile, stories abound that the company recently hired former New York Mayor Rudolph Giuliani to negotiate a deal with HUD whereby the company could continue operating under tight controls provided that Mr. Ashley step down. Mr. Giuliani isn't just a former beloved major of the city - he's the prosecutor who sent junk bond king Michael Milken to prison.

HUD apparently said, "We'll get back to you." The agency and Mr. Giuliani declined to comment.

Bringing in Mr. Giuliani was a bold move. Then again, that's the kind of person Michael Ashley is. People who've worked with him note that he likes to race cars and he's fast on his feet. Maybe a little too fast.

The stories about his past - and present - that I've been told are interesting, even fascinating. But I can't confirm them. One associate told me that he likes to put his companies in other peoples' names to avoid the radar of regulators.

"He'll be back, you'll see," one mortgage banker told me.

The only thing I can confirm is that back in 1993 he pleaded guilty to three counts of conspiracy to commit wire fraud while employed by Liberty Mortgage Banking of Long Island.

A spokesman for Ashley once him told me, "In Michael's eyes all that is in the past." It may be in the past, but HUD is focusing on the here and now - and how much Lend America's shortcomings might cost the insurance fund.

The agency doesn't like what it sees. And it could care less whether Mr. Ashley has actually reformed himself or not. The next move is his. And it might be in bankruptcy court.