Ex-Sprout CEO attempting to revive originator licenses

The leader behind one of the first mortgage companies to go out of business last year is attempting to revive his lending career.

Michael Strauss, former CEO of Sprout Mortgage, is appealing an Illinois regulator's suspension of the origination licenses for himself and his new company, according to Nationwide Multistate Licensing System records. His effort comes as attorneys for Sprout attempt to wrap up lawsuits from the former lender's creditors and ex-employees.

The Illinois Department of Financial and Professional Regulation's Division of Banking suspended on Feb. 1 the licenses of Strauss and Smart Rate Mortgage, which he established last August one month after Sprout's shutdown. The regulator said Strauss had failed to address repeated inquiries about his background, which includes a 2009 settlement with regulators related to the demise of his former mortgage firm. 

Strauss and Smart Rate are authorized to conduct business as of Feb. 14, according to NMLS records, indicating that he had appealed the regulator's suspension. NMP first reported the appeal.

"The requests for administrative hearings allow the licenses to remain active during the hearing process," said a spokesperson for the regulator in a statement Monday. "Administrative proceedings vary in duration and a final decision will be rendered after the proceedings are complete."

Smart Rate is listed in NMLS records with an address at a Jacksonville, Florida office building and with one sponsored mortgage loan originator. The firm doesn't appear to have originated a mortgage last year, according to available data from the Home Mortgage Disclosure Act and S&P Global.

Strauss didn't return a phone call Monday afternoon, while a person who answered the phone for Smart Rate Mortgage said she would pass a message to a representative.

As Strauss attempts to retain his origination license, his former company has reached a settlement with 125 former workers seeking owed back pay, according to their attorney. The class of former Sprout employees sued for three weeks of earnings they claim were denied to them after an executive allegedly laid them off during a videoconference last July.

Counsel for plaintiffs, when reached by National Mortgage News, referred to a judge's order in late March that set a deadline this Friday for the parties' submission of a settlement agreement. An attorney for Sprout didn't respond to requests for comment.

Sprout and parent company Recovco Mortgage Management have not declared bankruptcy but have all but shuttered, with origination licenses which expired last summer. The East Meadow, New York firm originated $1.9 billion in mortgage volume in 2022, according to S&P Global mortgage data.

Attorneys for Sprout have engaged in four other lawsuits against the former business, approaching possible resolutions in three cases but denying accusations from another creditor.

Executives for Sprout and non-QM lender Family First Funding signed a $475,000 settlement agreement in January regarding FFF's dispute over a $5.1 million loan purchase, according to court records. A federal judge has not yet signed off on the agreement. 

Non-QM lender New Wave Lending Group has a settlement conference April 19 with Sprout in a New York federal court over New Wave's claim for $6 million from a collapsed $32 million loan purchase. The embattled company is also entering mediation with Merchants Bank of Indiana, which sued Sprout for failing to remit a $1.2 million loan payoff in early 2022.

Sprout meanwhile is battling accusations from warehouse lender FirstFunding, which in the past few months has attempted to collect a default judgment against Sprout for $262,500 in dues unpaid. The payment stems from FirstFunding's prior $175 million warehouse funding facility with Sprout, according to court records. The sides are set to meet in court next week and in mid-May.

Several lenders have shut down in the past 12 months as the mortgage market approached a low point, but only Sprout and former Plano, Texas-based First Guaranty Mortgage Corp. have faced significant class action lawsuits from former workers seeking alleged pay owed. A federal judge in January gave a green light to a class action suit from 425 employees against FGMC, and the suit remains pending in the U.S. Bankruptcy Court for the District of Delaware.