Ex-Sprout CEO's originator licenses suspended

An Illinois regulator suspended the originator licenses of former Sprout Mortgage CEO Michael Strauss and his new company after they failed to address concerns about his background.

Strauss' new business effort was halted Feb. 1 in an order by the Illinois Department of Financial and Professional Regulation's Division of Banking, according to a notice posted in the Nationwide Multistate Licensing System. The disgraced industry executive obtained mortgage licenses in Illinois late last year for himself and his firm, Smart Rate Mortgage LLC.

"The Department, upon further review of Smart Rate Mortgage's license application, became concerned that not all pertinent information had been provided regarding the owner's background in the industry, including but not limited to the owner's experience with real estate finance," the order said.

Neither Strauss nor a representative for Smart Rate responded to repeated inquiries by the department last month, resulting in their license suspension. The parties have until Feb. 10 to file a petition for a hearing on the decision before the suspension is made final, according to the order. 

The spokesperson for the Illinois department and a representative for Smart Rate didn't respond to requests for comment Thursday. A female answering Strauss' phone said he was not available to speak. 

Strauss lists himself as the principal loan officer for Jacksonville, Florida-based Smart Rate established last August, according to NMLS records. He formed the company one month after Sprout abruptly shut down. Creditors and former employees have since filed four federal lawsuits against Sprout, Strauss and former company executives seeking recourse for alleged missed payments.

A class of more than 100 laid off workers is allegedly advancing in settlement talks with Sprout for their claim of at least three weeks of owed back pay, according to an attorney's filing in a New York federal court. The sides have a Feb. 15 deadline for a status update to a judge.

The East Meadow, New York-based Sprout, which never declared bankruptcy, is also approaching resolutions in separate suits from two other lenders, according to court filings. The firm consented to a $475,000 judgment against it from non-QM lender Family First Funding in a dispute over a $5.1 million loan purchase, attorneys claim in a still-pending lawsuit.

Non-QM firm New Wave Lending Group has also reached consensus with Sprout on a portion of its claim for $6 million stemming from Sprout's alleged failure to purchase $32 million worth of loans, according to court filings. 

However, the embattled company is not cooperating in two additional suits. Merchants Bank of Indiana sued Sprout last year for failing to remit a $1.2 million loan payoff in early 2022. Sprout has since countersued, accusing MBIN of failing to remit its own $810,000 amount for a loan trade commitment. 

Warehouse lender FirstFunding is also seeking a judgment in default against Sprout over $262,500 in dues unpaid, following a post-shutdown agreement to help remedy FirstFunding's $175 million warehouse funding facility. Both cases remain ongoing.

Strauss has a checkered past, reaching a $2.45 million settlement in 2009 with the Securities and Exchange Commission for his alleged role as CEO in the demise of American Home Mortgage. While he was barred by the agreement from serving as an officer or director of a public company for five years, he worked at a New York-based development firm and East Meadow-based business lender, according to NMLS records, before forming Sprout in 2015.