Warehouse lender to get $31M from First Mortgage and former exec

First Mortgage Co., along with its convicted founder and former Mortgage Bankers Association chair Ron McCord, have both agreed to pay CapLoc $31 million to settle a New York federal court case.

The agreement was reached just prior to the scheduled start of a trial on March 27, said Aaron Tobin, one of the attorneys for CapLoc. Partial summary judgment had already been granted for CapLoc. First Mortgage and McCord are jointly liable for the whole amount.

As part of the settlement, a single remaining count from a counterclaim brought by First Mortgage against Eli Global, a potential purchaser of the Oklahoma-based lender, was dismissed with prejudice. Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, signed off on the accord.

"We are thrilled with the results and thrilled with the outcome that CapLoc achieved," Tobin said.

McCord pled guilty in May 2021 to five counts of fraud and was later sentenced to over eight years in prison and was ordered to make restitution of nearly $52 million to the victims.

The criminal indictment included allegations that McCord defrauded CapLoc, which had just entered the warehouse lending business in March 2017. First Mortgage was its initial client, Tobin noted.

CapLoc agreed to provide funding for new loan originations at cash-strapped First Mortgage. However, "unbeknownst to CapLoc, First Mortgage and Ron McCord and others who were not named defendants, had put $35 million of old, aged loans on the warehouse line almost immediately upon entering into the relationship," Tobin explained.

About half of those were loans the industry classifies as scratch and dent, including some in default, that didn't meet CapLoc's underwriting criteria. The remainder represented examples of "outright fraud," Tobin said.

"Those loans had previously been paid off or sold off to other investors," he explained.

Shortly after discovering the alleged scheme, CapLoc ceased funding First Mortgage's funding line. It had closed the line by June 2017 and filed its lawsuit shortly afterwards. A second action from 2021 involving the parties in an Oklahoma federal court is still active; Tobin is one of the attorneys in that case as well.

A message left with the attorneys for First Mortgage and McCord was not returned by deadline.