“The faucet has just been turned off” – NMP

Sprout Mortgage was averaging $380 million a month in loan volume before it abruptly closed on Wednesday.

That’s the word of a former executive who thought “everything was fine” and was caught off guard when the company closed.

According to the employee, who spoke on condition of anonymity, a company-wide conference call was held Wednesday via Microsoft Teams at 4:30 p.m. The time of the call was confirmed by other former employees who also spoke anonymously with NMP.

Former employees said Sprout President Shea Pallante led the meeting to break the news to all of the staff, which numbered more than 300 people. He informed staff that the business would close immediately – including its retail and wholesale divisions, employees said.

A company official declined Wednesday to confirm or deny the shutdown, and Pallante did not respond to a request for comment.

The former executive said that after Pallante announced the closure of the business, the meeting erupted as people on the call began asking him questions, including whether salaries and commissions would be paid or severance packages offered, as well as what would happen to unfunded loans in the company’s pipeline.

While Pallante said employee benefits would continue through the end of the month, he had no further answers and ended the meeting, a former employee said.

The call took place the day before payday, the employees said.

Employees confirmed to NMP today that their paychecks have not been deposited.

The executive who discussed Sprout’s mortgage volume said when the teams’ reunion was announced, the idea was that Pallante would announce an acquisition, not that the company would close.

The executive said that of the $380 million in monthly lending volume, $20 million to $25 million were retail loans. “It was a tiny fraction of the total volume,” the executive said.

“Everything was fine. … So it must be something cool, right?” the executive said they found out about the company-wide meeting.

Instead, Pallante announced Sprout was no longer in business, the executive said. “It was a stark contrast to what we were going through.”

A former wholesale account manager, however, told NMP the company was trying to sell $190 million in loans but was only able to sell $90 million. “Wall Street was not buying non-QM loans,” the account manager said.

The account manager said the messaging system was shut down after the meeting and no instructions were provided on how to return equipment, including company-issued laptops and cellphones .

Another former employee said Sprout cut its workforce by 50 people in April and laid off another 60 in June. The former employee also said that two investors were interested in the company – one ready to bring in $25 million, the other looking to make a preferred stock offering. Both of those potential deals went up in smoke on Friday, the former employee said.

Sources also told NMP that Sprout’s entire correspondent lending team was terminated two weeks ago and transferred to Oaktree Capital Funding Corp., which has a non-QM wholesale lending unit. Oaktree did not immediately respond to a request for comment.

The former executive who spoke to NMP said Sprout is well on its way to dominating the non-QM lending industry nationwide.

“The average loan size was $700,000 and the average FICO score was 720,” the executive said. “These were not risky loans. There was nothing fishy about these loans.”

The executive continued, “Non-QM is a $100 billion industry. This was an opportunity for Sprout to be the #1 (non-QM) lender in the nation.”

The executive added: “We were good at getting loans; the average was 15-22 days and things were getting funded quickly. The tap just turned off.”

In the April 2022 issue of National Mortgage Professional magazine, Pallante was bullish on the non-QM market. He predicted it would be 10% of the overall mortgage market.

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