Animal House Lending

Written By Brian Hicks

Posted December 7, 2006


“Grab a brew. Don’t cost nothin.”– John Blutarsky


For Scott Greenlaw, CEO of Merit Financial, 2004 was definitely one great year. His mortgage company was closing deal after deal and he had been selected by the Puget Sound Business Journal as one of its distinguished “40 Under 40.”

In fact, choosing Greenlaw for the distinction must have been easy because his story was one so common among most successful entrepreneurs.

He started Merit Financial as nothing but a dream in 2001. He leveraged his house, he raided his savings, and he maxed out all of his credit cards to get the $225,000 dollars he needed to start the venture. And when he finally opened his doors, he was licensed to loan money in five states with his 16 employees.

From that humble beginning, Merit Financial began to skyrocket as it caught the lightning in a bottle when the mortgage industry began to explode from the lowest rates in fifty years.

In three short years, Merit’s revenues had grown more than 400% and its loan volume increased more than 1,800%. By that time Greenlaw was employing more than 300 people and had closed over $1 billion in loans.  In that same magical year, Merit Financial bought a 59,000-square-foot office building for $13.5 million.

But it didn’t stop there. By 2006, Greenlaw employed 400 people and went on to close some $2 billion in mortgages.

It was the kind of meteoric rise, like so many others, that led to riches for the young businessman. He bought properties, cars and artwork. Sure, his first wife had left him, but he had clearly made it. The ex-football star had it all, and it looked like it would last forever.

But higher interest rates and the housing bubble had other ideas. His refinance-heavy business had begun to seriously sag under the weight of rising rates, and overhead costs had begun to eat his company up.

In spring 2006, the bottom fell out. On May 5, Merit Financial fired all but 80 of its 410 employees without warning and immediately sought bankruptcy protection.

There was “an absolute retraction in our marketplace-residential refinancing and second mortgages-of about 40%,” explained Merit chief financial officer Ryan Kidd. “We sustained a number of months of losses. The revenue was not there to support the business, and we don’t see that turning around in the near term.”

Despite the company’s business-like explanations, Merit Financial had a dark and seamy underside that contributed to its demise. It was no stellar business model, but instead a sort of “Animal House” of lending.


According to a story by Seattle Times business reporter Elizabeth Rhodes, not everything at the fancy and flashy lender was as it seemed.

Merit Financial, says Rhodes, was run more like a frat house. Its employees were recruited from the Kirkland area bar scene and were turned loose on unsuspecting borrowers after about an hour of training.

It was an environment where 18-year-old know-nothings outnumbered and worked side by side with the experienced loan officers. The beer flowed freely and the boss often provided two kegs for company meetings. Employees were even free to bring in six-packs on Friday.

The article quoted loan officer Sunny Hoppe saying, “It was young, hip, drugs and drinking.”

And young, drunk hipsters pulling credit reports and selling mortgages wasn’t the only problem. Predatory lending tactics and outright fraud were also at work at Merit.

The company drew numerous complaints that it had failed to provide borrowers with the required disclosures and had even repeatedly forged documents.

Hoppe said, “Merit’s whole attitude was ‘Get the Deal.'”

On top of that the company also pushed loan officers to overcharge sub-prime customers because, of all things, they “deserved” it.

This company culture, naturally, led to numerous forced buybacks as many of the loans closed by these jokers eventually went on to collapse.

As sad and as seamy as this story is, however, Merit Financial is just the tip of the iceberg when it comes to Animal House lending. Rhodes may have uncovered the corrupt and illicit behavior that ruled at Merit, but the truth is that hundreds of other “mortgage offices” like Mr. Greenlaw’s exist all over the country.

That’s because the mortgage industry is one of the least regulated businesses in the land. A mortgage shop can open up tomorrow and have six know-nothing loan officers selling mortgages by the end of the day. It worked for Mr. Greenlaw, and he definitely wasn’t the only one. Think of the sums of money involved. They just throw it at the wall and see if it sticks.

In fact, despite all of his antics and negative publicity, Mr. Greenlaw is no longer out of work. He and some of his buddies have started another mortgage company with a brand new name.

It’s all perfectly legal. They are on the prowl for more business. So just remember-not everything in the business is what it seems.

Guys like Otter, Flounder and Bluto are out there making loans. Those guys may know how to throw a toga party, but I wouldn’t want to get my mortgage from one of them.

Mortgage Matters will return next week.

The housing bubble has popped, but the banking debacle has just begun. Email me your mortgage questions at

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