Grand Jury Investigating Costa Mesa Mortgage Firm

Cal Star Financial Services Inc., a small Costa Mesa mortgage banking firm that is insolvent and $13.6 million in debt, disclosed Wednesday that a federal grand jury in Los Angeles is investigating its operations.

Cal Star, which lost $2.2 million for its fiscal year ended Oct. 31, said the grand jury has issued broad subpoenas on the company and its chairman and chief executive, Dean M. Brewer.

“We are not aware of what the subpoenas may be in connection with,” said Shannon Squyres, a company spokesman. “The grand jury subpoenaed all the records and documents of the company. Our attorneys are talking with the grand jury to try to get it to be more specific about what it wants.”

Brewer reportedly was in San Francisco and could not be reached for comment. Company president Bruce Harshey refused to comment.

Federal investigators would neither confirm nor deny the existence of a grand jury probe, and two quasi-federal agencies that purchase the loans Cal Star makes also declined to comment.

The company said in a prepared statement that it is trying to renegotiate the $13.6 million in loans it owes, but acknowledged that it does not have sufficient cash to pay the loans off and could be forced into bankruptcy.

Cal Star said its insolvency also threatens its status as an approved lender under regulations imposed by the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Corp., the two largest purchasers of mortgages in the secondary market.