Two Agencies Sever Ties With Ailing Cal Star : Mortgages: Fannie Mae and Freddie Mac cite the company’s insolvency in withdrawing their approval of the banking firm as a lender and loan servicer.

Cal Star Financial Services Inc., a troubled mortgage banking firm, was stripped of its essential business Thursday when the nation’s two largest buyers of home loans terminated their ties with the company.

Spokeswomen for two quasi-government agencies--Federal National Mortgage Assn. (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac)--that bought most of the mortgage loans made by Cal Star said they withdrew their approval of the company as a lender and mortgage servicer because the company had become insolvent.

The agencies, commonly known by their nicknames Fannie Mae and Freddie Mac, said the loan-servicing portfolio will be transferred to other companies, and Cal Star customers will be notified about sending payments elsewhere.

The action comes a day after Costa Mesa-based Cal Star revealed that it was insolvent and that its operations were under investigation by a federal grand jury in Los Angeles.

Cal Star, which sells the loans it makes to investors in the secondary market, earned most of its $11 million in revenue for its fiscal year ended Oct. 31 by servicing those loans, or billing customers and collecting their payments.

Most of its $300-million loan-servicing portfolio consists of loans sold to Fannie Mae and Freddie Mac. The two agencies are the largest purchasers of home loans, a secondary market activity designed to make more money available for home loans.

Executives at Cal Star could not be reached for comment Thursday.

The company said Wednesday that a federal grand jury issued broad subpoenas on the firm and its chairman and chief executive, Dean M. Brewer. A company spokesman said executives did not know the reason for the investigation and would ask the grand jury to specify what records it wants.

The company, which lost $2.2 million for its fiscal year, owes $13.6 million to two lenders who had been providing the firm with the funding needed to make home loans.

Cal Star said earlier that it is trying to renegotiate the loans but could be forced to file a bankruptcy petition to protect itself from creditors. It has a $3.4-million negative net worth, meaning its liabilities are greater than its assets.