Cal Star Loan Service Firm Has Shut Down

Cal Star Financial Services Inc., an insolvent mortgage-banking firm under investigation by a federal grand jury in Los Angeles, said Thursday that it has ceased operations and is liquidating its remaining assets.

The Costa Mesa-based company, which serviced a portfolio of $300 million in mortgages, operates 11 offices in six states and at one time employed 117 workers. All but four have been let go, the company said in a statement.

The shutdown follows an announcement last week that the nation’s two largest buyers of home loans--Federal National Mortgage Assn. (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac)--terminated their ties with the company.

In a prepared statement Thursday, the company said that it is liquidating its assets in cooperation with its major creditors but that it does not expect to obtain enough money from the sale to satisfy all of its liabilities.

The company also said it failed to meet its payroll obligations last Friday. Company officials could not be reached for comment.

Mariette Schroeder, a Cal Star loan sales coordinator, said last Friday that employees were told by company President Bruce Hershey that they couldn’t be paid wages that were due because a hold had been placed on payroll funds. Moreover, she said an Employee of the Month check for $250 that she was awarded on Monday of last week bounced.

Schroeder also said employees were told that their group medical insurance policy had not been funded and claims would not be honored for the last two months.

Cal Star services loans--billing mortgage holders monthly and collecting their checks sold on the secondary market. Last week, spokesmen for Fannie Mae and Freddie Mac said that Cal Star’s loan-servicing portfolio will be transferred to other companies and that Cal Star customers will be notified about sending payments elsewhere.

Cal Star said last week that it had become insolvent and could not meet debt payments of $13.6 million. The company lost $2.2 million for the fiscal year ended Oct. 31 on revenue of $11 million.

The company also revealed that a grand jury had issued subpoenas to the company and its chairman and chief executive officer, Dean M. Brewer. The company said it did not know what the investigation concerned.