Preferred Credit Pulls Its Public Offering

A mortgage company accused by the state of shortchanging borrowers by $1.5 million and falsifying loan files to cover its tracks withdrew its proposal Monday to sell $100 million in stock to the public.

Preferred Credit Corp. pulled its public offering, two sources said, as state regulators pressed to revoke the mortgage lending licenses of the company and its top executives, Todd A. Rodriguez and Walter F. Villaume.

One source close to the company, speaking on condition of anonymity, said Rodriguez and Villaume believe they can stay in business without the stock sale.

The accusations against Preferred by the state Department of Corporations came amid revelations that the company’s stock offering, filed with the U.S. Securities and Exchange Commission, failed to disclose important information. Federal law requires any company selling securities to divulge to the public all material facts about itself.

In its filing, Preferred failed to disclose that the state Department of Real Estate had suspended its real estate broker’s license, along with those of Rodriguez and Villaume, for mishandling trust funds and other offenses. The suspensions, final in January, were stayed for two years.

Preferred also omitted from the filing the fact that the Corporations Department was investigating allegations it routinely overcharged borrowers and doctored files to hide the activity.

Corporations Department officials said Monday that Preferred is negotiating over its future with the agency. The department announced last week that it would try to revoke the licenses of the company, Villaume and Rodriguez.

“We are going into these discussions with a good deal of skepticism,” said Bill McDonald, assistant California corporations commissioner.

“We are willing to listen, and I wouldn’t rule out a settlement,” McDonald said. “But it isn’t at all clear, based on their track record, that they can be trusted.”

Preferred says it is in the process of refunding money to thousands of borrowers at about $75 each. It says it has returned more than $300,000 so far.

Preferred grew from $16 million in 1994 loan originations to nearly $600 million last year by catering to a niche market: homeowners with little or no equity but above average to excellent credit ratings. It offered them second mortgages that typically were used to consolidate credit-card debts.

Helping to drive its high-growth strategy was its ability to securitizeits loans--bundle them up for bulk sale to investors. Twice last year and once this year, it did so.

Given Preferred’s troubles, it’s unlikely it will be able to securitize loans on Wall Street any time soon. However, the source close to the company said it should be possible to sell the loans individually, as Preferred has done in the past.

The company and the Corporations Department are due back in Orange County Superior Court for a hearing July 13 on the department’s efforts to install a monitor at Preferred to investigate in depth the company’s loan problems.