The founder and TV pitchman for mortgage lending leader Ditech.com in Costa Mesa abruptly resigned Monday after three of his top managers were indicted for allegedly trying to extort kickbacks from a Pittsburgh real estate services firm.
J. Paul Reddam, 44, a former philosophy teacher who stars in Ditech.com’s ubiquitous television commercials, has not been charged with any wrongdoing. A spokesman for the company, a unit of General Motors Corp., said Reddam voluntarily resigned as Ditech’s chief executive. He declined to comment on whether Reddam’s departure was related to the ongoing federal probe, which is being led by the U.S. attorney in Pennsylvania.
On Monday, agents for the Federal Bureau of Investigation raided Ditech.com’s headquarters along the San Diego Freeway and arrested two managers, Gregory Kenneth DeLong, 41, and Vincent Pozzuoli, 36, both of Newport Beach. A third Ditech.com manager, Jay David Marx, 36, of San Juan Capistrano, was expected to be arrested Monday night, said a U.S. attorney spokesman, Thom Mrozek.
Ditech.com, a 5-year-old company that made $4.3 billion in loans last year, has earned a national reputation for aggressively marketing higher-risk home-equity loans. More recently the company has made a big push on the Internet, offering quick loan approval over the Web.
Ditech spokesman Rick Gillespie said the federal probe should have no impact on the company’s borrowers. “No customers were affected by these alleged activities,” he said Monday.
But the arrests and investigation are a setback to the fast-growing company and were viewed by some rivals as another blot on Orange County’s mortgage lending industry. Last month, Irvine-based First Alliance Corp. filed for bankruptcy amid investigations into its lending practices.
“I’m starting to get concerned about the overall health of our industry’s reputation,” said Anthony Hsieh, president of Huntington Beach-based LoansDirect.com, a rival of Ditech.com.
According to a grand jury indictment, the Ditech.com managers allegedly solicited kickbacks from ATM Corp. of America, a Pittsburgh company that provides title insurance, notary closings and other mortgage services to Ditech.com.
Last December, the three men threatened to stop using ATM’s mortgage services unless the company agreed to pay them and put the father-in-law of Jay Marx on ATM’s payroll as a “ghost employee,” according to the indictment. Ditech.com accounted for about 20% of ATM’s business.
Officials at GMAC Residential Mortgage Corp., which acquired Ditech.com last year, learned of the alleged extortion plot and contacted law enforcement authorities, according to Gillespie.
Officials at ATM Corp. could not be reached for comment. According to the indictment, ATM made its first payment to the men April 20 in the amount of $11,451.
Gillespie said the Ditech managers had been put on indefinite leave, with pay, pending the outcome of the investigation. Pozzuoli was listed as the company’s vice president of loan originations in a 1998 financial statement. DeLong oversaw escrow services and Marx worked as an operations manager.
None of the three managers could be reached for comment.
Reddam Shook Up Mortgage Industry
GMAC officials have brought in a management team to handle day-to-day operations of Ditech.com, which employs 650 people in Orange County and 800 nationwide.
Reddam, a former teacher with a passion for horse-racing, founded Ditech.com in 1995 and immediately shook up the Southern California mortgage industry with his scrappy style and aggressive advertising. Though his techniques raised eyebrows, they were often copied by rivals, most notably his use of freeway billboards to advertise the company’s daily mortgage rates.
Reddam was one of the first lenders to embrace risky 125% home-equity loans--which allow homeowners to borrow 25% more than their property’s value. He also slashed costs by cutting out brokers and real estate agents, marketing directly to consumers and promising to pass along the savings.
Reddam’s company flourished, thanks largely to the refinancing boom in 1998. But when interest rates rose and the 125% loan market collapsed in late 1998, Ditech.com’s growth began to slow.
Last year, he sold his company to GMAC in a deal valued by sources at up to $265 million. He retains an interest in some of Ditech.com’s assets, Gillespie said.
Last fall, Reddam paid $7 million cash for an oceanfront property in Laguna Beach, paying $1 million more for the home’s custom-made furniture, according to property records.
Reddam did not return phone calls left at his office Monday.
Times staff writer Marc Ballon contributed to this story.