PacWest Funding's CEO watched in late 2007 as rival mortgage brokerages, banks and collaborators collapsed under the weight of the declining housing market.
Fearing his company would be next, Curtis Melone restructured his business to offer what he felt people needed most: help with their crushing mortgage debt.
Melone re-christened his company Green Credit Solutions, a loan modification firm dedicated to aiding people facing rapidly ballooning payments on loans many of them couldn't afford in the first place.
The journey from subprime-era lender into purported troubled homeowners' helper has been a common post-meltdown path in the mortgage industry hotbed of Southern California.
Loan brokers put out of work by the housing market collapse went looking for the next big thing — and found it in the mortgage modification business, which provided a way of cashing in on the problems they helped create.
Many of those firms, including Green Credit Solutions, have been shut down and are now facing state and federal investigations trying to prove that they bilked their customers.
"Some of the same people who were involved in luring people into loan origination schemes years ago are now back," said Benjamin B. Wagner, a Fresno-based U.S. attorney who co-chairs a nationwide multi-agency mortgage fraud task force.
For example, Bernardette Perry was banned by a judge from working in the loan-modification industry after she helped transform Fountain Valley-based lender Synergy Financial Management Corp. into a foreclosure relief firm called Loss Mitigation Services Inc. Regulators say it did little to help the 1,400 clients it took on after they'd paid up to $5,500 apiece.
But that's dwarfed by Green Credit, which had some 6,400 separate loan modification files in its Foothill Ranch offices when they were raided by state officials in late 2009.
The company had placed itself at the apex of a national network of brokers who fed it clients and made it perhaps the largest loan modification company to attract legal scrutiny, investigators said.
"The volume and the way they branched out ... they were kind of at the center of it," said California bar investigator John Noonen, who led the raid.
California's attorney general began investigating Green Credit after customers complained they each paid thousands of dollars for loan workouts that never happened. The state Department of Real Estate also filed allegations that prompted Melone and other company officials to surrender their real estate licenses in April.
Attorney general spokeswoman Becca MacLaren said no criminal charges have been filed but her office's investigation is ongoing.
Melone, 36, declined to be interviewed, though a former company loan salesman gave some insight into PacWest, which was established in 2003, and its evolution into Green Credit.
"There wasn't a lot of outright fraud going on (at PacWest) but there was certainly a lot of stuff where they would exaggerate the income," said the salesman, who spoke on condition of anonymity because he feared his involvement with the companies would hurt his future job prospects. "You didn't have to have a job. You could still get financing. You just had to pretend to have a job."
Among the mortgages PacWest peddled were adjustable-rate loans with low teaser rates that could have left borrowers in dire financial straits when they later ballooned to much higher levels, he said.
When the demand for the mortgage derivatives came to an abrupt halt in 2007, Green Credit advertised aggressively for brokers who could deliver struggling customers.
For many mortgage brokers who were seeing their own business dry up as credit and home sales became scarce, Green Credit was a lifeline: Instead of charging to write mortgages for lenders, they could get paid to arrange modifications.
In return for brokers' files, they kept a cut of the $3,450 Green Credit charged for most modifications, court records show.
The resulting volume even prompted the company to open an office in Guatemala City, where lower-wage employees handled customer service calls from the growing number of Spanish-speaking customers, the bar association's Noonen said.
At first, the salesman said, Green Credit's staffers were having reasonable success with modifications. But about six months into the company's operation, the volume of applications it took in had outpaced its capacity to handle them, and hundreds of files were going untouched for months at a time, he said.
Noonen likened the operation to a Ponzi scheme. "They're taking in new money and new fees to pay for the processing of the old files because they got bogged down," he said.
Filings by the state's real estate department, bar association and attorney general's office contain dozens of examples of Green Credit customers who got nothing in return for the money they paid the company.
One customer, Rhociana Smithers, told investigators she received a notice of trustee sale for her Contra Costa County home after she paid Green Credit $3,000 to arrange a loan modification.
When she contacted her lender — contrary to Green Credit's advice — she was told the bank began foreclosure proceedings after the firm ignored requests for information.
"They didn't do anything at all," said Michael Rainis, who paid Green Credit for a modification that was never completed on his Orange County home. "They just took the money and that was pretty much it."
Indeed, when officials executed their raid last December, Green Credit appeared to have given up on processing its modification files, Noonen said.
"They seemed kind of relieved that we were there to take them," Noonen said. "They had reached a dead end."
A year after that raid, Melone has pivoted some of his attention to the movie business, identifying himself as the producer of a film called "Death of a Ladies' Man" on a website seeking investors to pay for its production.
An online promotional clip shows the film's plot centered on a newlywed writer who is lured into an adulterous relationship.
In a producer's statement, Melone portrays the film's message — finding satisfaction with what one already has — as an antidote to the gloom hanging over the nation after the economic meltdown.
"I hope this movie gets that message across; especially in the times we are in today as a country," he writes. "We need to be uplifted and reminded how good we have it."
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