State Moves to Close Down Irvine-Based Mortgage Firm

State regulators moved Thursday to shut down an Irvine-based mortgage lender that is trying to sell $100 million in stock, saying it had overcharged borrowers by at least $1.5 million.

The state Department of Corporations filed a lawsuit in Orange County Superior Court charging that Preferred Credit Corp. defrauded as many as 10,000 borrowers, falsified loan documents to cover its tracks and lied about its officers’ titles and stock ownership in filings with regulators.

Separately, state real estate regulators said the licenses of Preferred and its top two officers were suspended in January for mishandling trust funds, failing to supervise employees, having unlicensed employees and other offenses. Those suspensions were stayed.

The actions came as Preferred on Tuesday registered for an initial stock offering intended to raise $100 million from public investors, who would wind up owning 30% of the company.

The charges seemed certain to scuttle that stock offering. In a news release, Preferred said the charges were surprising because it had believed it was close to a good-faith deal with the state to reevaluate its practices to ensure it complied with all regulations.

Preferred grew from a $16.5- million lender in 1994 to $597 million in 1996 by making second mortgages to borrowers with good credit but no home equity.

A Department of Corporations examiner became suspicious during an examination in April “and began digging deeper,” said department spokesman Bill McDonald.

What the examiner found were allegedly falsified United Parcel Service and other documents, department officials said.

They said it appeared that Preferred received loan proceeds that should have gone immediately to borrowers, but kept the money for one to 10 days while charging the borrowers interest.

All told, as many as 10,000 borrowers may have been defrauded by as much as $1.5 million from March 1, 1996, to the present, Corporations Commissioner Keith Paul Bishop said.