One-Minute Mortgage

Out of the ashes of the subprime collapse, Layne Sapp tries 
to reinvent the loan-processing business.

By Manny Frishberg December 28, 2008 Published in the June 2008 issue of Seattle Met

At 44, with salt and pepper framing his still-boyish face, Layne Sapp has outgrown the “prodigy” label he earned at the start of his career. Sapp started early, rose fast—and fell far before making his second start this year. He began trading Snohomish County homes and commercial real estate when he was fresh out of Marysville High School. By the time he was 23 he’d made $5 million and decided to turn from speculating to lending. His Mountlake Terrace–based Mortgage Investment Lending Associates (MILA) had a special edge in the crowded mortgage game: In 2002 he introduced innovative software that could process home-loan applications submitted over the Internet in seconds.

Rapid processing drove rapid growth for MILA. In 2004, Sapp gained brief notoriety when he bought a 130-foot, $15 million yacht and claimed it as a business expense. The next year Inc. magazine dubbed him Entrepreneur of the Year. By 2006, MILA had 640 employees and $4.5 billion in mortgages (mostly subprime but with conforming loans as well) distributed across 26 states. Then it expanded to 14 more states and moved into jumbo loans, mortgages of more than $417,000.

Federal loan agencies refused to underwrite these and other “unconventional” loans, but Wall Street sliced and diced them and sold the resulting hash in the bond market. Home sales and MILA’s business surged. Then, in early 2007, Sapp’s company hit a wall: The investment banks that held its mortgages began demanding it buy back those they claimed did not meet their lending standards. Sapp gradually put up about $100 million, including several million of his own, to meet these margin calls. But a broader liquidity crisis had seized the mortgage market. “We started calling the bond buyers, and they said, ‘Hey, we’re not buying bonds,’ or ‘We’re going to slow our processes down and we don’t feel there’s going to be any appetite for the next two or three years.’”

"I call it Mortgage 2.0. The mortgage industry really has been archaic."

Finally, in April 2007, Sapp shut down and filed for bankruptcy protection. He gave the last 300 employees just an hour to clear out, but helped them secure health insurance and vest their 401(k)’s. He tried to sell MILA (to buyers who remained nameless) but the deal collapsed. Some fallout from the closure is still in litigation, but Sapp came out smelling rosier than other operators (think Bear Stearns) who hung on until the last default.

Sapp still held another card. In 2002 he’d set two software engineers to work designing a second Internet-based mortgage program. Early this year it was finally ready for prime time, and Sapp announced a new company, Credex. It offers itself as a middleman to banks, enabling them to take loan applications via Internet ads and process them MILA-style, “literally in seconds,” rather than the traditional days or weeks. And it provides would-be borrowers with their credit reports so they can gauge their loan prospects. “I call it Mortgage 2.0,” says Sapp, adding that some large banks are ready to sign on. “The mortgage industry really has been archaic—1.0 is not working.”

Can Sapp 2.0 rise from the subprime meltdown? Heidi Happonen, a freelance marketer who has worked with Sapp at MILA and Credex, recalls the day she first walked into MILA’s headquarters and saw an aphorism hanging on nearly every wall: “Today Is Opportunity Day.” It sounded, well, sappy: “You think of that as pretty gimmicky and nobody really believes that sort of thing. But when you get to know Layne, he truly does live that. He does have that innate sense that there’s always a silver lining. That positive attitude has led largely to his success.”

Sapp himself admits that going bust was “frustrating” financially. “I’ve had to reorganize a lot of things personally. But on the business side, I feel that things happen for a reason. I’m still the only primary investor in this technology, so I still control my own destiny, right here and now.” He talks of expanding, of adapting Credex for other markets—foreign banking, car financing, other consumer loans—as the credit crunch resolves. And yes, he still considers our region one of the country’s best real estate markets.

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