The home loan program was dubbed South Street.
It turned the idea of credit risk on its head. Consumers just exiting bankruptcy could get a mortgage with few questions. They could have some of the lowest possible credit scores. And they didn't have to submit any pay stubs or tax returns.
Subprime mortgage lender Fieldstone Investment Corp. of Columbia created the loan program during the real-estate gold rush in 2004 as competitors flooded the market.
Such risk-taking would be Fieldstone's undoing.
The company, once ranked among the top 20 subprime lenders in the nation, sank into bankruptcy late last year after loan defaults soared and some borrowers couldn't make even their first few mortgage payments.
In court filings last week, Fieldstone reported $121 million in liabilities, including claims from employees in Maryland and elsewhere, but less than $15 million in assets.
Wall Street titan Morgan Stanley is now its largest creditor and has filed a separate lawsuit.
Lenient loan guidelines became emblematic of what went wrong at Fieldstone - and how far the subprime industry went to snag borrowers and boost volume.
As interest rates rose and competition intensified, Fieldstone pushed to make more loans to offset diminishing returns. And as Wall Street clamored to buy mortgage securities, the company changed the way it did business to capitalize on that gold rush.
Securities and Exchange Commission filings, bankruptcy court records, lawsuits and interviews with former employees detailed Fieldstone's recent downfall.
The company grappled with internal turmoil as well. General counsel Cynthia L. Harkness warned Fieldstone board members in January 2007 about increased production targets that were driving the company to consider more aggressive loan programs. She also questioned whether marketing plans could run afoul of consumer protection laws, according to a whistleblower complaint filed with federal regulators in March.
Harkness alleges she was harassed and fired for questioning the conduct of Fieldstone founder and Chief Executive Officer Michael J. Sonnenfeld.
The company denied allegations by Harkness in regulatory proceedings. Her complaint was dismissed but it is now under appeal.
Sonnenfeld did not return telephone calls seeking comment. Several other executives and board members either couldn't be reached or declined to comment for this article. A lawyer for the company declined to comment on its business practices.
