The Washington area's largest mortgage firm, Steed Mortgage Co., has been saved from the threat of bankruptcy by a Virginia corporation, run by an Iranian-born investor, that has agreed to buy a majority interest and cover about $1.5 million in checks Steed recently bounced.
The agreement to purchase Steed stock by B&C International Inc., run by Bahram Khamnei, prompted local banks to show a renewed confidence in the mortgage comapny, which has been cut off from credit because of concern about its financial condition.
William Steed, who will retain his position as company president under the new ownership, said the banks agreed to extend $10 million in credit to his firm after the purchase was arranged.
Steed's problems surfaced last month when the Wheaton-based company laid off 100 of its 130 employees and closed most of its 12 offices because it could not cover checks it had written to home sellers. That action left about 40 prospective home buyers who were Steed clients unsure as to whether they would be able to buy their new homes.
The financial crisis at Steed was in part brought on by the governement's recent anti-inflation policies that pinched the home mortgage market, prompting smaller layoffs and cutbacks of business at other firms.
"I look forward to emerging really much stronger," Said Steed, who noted that the firm had been undercapitalized since conception and that the new investment solved that problem. B&C agreed to buy 51 percent of the company's stock. Previously, Steed had held all of the stock.
What was critical to the company's survival, according to Steed and others, was the cooperation of the banks and their willingness to extend credit after the image-shattering bounced checks were covered. The key to unlocking the credit was the location of an investor to cover the short-term problem.
Khamnei was brought in by United Virginia Bank, one of eight area banks involved in days of negotiations over Steed's fate that ended in an agreement in principle Friday night. B&C was known to several of the banks involved, according to sources.
Steed's difficulties apparently began after the Riggs National Bank cut off Steed's line of credit.Other banks followed suit and then Suburban Trust froze Steed's operating account, compounding the problem, according to sources.
"By next Wednesday or Thursday we should have every homeowner squared away," said Steed. "All of the confusion should be cleared away," he said. Steed ws celebrating yesterday by drinking champagne in the company's main office with several employees, who he said remained at work even when it appeared there would be no money to pay them.
As federal anti-inflation policies have hit the housing market, the problems of Steed and the less severe troubles of other mortgate companies have focused attention on the lack of regulation of the multibillion dollar industry.
"I'm not really sure what would be good (among proposals to regulate the industry) but I know a lot of Maryland legislators are thinking about it," said W.H.Holden Gibbs, Maryland's banking commissioner.
One approach might be to require a bond for mortgage companies and brokers, he said. But, Gibbs noted, a bond large enough to cover the amount of outstanding commitments Steed had when it looked as if it might fail would be prohibitive for small businesses.
Gibbs said that his office licenses mortgage companies. "But we don't examine them the way we do banks," he said. "We license them and investigate complaints, but we don't really know what they're doing."
Maryland is an exception -- one of only eight states that license mortgage companies through bank commissions or savings and loan commissions. In most states, mortgage companies file regular corporate registrations but are basically no more regulated than a doughnut shop or other small business.
Regulation of financial institutions is generally aimed at protecting deposits, said Sidney Bailey, commissioner of financial institutions for Viriginia. Because mortgage companies do not handle deposits, they have been largely unregulated, he said.
The resolution of the Steed matter will end weeks of anxiety for people who settled on houses financed by the company, only to discover later that Steed's checks for the financed portion of the cost of the houses were no good.
Sybil Thornton, a nurse, who thought she had bought a town house in Burke, was one of those buyers Thornton and Dino Vinciguerra with whom she lives, went to settlement on the town house on Oct. 16. They handed over the certified check for $6,000 and a personal check to cover the downpayment. Steed produced a check for the balance.
After Steed's check bounced, settlement attorney Harold O. Miller hastly called a meeting and got Thornton to sign the house back over to the seller.
Thornton and Vinciguerra spent the weeks after that trying to get their downpayment money back from Miller. At one point it looked as if the couple might end up paying several hundred dollars in closing costs, but not get their house. Miller said he arranged later for them to pay no closing costs if the deal fell through.