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Journal: Blog2
  • Dr. Andy Schell, Ph.D., DBA, CPA, CMB

Zombie Mortgage 2 - The Purge

A Warning to Mortgage Company Owners


The Zombie mortgage company has a liquidity and capital crisis.


For year-end 2023, the Zombie mortgage company that runs out of money because of ongoing losses is likely forced out of business because of a little-known CPA rule.


And just like the implode-o-meter from 2008, this list is likely to be long.


And, like anything in mortgage lending, this issue is complicated.


Mortgage companies are not banks with customer checking accounts and a big vault filled with currency. Mortgage companies must get money to fund loans from an FDIC commercial bank through a credit facility known as a warehouse line of credit. Federal and state regulators examine FDIC banks. And unlike at SVB, warehouse lender banks must follow strict lending and risk management rules. These rules limit the amount of a funding line they are allowed to offer to a mortgage company to fund loans.

This funding limit is based on the mortgage company's net worth (capital) and bank account balances (liquidity). A mortgage lender with a $100 million warehouse line usually must have $6.6 million in net worth and $5.3 million in deposits at the warehouse or other bank accounts. The math is based on 15X leverage and 80% liquidity.

If cash drops from $5.3 to $3.0 million, the warehouse line will drop to around $56 million, down from $100 million. This reduction in warehouse line amount is the least of the bad things that are likely to happen.


All FHA-approved mortgage lenders must submit a CPA audit to HUD each year, usually by March 31st. This audit must also be delivered to the FDIC bank warehouse lenders. The CPA audit will show how much net worth and cash is left and if the CPA thinks the company will survive another year.


For December 2023 audits, this issue is significant because of a rule the CPAs follow when issuing their opinion stating that the financial statements are presented fairly. Since 2010, it has been rare for a CPA not to say the IMB's financials are presented fairly. But beware, there is a rule called a qualified opinion where the CPA limits their "presented fairly" statement. Any qualification is bad and will cause the warehouse lender to react.


But here's the deal for 2023, the CPA audit may have to issue the worst of all qualifications as a going-concern statement. A going-concern qualification means the CPA does not think the firm will survive the next 12 months.


When the FDIC warehouse banks get the financials that show a qualified opinion for going-concern risk, they are forced to act and likely terminate the warehouse line and HUD will likely terminate approval.

As of October 2023, business owners have only a few months to find a merger partner to absorb their operation and avoid the going-concern qualification and forced shutdown.


There are likely a lot of mortgage companies with a small group of owners that are about to face forced liquidation. Now is the time to act and save the employees by merging with a stronger company.


Dr. Schell's firm, along with several other M&A specialist firms around the country, has buyers ready to purchase the assets of the almost-dead Zombie mortgage company.

Ask your CPA about a going-concern qualification.


If you don't have liquidity and capital to carry losses for another year, then you may already be the walking dead - a Zombie mortgage company.


Finding a merger partner is likely the only solution.


In this merger, the Zombie company sells its assets to a stronger company that agrees to hire some of most of the employees under an asset purchase structure.


Please contact Dr. Schell to learn more about M&A options by clicking HERE.



MBS Financial Services supports the following areas:

  • Growth Strategy – We can help you plan and execute a growth strategy.

  • Hedging & Pipeline Risk Management - Dr. Schell can help explain how hedging functions, the benefits of hedging, and the risks associated with the activity. See blog posts.

  • Technology must align with a firm's strategic objective. Every mortgage lender's technology infrastructure significantly impacts its customer experience and employee workflow. MBS will help select, configure, and deploy the best technology solution.

  • Executive Development - Leadership is a learned skill. Dr. Schell can teach you to be an amazing leader, an effective manager, and an inspiring coach who can foster a vibrant culture.

  • Accounting Services – Dr. Schell, CPA, leads the accounting services team to become your outsourced accounting department. This alternative makes more and more sense for companies wishing to focus on their core business and also want trustworthy accounting and financial reporting support.


About Dr. Schell:

Dr. Andy Schell, Ph.D., CPA, CMB


Dr. Schell is CEO, Managing Partner, and Co-Founder of Mortgage Banking Solutions and the Founder of MBS Financial Services ("MBS"), based in Austin, Texas. Dr. Schell is known for his ability to turn "vision into reality" and "chaos into order" as he finds creative solutions to the challenges his clients face addressing Revenue Stability, Technology Enhancement, Financial Management, and Workflow Efficiency.


He has 4 decades of experience as a strategist directing the activity of both small and large groups of employees, including mortgage lending activity at Bank of America. His leadership knowledge extends from his hands-on experience and his academic training in his MBA, his master's degree in leadership, and his two doctoral degrees to examine employee dynamics given leader stimulus.


To find out more information about MBS' services, please click HERE


To contact Dr. Schell, click HERE

Find more information at

DoctorSchell@MBS-Team.com ; (512) 501-2812;

Doctor Schell the Profit Doctor

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