MOUNTLAKE TERRACE – The decisive moment for the company that Layne Sapp built over 23 years came toward the end of a Thursday afternoon in April.
Bankers providing lines of credit to Mortgage Investment Lending Associates again demanded that the company increase its reserve accounts.
MILA, which grew quickly on the strength of the subprime mortgage lending business, had seen new loan requests slow dramatically. The closure of other lenders and the headlines about a meltdown in the subprime home loan industry made the financiers nervous.
Sapp, who said he met the bankers’ previous requests to pay down MILA’s line of credit by putting in “multimillions” of his own money, decided it was time to pull the plug.
The next day, April 20, the 300 employees who remained at the Mountlake Terrace-based business after earlier rounds of layoffs found out by e-mail that their jobs were gone.
This is a story about the rise of MILA, which turned meteoric in recent years, and its sudden fall, which was painful for the employees and for Sapp.
“It’s hard to take a business you built over 20-plus years and wind it down because of something out of your control,” Sapp, 44, said in an exclusive interview with The Herald. “It’s sad. Sad for the borrowers we helped, sad for all the charities we gave money to, sad for the employees, sad for myself.”
His mother, Sherri Ayers, said Sapp was “heartbroken” over MILA’s shutdown.
“I know his heart,” she said. “He has high integrity and honesty and cares about his employees.”
A young entrepreneur
Starting and then leading MILA has been Sapp’s primary occupation during his adult life. His entrepreneurial interest dated back further.
Born in Everett and raised in Montana and Marysville, Sapp didn’t come from a rich family.
He was one of four children. And his father was in his early 30s when he died in a car accident. Sapp has said the death motivated him to succeed at a young age.
“He was always a hard-working young man,” said his mother, who became an Everett real estate agent in recent years. “Ever since he was young, he’s been good at creative financing.”
While a teenager, Sapp worked in a variety of jobs, gaining experience as a meat shop manager and as a circulation employee at The Herald. In order to raise money for basketball camp as a 15-year-old, he and a friend signed up sponsors and took on the challenge of dribbling a basketball for 20 miles.
At Marysville-Pilchuck High School, Sapp played on the varsity football team and was known for his outgoing personality. He was named “class flirt” by his senior classmates, according to the 1981 yearbook.
“He did not seem like he’d be a business owner back then. He was kind of a fly-by-the-seat-of-your-pants guy,” said Debbie Stalder, a fellow 1981 graduate.
But again, he was doing some serious-minded things many people weren’t doing in high school. He took flying lessons and attended real estate seminars.
By the time he was out of high school, he was ready to start something big, but he needed money. He worked, and he checked out classes at Edmonds Community College, but decided he already knew most of the business techniques they were teaching there.
MILA’s early days
By the age of 20, Sapp had bought 10 houses and organized a private investment fund. In the following two years, he started MILA as a private lending business.
The business grew steadily through the ’80s and ’90s, taking on a few top employees as partners. It took off like a rocket in 2002, just as the national housing market boomed.
The company’s growth wasn’t fostered by the boom alone. Just as home-buying activity stepped up nationwide, MILA introduced its competitive edge. Instead of taking weeks to approve and close a mortgage, the company developed a proprietary online loan management system that shortened the process in most cases to a few hours.
“If they had a claim to fame, something that drove their business, it was that,” said David Donhoff, principal owner of No Bull Financial in Woodinville, which sometimes did business with MILA.
Brokers could use the system, which would check up to 250 factors and give a borrower a loan commitment in seconds. Sapp said his business invested tens of millions of dollars in its technology to maintain its edge.
From 2002 through 2005, business roughly doubled each year. The company funded at least $4.5 billion in mortgage loans during 2005, putting it among the top 30 subprime lenders nationwide. MILA’s revenue that year topped $125 million.
At its height, the company employed 700 people.
The success had rewards for Sapp and other top executives. In 2004, Sapp spent $15 million on a 130-foot yacht he named Infinity. His Bentley luxury car was a familiar sight in the company’s parking lot. And he and his family bought a house on the shores of Lake Washington two years ago for $7.7 million.
Sapp also kept his hand in buying and selling properties. Having already bought his headquarters building in 2002, Sapp upgraded by buying the former Quadrant I-5 office building two years later for $13 million, spending another $6 million to $7 million on renovations. Last fall, as business at MILA slowed, he sold the structure for $39 million.
After a first round of layoffs in early 2006, Sapp still was optimistic about MILA’s future, even the possibility of taking it public, something potential investors had approached him about repeatedly. MILA was expanding into more states and shifting into the less risky realms of prime loans and Alt-A loans – the class of loans between subprime and prime.
“We made the transition pretty well, but we needed more volume because the margins on Alt-A and prime loans are fairly compressed,” he said.
Time runs out
MILA never built the necessary volume. Now, the cubicles are empty and the phones are virtually silent inside the four-story MILA Financial Center along I-5 in Mountlake Terrace.
There are few faces in the entire building, as a skeleton staff of no more than 20 people ties up loose ends.
Some former employees have expressed much more anger than sadness since the layoffs. In e-mails and phone calls, many blamed Sapp and the company’s president and chief operations officer, Mark and Sarah Hikel, who joined in 2000, for mismanaging the business. Others alleged MILA wasn’t watching its loan approvals carefully.
“I think everyone will always be mad at them for the way everything was handled,” said Amorita Simon, who has found work again in the real estate industry since she was laid off last year. “The first two layoffs were just as awful as the last one.”
Even employees who didn’t have anything bad to say about the company’s practices do say MILA’s treatment of departing employees could have been better. Kris Huston of Stanwood said layoffs were done with “no compassion.”
Sapp vigorously defended his company’s lending standards, saying they performed better than the industry average, and that MILA had higher requirements than some of its competitors in the subprime lending business.
Tony Fisher, who worked at MILA a decade ago and is now a mortgage planner with Mortgage Advisory Group in Everett, concurred. He said Sapp “ran a tight ship.”
“It was harder to get loans through MILA. He had more rigid guidelines,” Fisher said.
The company wasn’t dealing with the “rock-bottom” subprime loans, added Dave Erickson of Lynnwood’s Mortgage Broker Associates and president-elect of the Washington Association of Mortgage Brokers.
The Better Business Bureau of Western Washington said it had three complaints about MILA during the past three years, a low number for a mortgage lender. MILA was a member of the BBB and won its 2005 award for “innovative business practices.”
Since MILA’s closure, the state Department of Financial Institutions has followed up on some allegations made by former employees.
Between regulators’ periodic checks of the company’s operation and its latest inquiries, the department has seen no evidence of wrongdoing at MILA, said Deb Bortner, the agency’s director of consumer services.
As for former workers’ attacks in the press on the lifestyle enjoyed by MILA’s top executives, Sapp said the personal comments stung. He added that he spent his own money to both start and keep MILA afloat over the years.
“No one’s invested any money in the company, not $1, besides me and the Hikels,” Sapp said.
Jean Hales, president of the South Snohomish County Chamber of Commerce, said she heard a different story from Sapp’s employees.
“The people I know who have been with him loved working with him,” said Hales, who got to know Sapp from his time on the chamber’s board of directors. The chamber also gave MILA a business excellence award last year to recognize its success and charitable efforts.
What happens now
As of last week, Sapp said MILA still owed money to its creditors. The company hadn’t filed for either Chapter 11 or Chapter 7 bankruptcy, however. Sapp said he is talking with lawyers about the options.
His preferred scenario is to find a buyer.
“Right now, we’re actively seeking a partner who’s interested in buying the assets of the company and rehiring the employees back,” he said.
In the days before it closed, a potential buyer sent representatives to MILA’s headquarters to check out the business. Sapp said it’s not “out of the question” that a deal could still be done.
In the meantime, the company formed around MILA’s loan-management technology, Next Online Technologies, still is operating in Lynnwood.
As with MILA, Sapp is its majority owner.
When asked, Sapp said he’d do nothing different if he could revisit MILA’s rise and sudden fall. He also predicted market forces whipping subprime mortgage lenders could create more havoc for another year or more.
The mortgage industry, especially the subprime sector, has been hit by a combination of falling home sales and property values in many parts of the country and aggressive lending on the part of major U.S. lenders. New Century Financial, the nation’s second-largest subprime lender, has filed for bankruptcy, and dozens of others have gone out of business nationwide.
“The problem is across all classes of mortgages, not just subprime,” Sapp said. “You’re only seeing the tip of the tail, the tip of the iceberg.”
Even if MILA is sold, Sapp said he won’t be involved in the new venture. He expects he’ll be active in a financial business of some nature. Whatever he does, it will again be his own enterprise, he said.
“You’ll never see me working for somebody,” he added.
Stuart Chernis, who served with Sapp on the chamber board, believes that, saying Sapp’s never at a loss for good ideas.
“If he came to me and said I’ve got a great idea, I’d invest in it right now,” he said. “I’m confident he’ll bounce back.”
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
MILA timeline
1981: Everett native Layne Sapp graduates from Marysville-Pilchuck High School.
1984: Company founded as a private money lender.
1989: Sapp forms a partnership with Brian Carl, who becomes vice president. The company incorporates.
1994: Having moved into wholesale mortgage lending, the company of 50 employees funds millions of dollars in loans.
2001: MILA introduces AccessPoint, its proprietary online loan management program, and sets a goal of closing loans in four hours or less.
2003: Company breaks $1 billion in mortgage volume for the first time and moves into new headquarters in Mountlake Terrace as it surpasses 300 employees.
2004: Sapp buys a $13 million office building in Lynnwood to accommodate more staff.
2005: In its peak year, MILA employs about 700 people, handles more than $4 billion in loan volume and generates more than $125 million in revenue.
2006: Layoffs occur throughout the year; MILA starts moving into less risky loans.
April 20, 2007: MILA abruptly lays off 300 people and closes its doors.
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