Daniel Sadek played Orange County’s subprime lending boom like a card shark dealt the ace and jack of spades.

Just five years ago he was selling cars.

Then, in January 2002, he anted up $250 for a state lender license and started selling home loans through his company, Quick Loan Funding.

Over the next five years, Quick Loan wrote $3.8 billion in mortgages, lending money fast – and often on onerous terms – to people with shaky credit.

Boosted by high fees and interest rates – high even for the subprime industry – Quick Loan’s after-tax profits averaged 29 percent of revenue. In 2005, Quick Loan’s biggest year, profit topped $37 million.

Sadek used the earnings to live the high life, buying a fleet of Ferraris, Lamborghinis and Porsches, dating a soap opera starlet and producing movies. He flew private jets to Las Vegas, where he gambled with high rollers at the Bellagio Resort.

He cultivated a rebel image, wearing a beard and hair to his shoulders, dressing in T-shirts and flip-flops, eschewing the typical mortgage banker’s pinstripes.

“How many thieves are wearing a suit?” he asks, sitting in the kitchen of his $4 million Newport Coast mansion.

Quick Loan Funding’s name still crowns a Costa Mesa office tower. But Sadek, like the subprime lending industry, is holding a bad hand.

His staff, once 700 strong, has shriveled to about 125. Monthly loan volume plunged to $30 million from a record $218 million in December 2005.

“I’ve sold all my cars to keep the company going,” says Sadek, 38. “Every property I own is mortgaged to the max.”

Sadek is more than a poster child for the riches produced in the Orange County-centered subprime industry. His career arc shows how:

In California, almost anyone could open a lending business. It’s harder to get a barber’s license.

Subprime lenders reaped billions in profits by charging high fees and interest rates. For the most part, these practices are legal.

Borrowers often either misunderstood, were misinformed or simply paid no attention to the loan terms. Thousands would lose their homes.

State oversight is almost non-existent, with 58 examiners to oversee 5,000 lenders, some doing billions in business.

Quick Loan has been accused of predatory lending, deceptive underwriting and fraud in at least eight lawsuits. In addition, Department of Corporations records show 33 complaints against Quick Loan, most alleging unfair business practices. Most of the lawsuits were settled out of court. And state regulators have never disciplined Quick Loan.

Sadek denies that Quick Loan ever broke the law or engaged in unfair business practices.

“I work very hard to do the best I can, to keep the mortgage company as clean as possible,” he says. “Simple as that. I can’t say it to you any better.”

Truth in lending

Roman and Maria Partida of National City won a $28,696 settlement last November after they sued Quick Loan for understating the interest rate on a $150,000 mortgage. They received notice of the higher rate 16 months after they signed the loan agreement.

“I can’t compare them to others in the business, but I know in my clients’ case it was an open-and-shut case of violation of the Truth in Lending Act,” says the Partidas’ attorney, Matthew Powell.

Dinora Nava-Oleson of Yucaipa learned about Quick Loan through a late night TV infomercial in the summer of 2005. At the time she was desperate to refinance $524,000 in debt.

Quick Loan’s slogan was “You can’t wait. We won’t let you.”

Within days of her call to the company, Nava-Oleson was offered a $530,000 loan to consolidate all her debts and refinancing costs. The papers she signed in September 2005 raised her total mortgage to $543,000, the total boosted by loan fees and a 9.75 percent interest rate.

The rate was fixed for 30 years. Monthly payments were $4,678.45.

“My attitude was just get me out of my mess and I’ll deal with the rest later,” Nava-Oleson says. “I admit I’m partially to blame. But at the same time I don’t believe people should be taken advantage of.”

Nava-Oleson, who recently started working as a mortgage account executive, believes that given her credit score she could get the same loan today for a 6.75 percent interest rate. That would slash her monthly payments by almost one-third.

Nava-Oleson sued Quick Loan for predatory lending last year. The lawsuit alleged Quick Loan double-billed Nava-Oleson for a $475 appraisal and questions $1,500 in other charges.

Sadek says it was not the company’s practice to pad fees or jack up interest rates.

Nava-Oleson settled the case to avoid foreclosure on her home, after working out a deal with two companies that had assumed Quick Loan’s mortgage. Quick Loan was not a party to the settlement.

Subprime lenders typically charge 2.75 percentage points above the prime rate, says Michael Lacour-Little, a professor of finance at Cal State Fullerton who has researched lending practices. At the time of her refinancing, Nava-Oleson’s loan was 4 percentage points above prime.

A Register analysis of federal mortgage data shows Quick Loan’s median interest rate was about 5 to 6 percentage points above prime in 2005. The average for the subprime industry was 4 to 5 percentage points above prime.

In 2005, Quick Loan was the 49 {+t}{+h}-largest subprime lender in the nation, according to Home Mortgage Disclosure Act data, charging “high rate” interest for 94.6 percent of its loans. High rate loans are 3 percentage points above prime for first-lien mortgages. Only two other lenders relied more heavily on high-rate loans – Finance America LLC, an Irvine company owned by Lehman Brothers, and Brea-based ResMAE Mortgage Corp., which filed for bankruptcy in February.

Financial statements filed with the Department of Corporations show Quick Loan’s revenue in 2004 was 7 percent of its loan originations. Its revenue in 2005 was 6 percent of originations.

There were two sources for that revenue: Fees for processing loans and interest rate spreads – the gap between what Quick Loan charges borrowers and what it costs to raise money for loans through Wall Street securities.

Jeff Lazerson of Laguna Niguel, president of MortgageGrader.com, a company that evaluates mortgages online, says Quick Loan’s revenues “seem eye popping. Mortgage profits are always at the consumer’s expense.”

No cop on the beat

Nava-Oleson’s mortgage included a prepayment penalty – six months of interest, or more than $28,000 – if she refinanced within two years. She will keep paying the loan until August.

Prepayment penalties are banned in 10 states, according to the Center for Responsible Lending. They’re legal in California. That’s one of several reasons companies like Quick Loan thrive here.

Another reason is the lack of oversight. The state Department of Corporations employs 58 examiners to oversee about 5,000 licensed lenders and brokers in California.

In 2005 and 2006, the department filed only 11 enforcement actions for lending violations, typically after another agency, such as the state attorney general, had already acted.

Department of Corporations records list 33 complaints against Quick Loan since 2002, 24 of them alleging fraud, underwriting errors or other unfair business practices.

Mark Leyes, spokesman for the Department of Corporations, says no action was taken against Quick Loan because the number of complaints is relatively small – less than 1 percent of its loans. He says enforcement action will occur if a company repeatedly violates the law or the violation is egregious and the company does not make refunds or corrections required.

Leyes notes that last week’s budget proposal by Gov. Arnold Schwarzenegger would add 25 people to the department’s oversight staff. He also says the department is sponsoring a bill that would give it authority to suspend or bar licenses if a lender loses a criminal or civil judgment, a power consumer groups complain the department lacks.

“They have not been the cop on the beat,” says Paul Leonard, director of the California office of the Center for Responsible Lending.

They have not been much of a gatekeeper, either.

To obtain his lending license, Sadek completed an application, passed a criminal background check and posted a $25,000 surety bond.

There is no required training or degree; no exam.

Barbers need 1,500 hours of training to get a state license.

“The barriers to entry are rather low,” Leyes concedes.

Skin in the game

Quick Loan targeted customers who needed cash – fast – to refinance, consolidate debt or use their home equity as a piggy bank. Ads on billboards and TV informercials offered money on easy terms: “No income verification. Instant qualification!!” said one Quick Loan ad offering 1 percent financing.

Monthly payments on $1 million for qualified borrowers would be as low as $3,216.40, the ad said. “Prior bankruptcy. Tax Liens. Foreclosures. Collections and Credit Problems. OK!”

Like most subprime lenders, Quick Loan financed loans based on stated income, known in the industry as “liar loans.” The rates were typically adjustable, and could notch up 3 percentage points after two years, driving many borrowers to default if they couldn’t refinance.

“He did some of the nastiest, dirtiest loans out there, loans other companies wouldn’t touch,” says Lou Pacific, a Mission Viejo Realtor and former vice president of Quick Loan’s real estate division. “But he had a lower default rate.”

Sadek says he had lower losses than other subprime lenders because he avoided 100-percent financing and focused on refinancing, not purchase loans.

“I want the borrowers to have skin in the game,” he says. “If I’m maxed out on my house and I have no equity left, what’s the easiest way to go? Walk out.”

At Quick Loan, Sadek set the pace for hard work and salesmanship.

“At sales and executive meetings, he’d have calls routed through and answer them to show the loan officers how it’s done,” Pacific says. “He wouldn’t stop asking questions until he got what he wanted. What’s your Social Security number? Do you want an appraisal? He wouldn’t let the guy hang up until he said yes.”

Some ex-employees accuse Quick Loan of pressuring or misleading borrowers.

Mai-Hanh Tran, who worked as a senior loan funder, alleged in an Orange County Superior Court suit that she was fired in January 2005 in part because she complained about “a pattern of unlawful and deceptive practices by QLF employees and agents,” including forging borrowers’ signatures on loan documents and violating truth in lending laws by under-disclosing fees.

Quick Loan countered that Tran was fired for chronic tardiness and failing to meet loan quotas. Tran’s suit was dismissed last year after a confidential settlement.

In another suit pending in Orange County Superior Court, Tabatha Owens of Temecula alleges she was fired as Quick Loan’s director of training after she attempted to get the company to comply with industry disclosure and truth-in-lending laws.

The suit says managers told employees to ignore her, when Owens attempted to stop loan officers from fabricating borrowers’ incomes and “bullying, lying to or harassing consumers.”

Sadek says people sued because they saw a deep pocket, because they were jealous of his success and because they are prejudiced against him because he’s from the Middle East. He says if he had broken any laws, someone in the state would have taken action.

As evidence of his company’s fair practices, Sadek cites its “BBB” rating from the Better Business Bureau, a rating for companies that “would not have a significant number of complaints or other considerations that could pose a problem to consumers.”

‘Risk everything. Fear nothing.’

Sadek is, in many ways, a classic immigrant success story. He was born in Tripoli, Lebanon, in July 1968, the son of a construction manager who worked overseas. When Lebanon’s civil war broke out in the 1970s, Sadek got caught in the crossfire.

Sadek says he stopped attending school after third grade. He points to a white scar on his right forearm that he says was from a gunshot wound when he was 9. He points to a bump behind his ear, a piece of metal from another wound he suffered at age 12. He says he has no idea who shot him.

“Unfortunately, wars traumatize people,” he says. “They also make people, in some ways, stronger.”

In 1987, at age 18, he followed an older brother to California. Speaking only a few words of English, he landed a job at a gas station in Cypress.

“I believe if you want to do something, America’s got the tools and the opportunities to do it,” he says.

Friends said he got the idea of going into lending after selling so many Mercedes-Benz at Fletcher Jones Motorcars to customers in the mortgage business. Sadek says he got the idea when he bought his first home in 2001; a friend who brokered his loan pocketed thousands of dollars in fees for a few hours’ work.

“It’s the least expensive way to own your own business,” Sadek says. “It doesn’t require a lot of capital.”

Even so, it took more money than he first had.

“I had to go to Vegas once to make payroll,” he says. “I put a $5,000 chip on a blackjack table and I came home with the money I needed.”

Quick Loan soon became a cash cow. In its Department of Corporations filings, Quick Loan reported net profits of $1 million in 2002, $5.8 million in 2003, $20 million in 2004, $37.4 million in 2005 and $15.8 million in 2006 – a total $80 million in five years

Sadek shared the wealth – supporting an employee diagnosed with cancer, giving jobs to friends of friends, donating to AIDS charities. He threw office parties at Tentation Ultra Lounge, a Newport Beach night club he co-owned, paying for everyone to ride home in a taxi.

He also lavished money on his cars and gambling. On one November 2005 trip, bank records show, he signed three markers at the Bellagio for a total $1 million.

“It’s my personal money,” Sadek says. “There’s only one owner of the company. It’s me. So, I’m not gambling your money. I’m not gambling the public money.”

Perhaps his greatest extravagance was “Redline,” a movie Sadek wrote, produced and bankrolled about ultra-rich people betting on illegal road races. (Read “Behind the wheel of ‘Redline’“)Its ad slogan was “Risk everything. Fear nothing.” Sadek says “Redline” cost $17 million to shoot and $16 million to market and distribute.

It starred comedian Eddie Griffin, whose biggest previous role was the lead in “Undercover Brother,” and Sadek’s former fiancé¥¬ Nadia Bjorlin, who played Chloe Lane on the TV soap opera, “Days of Our Lives.”

For one “Redline” scene, Sadek crashed and destroyed his $575,000 Porsche Carrera GT. During a March publicity event at the Irwindale Speedway, Griffin wrecked Sadek’s $1.3 million Ferrari Enzo. (Read “Griffin uninjured after crashing Ferrari“)

Critics panned “Redline.” The Boston Globe called it “an action flick loaded with cars, chrome, and silicone ? everything you’d expect it to be, and yet so much less: less character development, less believability, and most unforgivably, less escapist entertainment.”

The $33 million movie grossed $3.8 million on opening weekend and soon vanished from theaters.

“Redline” premiered as layoffs, asset sales and bankruptcy filings soared in the subprime industry – a fate that threatens Quick Loan, too.

Sadek says Quick Loan had to buy back $29 million in loans that defaulted in the first two months. That’s a number that’s likely to grow.

Today he is $16 million in debt, he says. Sadek says he raised $13 million for Quick Loan by selling his cars and refinancing his Newport Coast mansion, an Irvine penthouse and a Las Vegas condo.

He believes the company is a good bet.

“Tough times don’t last,” he says. “Tough people do.”

Contact the writer: 714-796-7969 or jgittelsohn@ocregister.com

Register reporter Ronald Campbell contributed to this report. Contact him at rcampbell@ocregister.com







