The president of Pioneer Mortgage, a troubled $200-million mortgage investment firm based in San Diego, vowed Wednesday to avoid bankruptcy amid growing investor pressure and a formal investigation by state regulators.
Admitting that his company has "run out of money," President Gary Naiman said he and his advisers were attempting to reorganize the troubled firm outside of bankruptcy court jurisdiction. His attorney, Arnold Quittner of Los Angeles, however, said that a Chapter 11 filing under the U.S. Bankruptcy Code still is being considered by Pioneer Mortgage.
More than 2,000 investors in Pioneer have received no interest payments for a month. Most of the investors made loans to borrowers who agreed to pay interest rates of 14% or more, putting up real estate as security. Pioneer Mortgage, which was founded in 1945, acts as the broker and service agent on such loans, matching investor with borrower.
Attorneys representing some of Pioneer's investors say they may soon petition to have Pioneer Mortgage placed in involuntary bankruptcy because some investors have received trust deeds for their loans while others haven't.
An involuntary bankruptcy filing may be necessary to protect investors whose security is being diminished by this alleged preferential treatment, said Robert J. Berton, a San Diego attorney whose firm is representing more than 100 trust deed holders who have invested more than $50 million with Pioneer Mortgage.
"It appears the squeaky wheels are getting greased," Berton said.
A meeting of Pioneer Mortgage investors has been called for 1 p.m. today at the Town & Country Hotel in San Diego. Naiman said he will not attend the meeting, which is being organized by investor Cynthia Stein of El Cajon. Berton said he expects 400 or more Pioneer investors to show up.
Pioneer investors, many of whom are elderly retirees such as George W. Weinberg of San Diego, say they are worried. Weinberg has $40,000 invested with Pioneer Mortgage and said he was "absolutely shocked" by the stoppage of payments, his first in 13 years as a Pioneer Mortgage investor.
In an interview, Naiman said his company was weakened by its former practice of "forwarding" interest payments to investors even though borrowers may be delinquent on their loans. Pioneer received permission from the state to make such payments, Naiman said.
Naiman refused to estimate how many of his borrowers are delinquent. But San Diego attorney Timothy Cohelan, who is working on a class-action complaint on behalf of investors, said he believes that between 30% and 50% of Pioneer's mortgages are past due.
Cohelan said he is investigating the possibility that Naiman may have improperly used money raised in a "blind pool" of funds called collateralized mortgage obligations to pay interest and principal on previous, overdue loans. Naiman said some of the money did go to previous loans but said the practice was disclosed to investors and that it was legal.
The state Department of Real Estate acknowledged Wednesday that its auditors are going over Pioneer Mortgage's books, although spokesman George Hartwell said the audit should not be construed as "any appearance of impropriety. . . . It is a policy not to comment on investigations that are in progress."
Naiman said his problems have been exacerbated by the unavailability of real estate financing from banks and savings and loans, making it difficult to roll over his investors' short-term loans on apartments and commercial projects. Secondly, the threat of a Mideast war has made investors more reluctant.
"Everybody wants out and nobody wants in," Naiman said. "It's like a run on a bank."
The company's problems first surfaced on Nov. 30 when it sent letters to investors admitting to a cash shortage. On Dec. 13, Pioneer sent out a second letter disclosing the state regulatory investigation and that no payments would be made until it was finished. At that time, the company pleaded with investors for time to straighten out its problems.