A regulator in Illinois has suspended the MLO license of industry veteran Michael Strauss and the license for his mortgage company, Smart Rate Mortgage, essentially blocking the company from operating in the state, according to the Nationwide Multistate Licensing System (NMLS). 

The Division of Banking at the Department of Financial and Professional Regulation in Illinois issued the orders on February 1. The decisions are valid until Strauss and Smart Rate respond to requests for information.

HousingWire reported in January that industry veteran Strauss, who abruptly shut down non-qualified mortgage lender Sprout Mortgage back in July, was ready to start a new mortgage company called Smart Rate.

“The Department, upon further review of STRAUSS’S MLO license application, became concerned that not all pertinent information regarding STRAUSS’S mortgage industry background had been disclosed,” Chasse Rehwinkel, the department’s director, wrote in the order. 

Regarding Smart Rate, Rehwinkel added that the department was concerned that not all pertinent information had been provided regarding the owner’s background in the industry, “including but not limited to the owner’s experience with real estate finance.” 

Strauss registered Smart Rate, with a start date on August 1, 2022, in Florida, according to the NMLS. The company received a residential mortgage broker license in Illinois on November 1, 2022. Strauss’s MLO license in the state was issued on December 28.

However, the corporate entity for Smart Rate is registered in Florida to his wife, Beth Strauss, according to the Florida Limited Liability Company. The address listed on the incorporation documents is 610 Park Avenue, New York, a residential property that Strauss is trying to sell for $26.5 million. 

The department in Illinois said it sent a request for information regarding Strauss’ background on January 12. It included questions regarding his previous companies, lawsuits, and orders from other state and federal agencies. 

To Smart Rate, the questions included the owner’s experience with real estate finance, duties with the company, and relationships with employees and other affiliations.

The deadline for Strauss and Smart Rate to respond to the inquiries was January 19, but they failed to respond. On January 23, the department issued a rule to show cause, allowing response by January 30. They again did not provide the information requested. 

The background 

Strauss was charged in 2009 by the Securities and Exchange Commission (SEC) with accounting fraud. The SEC alleged that Strauss engaged in a pattern of false and misleading claims, bringing financial losses from investors. Strauss agreed to pay a $2.45 million settlement in the case.

Six years later, he founded Sprout, a mortgage lender focused on non-qualified mortgages. The company had significant losses last year amid rising mortgage rates. It struggled to sell in the secondary market loans originated at 2-4% when investors were asking for more premiums. 

Strauss laid off employees in July 2022 without issuing severance pay or their last paychecks. He reportedly canceled their health insurance retroactively to May 2022, reportedly leaving some on the hook for substantial medical bills. The executive has been the target of several lawsuits from former employees, vendors and business partners.