Illinois Suspends LO License Of Ex-Sprout CEO Michael Strauss

The former CEO of defunct Sprout Mortgage has run into some regulatory issues with his new mortgage lending company.

State banking regulators in Illinois issued an order Feb. 1 suspending the mortgage loan origination license of Michael J. Strauss. The order does not identify a company for Strauss, but according to the Nationwide Multistate Licensing System (NMLS), Strauss is now principal loan originator for Smart Rate Mortgage LLC, based in Jacksonville, Fla.

Documents filed with the state of Florida show Smart Rate Mortgage was formed in September 2022, and list Beth Strauss of 610 Park Ave. in New York City as the “AMBR,” or authorized member. Elizabeth Strauss is the wife of Michael Strauss.

According to the order suspending Strauss’ mortgage license filed by the Illinois Department of Financial and Professional Regulation (IDFPR), Division of Banking, Strauss was initially issued a license on Dec. 28, 2022.

The department subsequently reviewed his application for a license and “became concerned that not all pertinent information regarding [his] mortgage industry background had been disclosed,” the order states. The order does not state what prompted the review.

The order states the department sent Strauss a request for information (RFI) on Jan. 12, seeking “written responses and documentation from Strauss regarding previous companies that [he] owned or controlled, federal and state lawsuits, and orders from other state and federal agencies.” 

A reply was due on or before Jan. 19, but Strauss failed to respond, the order states.

The department subsequently issued a “Rule to Show Cause” to Strauss on Jan. 25, giving him an opportunity to prove he was no longer in violation of the state’s Residential Mortgage License Act of 1987, and “to provide the department a complete response to the RFI by Jan. 30.” 

When he still had not responded by Jan. 31, the department issued the order to suspend his state license.

The IDFPR website also lists an order suspending the license for Smart Rate Mortgage LLC, but that order was not available online. Both orders prohibit Strauss and Smart Rate from operating in the state of Illinois.

The information Illinois regulators sought likely created some difficulties for Strauss, given that he is the former CEO of Sprout Mortgage, which abruptly shut down in July 2022 and laid off more than 300 employees.

A former Sprout executive told NMP at the time that Sprout had been negotiating a financing deal that could have kept the company in business, but Strauss canceled the deal at the last minute and closed the company instead.

Sprout is now a defendant in numerous lawsuits, including a class action suit seeking unpaid wages by former employees, and other plaintiffs seeking unpaid obligations. Sprout did not file in bankruptcy court following its closing.

In addition, Strauss was CEO of American Home Mortgage Investment Corp. and was accused in a civil action by the Securities and Exchange Commission of accounting fraud and concealing the company’s deteriorating finances as the subprime mortgage crisis hit in 2007.

Strauss reached a settlement with the SEC in April 2009, agreeing to pay nearly $2.5 million while neither admitting nor denying any wrongdoing. The settlement also prohibited Strauss from serving as an officer or director of any public company for five years.

A year after that ban ended, he formed Sprout Mortgage in 2015 in East Meadow, N.Y., building it over the next few years into a major player in the non-qualified mortgage (Non-QM) channel. At the time it closed, it was based in Port Saint Lucie, Fla., with an affiliated company, Recovco Mortgage Management, based in Irving, Texas.