Posted on 08/16/2003 8:45:08 AM PDT by mrweb
Mortgage company suddenly closes doors
A national mortgage company with operations in Washington abruptly closed its doors yesterday, potentially leaving thousands of homebuyers without loans. Capitol Commerce Mortgage, a Sacramento, Calif.-based company that buys loans and sells them to investors, closed after it likely failed to adjust for rising rates for home loans. The company had an office in Bellevue and total loans of more than $1 billion in Washington, said Chuck Cross, acting director of consumer services for the state Department of Financial Institutions (DFI). "We're hearing that they have closed," Cross said. "They have advised people that they are unable to fund their loans."
Individuals have rushed to lock in record-low interest rates in recent weeks, overwhelming many mortgage processors. Mortgage wholesalers buy home loans from originators and then sell them to investors. Some wholesalers haven't been able to find investors before rates rose. The rate on a 30-year mortgage averaged 6.6 percent as of Thursday compared to a low of 5.31 percent June 11, according to HSH Associates, a New Jersey firm that surveys 2,000 lenders nationwide.
Michelle Bentley, a Capitol Commerce employee in Bellevue, said she and her co-workers were shocked Thursday night when a boss said, "We no longer exist." No reason was given, said Bentley, who had worked as a funder, closing loans since Capitol Commerce opened its Bellevue branch two years ago. The extent of the closure's impact is unclear, though borrowers likely will have to go to another lender and likely pay a higher rate. Since mortgage rates have risen about one percentage point in the last month, for a borrower financing a $270,000 home the difference works out to about $172 a month, said Dean Stewart at Evergreen Pacific Services, a mortgage broker in Renton. "Over the life of the loan, that's a lot of money," he said. "This makes brokers look bad."
Cross said there could be similar closures among small or midsized lenders if they are unprepared for a sudden swing in rates and are holding a large basket of unfunded loans locked in at the low rates.
Cross said Capitol Commerce had assets of more than $400 million last year and made nearly 7,000 loans in Washington, averaging about $168,000 each. The company appeared viable, based on financial statements submitted to the agency in 2001, 2002 and 2003, Cross said. As of late yesterday, Cross' department said it had received two consumer complaints about Capitol. One came from an Enumclaw couple, who reported they had refinanced with Capitol and expected to be signing papers Monday or Tuesday. Yesterday they received a call from their broker saying the company had closed, according to the couple's complaint.
The DFI issued a statement late yesterday that it knows of two out-of-state lenders operating in Washington that have been unable to honor loan commitments in the past few days.
In addition to Capitol, a department spokesman said the other is Tucson, Ariz.-based Fidelity Mortgage Co., a broker that also has an office in Bellevue that continues to operate. It has been the subject of at least 13 consumer complaints filed with the DFI or the state Attorney General's office.
Fidelity attracted homeowners with offers of low-interest mortgages with no closing costs. This month it has sent letters to nearly 50 would-be borrowers in Washington informing them it will not be able to obtain financing for them before their lock-in periods expired. Cross said his agency's preliminary review found no indication Fidelity had violated state law. He said the company apparently acted in good faith, and the standard disclosure documents borrowers received and signed included a clause allowing Fidelity to relock at a different rate if it could not obtain funding for "any reason."
Fidelity president Scott Brittenham said earlier this week that, while "we wish the heck this hadn't happened," the company has done nothing illegal. He said "no one on the planet" could have foreseen the swift jump in interest rates. But some consumers are exploring legal action. Bellevue lawyer Gary Abolofia said a class-action suit for breach of contract is possible. But "people have a right to feel as if they are victims," Cross added.
Among the upset homeowners is John Donovan of Bellevue, who thought he had "a slam-dunk deal" with Fidelity to lower his house payments and finance home improvements. "A rate-lock agreement was signed," he recalled. "There were signed documents from both parties." But Donovan got a letter from Brittenham, dated Aug. 1. "Due to the unusually high demand for mortgage loans this past several weeks," Brittenham wrote, "we will not be able to fund your loan at your fee and interest rate lock agreement within the required time period. We will contact you as soon as we are able to fund your loan."
Brittenham also apologized for "any inconvenience our temporary inability to fund your loan has caused." In an Aug. 8 e-mail to Donovan, Fidelity's regional manager, Ron Greene, wrote: "I completely share your disappointment and frustration. The company let you down and it let every employee in my office down." Brittenham said the company plans to refund customers for out-of-pocket expenses, such as appraisal costs or late-payment fees some borrowers may have been assessed if they did not pay their old lender because they believed they had a new mortgage through Fidelity. But such sweeteners have not appeased all borrowers. Scott Hughes of Snohomish said in a complaint to state regulators that he had been expecting a $50,000 check to pay for home improvements by refinancing through Fidelity. Like Donovan, he got a letter this month from Brittenham pulling out of the deal. "I had no idea this company wouldn't do this," Hughes said. "It was nothing but smoke and mirrors."
Fidelity Mortgage has sued The Seattle Times Co., alleging the newspaper has published false and deceptive information "in regular and ongoing seasonal and weekly mortgage-rate directory articles." The Times has filed papers to dismiss the suit, which is pending in U.S. District Court in Seattle.
Actually when it comes right down to it, money is a "call" on the governments ability to take a cut of its citizens work/earnings through taxation. In that sense, we all are literally working for the government.
Richard W.
If people charge as much as I read they do, I agree there's gonna be some interesting finangling ahead. Seems maybe people are playing the shell game and running out of shells!
Oh, you have those bad thoughts too huh?
That's because the dealer is getting a kickback on the loan.
A few years ago when I was in the market for a minivan for my wife, we decided on one and I negotiated a price (they kept coming back to me with payment amounts and I insisted on negotiating on bottom line price).
After we agreed on a price, I informed them that I would be paying cash. They tried all different ways to get me to finance. In fact, when I came back the next day to get the car, I was literally writing out check and they were still trying to convince me to finance it.
But all things being equal, you may be better off keeping the 20% and getting a cheaper house. Especially if that 20% represents most of your savings.
Everyone's situation is different. For some people paying cash for a house is smart, for others it may be monumentally stupid.
But some value is less relative. If a loan is backed by real estate, if the borrorer doesn't pay, the real estate is still there. Something like a car isn't backed by anything. Car loans are a bad idea anyhow because the minute a $25,000 car is driven off the lot it's lost $5,000 or more in value and repos aren't worth much. It's one thing if they give loans to only the credit worthy whose promise to pay means something but they're giving credit to college students who have never worked, and all sorts of people who easily might never pay.
I think buying a home in a subdivision would be especially risky because the future value of that home is going to depend a lot on what happens with your neighbors. If too many of them bit off more than they could chew and start foreclosing, those home values are very likely to drop. I don't know what will happen in this area because in spite of high immigration and a very high birth rate, the population is dropping and you see a lot of houses ---especially in the central areas of town sitting empty. Property taxes are four times what they should be and jobs are leaving and so is the middle class.
It used to be a nice normal looking little white house with some nice pepper trees in front; the speculators got a painter to do the psychedelic thing to it.
Out here, I can't imagine wanting a house that dark, if for no other reason than it'll absorb more heat. Same reason that around 75 percent of our cars are white, so you can at least touch the door handle to get in on a summer day.
The dollar is based on faith in the Government of the United States; perceived ability to pay is what determines value of a loan. Dollars, therefore, are merely IOU's from the federal government.
We're in California also (Palm Springs area); we just had our local streets reslurried a couple of years ago - just give 'em time, though, and they'll be like the rest of the state's roads!
Funny, when I was a chirren in the 50's and early 60's, California's highway system was the envy of the rest of the country - no mas!
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