Mortgage company suddenly closes doors

Seattle Times ^ | Saturday, August 16, 2003 | Bradley Meacham and Peter Lewis

[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.

[Moonman62]

Funny you should say! Just last week, we had to get the coil/blower part in the attic replaced and the repair clown - AFTER powering down the condenser on a 115 degree day - decided it was too hot to work; so he left us high, dry and hot from noon that day until around 9 the next morning.

I can only imagine you're frustration, but have you ever worked in an attic when it's that hot? The only way I've heard of it being done is with a cooling suit.

[Publius6961]

and she actually said "but we made a $2000 investment in that computer".

Well, when morons hear for decades that taxes are "investments", after a while they start believing that spending is "investment".

[lelio]

GM is so desparate they are packaging their car loans for sale to investors, to pay down their unfunded pension liabilities..

GM recently sold $16B in bonds to fund their pension plan. Read that again: sixteen BILLION. These numbers are getting so huge that its almost become meaningless to think about them.

I heard of a rumor that the next step in this is for the feds to bail out corporate debt, which GM now has $16B more in.

When trying to find the $16B figure I ran across this Forbes article stating that GM sold $3B of auto-loan backed assets via its CARAT trust. I can understand a mortgage based asset: you have a claim on the house if the person defaults. Do you now get a car if they do? Is it like winning on The Price is Right?

[lelio]

why you are so envious of the folks in the big houses and the big cars

I haven't seen one post on there that implied that. Rather people are questioning the logic of thinking housing prices are continiously going to go up and up and your $300k house today is going to be worth $500k in 10 years.
That and companies getting into dangerous economic troubles with their pension plans that they've booked their maximum 8.5% yearly gain for the past 3 years and their investments have actually fallen in value.
Its more an attitude of that the chickens are going to come home to roost and it ain't going to be pretty.

[ErnBatavia]

but have you ever worked in an attic when it's that hot?

I have a feeling he knew he'd be knocking off, which I understand, but he sure as hell didn't have to disable the system first, knowing we were going to have to hotel it.

[mrweb]

Mortgage Markets Are Out of Control
By GRETCHEN MORGENSON


ince interest rates began surging a few weeks back, the folks wearing the rose-colored shades have said the climb is proof that an economic recovery is nigh.

But there is something more than a nascent rebound driving rates today. It is a force so large and brutish that it could propel rates higher and faster than many investors expect.

The market-roiling force in question is the huge mortgage-backed securities market and the leveraged traders who call it home.

Although many investors think that the Treasury market sets mortgage rates, mortgage-backed traders are the ones who hold sway. Their hegemony is a function of two things: the runaway growth in the mortgage market and the way mortgage portfolio managers must respond when rates rise or fall.

Until 2000, the United States Treasury market was the world's largest and most liquid. Now the government bond market is overshadowed by the mortgage-backed securities market. Treasuries and corporate bonds each account for about 22 percent of the Lehman Brothers United States Aggregate Index, a measure of the whole fixed-income market; mortgage-backed securities make up almost 35 percent.

This would not be a problem if mortgage traders and managers of big loan portfolios, like Fannie Mae, did not typically hedge their holdings with Treasuries. Holders of mortgages hedge by selling short Treasury securities with maturities roughly equal to the average life of the mortgages in their portfolio.

Now, the hedgers' needs can swamp the market they tap. This exacerbates moves in interest rates, producing a snowball effect that can push rates far lower or higher, and faster, than in previous years.

Mortgage-backed securities respond violently to moves in interest rates. When rates fall and homeowners refinance, some of the mortgages in large portfolios held by banks, hedge funds and mortgage originators are cashed in. That requires the managers of these portfolios to rebalance their hedges by buying Treasuries. Such buying helped push interest rates down to ridiculous levels earlier this year.

When rates rise, refinancings drop, and the average life of a mortgage grows. That forces traders to rebalance portfolios by selling Treasuries. Selling begets selling; interest rates spike.

Last week, the Federal Reserve rattled the bond market by promising to keep rates low for as long as possible. Traders feared that the accommodative stance could be inflationary. They sold Treasuries, and rates rose.

James A. Bianco of Bianco Research in Chicago pointed out that the last time interest rates moved up — in the mid-1990's — the mortgage-backed securities market was much smaller and more manageable. "Back in 1996, the mortgage market was roughly half the size of the Treasury market," he said. "Now it is 125 percent of the Treasury market."

Mr. Bianco fears that the size of the market and the fact that so many players are heavily leveraged make a disaster almost inevitable. "If you look at the last 15 years of bond market derivative debacles, a lot of them involved mortgages," he said. "These things have killed more people than any other trade."

The people running big mortgage portfolios would tell you that hedging allows them to manage away their risks.

Mr. Bianco argues that the extreme volatility in the market suggests that the players have not properly managed their risks. "We wouldn't see these wild undulations in interest rates if they had already been hedged," he said.

It is unfortunate that the problems of mortgage traders can create such havoc. But these traders drove down rates, benefiting consumers, companies and bondholders. Now, it is higher borrowing costs — and their grimmer implications — for which everyone must prepare.

http://www.nytimes.com/2003/08/17/business/yourmoney/17WATC.html

[razorback-bert]

Since I have been out of town the greater part of this month, I took a cruise around town. A local mortgage has a ski doo and bass boat up for sale in front of his office.
We had added a couple of teen job stores and fast food outlets, so what if a couple of dozen closed last year.

Is it time to head down to Key West and see if I can find me a Grand Banks cheap?

[arete]

Is it time to head down to Key West and see if I can find me a Grand Banks cheap?

The longer you wait, the chearper they'll get. People are starting to sell off the toys.

Richard W.

[Moonman62]

Oh, I didn't understand that your A/C was operational before he started work. My condolences.

[razorback-bert]

Yea, I am kinda thinking of 50 ozs of gold for a Grand Banks 42.

LOL!

[mrweb]

Capitol Commerce calls it quits

Abrupt closure means mortgage applicants will have to start over

By Heather Draper, Rocky Mountain News
August 16, 2003

Colorado customers who had home loans in the works through Capitol Commerce Mortgage Co. are out of luck.

The Sacramento, Calif.-based company with an office in Greenwood Village abruptly went out of business Friday, according to a company fax sent out to local mortgage brokers. "Any files that had not funded on or before Aug. 13 must be picked up," the company's fax said. "CCMC is not in a position to provide any level of service on your loan applications." In other words, home buyers who had locked into a mortgage rate and were expecting to close their loans through Capitol Commerce after Wednesday now have to start their financing process over. And they have no recourse, according to local mortgage professionals.

"I had a closing at 3 o'clock today, and now there's no closing and this guy was locked in at old lower rates," said Gene Cisneros, a retail mortgage broker who was using Capitol Commerce to service his client's loan. "Now he has to pay market rates." Cisneros talked to the Rocky Mountain News Friday on his way to Capitol Commerce to pick up the files on his clients who now won't get their loans. He said the news came as a shock to him and other brokers in the region.

"This was a big national company - this just doesn't happen," Cisneros said. "Nobody, not even the employees, were expecting this." Chris Holbert, president of the Colorado Mortgage Lenders Association, said CCMC was a member of his association, but he didn't have any warning about the company's demise before it happened.

Holbert said his understanding was that CCMC miscalculated where interest rates were headed. The company had hedged its rates earlier - locking in at low rates that spiked in recent weeks - and ultimately didn't have the funds to float loans at a higher rate.

"They simply did not anticipate the increase in rates," Holbert said. "My guess is that their prediction was that rates would stay at 40-year lows or lower, and that didn't happen." Rates on a 30-year fixed-rate mortgage loan now average about 6.35 percent, up a full percentage point from 5.31 percent in mid-June. In fact, rates have risen so quickly, many borrowers are getting hit with higher costs than they had planned for.

CCMC employees contacted by the News Friday refused comment. The company fax, however, indicated employees had no idea the company was in trouble. "As you can imagine, our entire team is in shock and overcome with emotion," the fax said. "This information was not given to us until last night when all managers were contacted and told the news of the company's sudden demise."

Holbert said mortgage companies do liquidate, but "fortunately, it doesn't happen very often." The last time a Colorado mortgage company left customers in the lurch was in 2001, when First Colorado Mortgage Corp. closed its doors after a contentious merger with two other companies. The mortgage industry is unregulated in Colorado, so there is no regulatory office for borrowers to turn to when they get left in a mortgage company's dust.

"Is it terrible news for consumers who had loans in the pipeline? Of course," Holbert said. "But I don't think there is a regulatory answer here because -CCMC is out of business, and that's the whole story."


Lenders assistance

• For help in finding other lenders, the Colorado Mortgage Lenders Association has a consumer help line: 303-773-9565, ext. 4.

http://rockymountainnews.com/drmn/business/article/0,1299,DRMN_4_2186438,00.html

[mrweb]

Mortgage company folds, surprising regulators
2003-08-16
by Greg Heberlein
Journal Reporter

BELLEVUE -- A large California mortgage company went belly up Friday, surprising bretheren and regulators alike and sending 43 employees to the company's Bellevue office into the unemployment lines.

The Capitol Commerce Mortgage Co. of Sacramento, with many billions of dollars of mortgages funded since it started business seven years ago, announced it is seeking protection from creditors under Chapter 11 of the federal Bankruptcy Code.

Last year alone, Capitol funded 6,814 loans out of its Bellevue office worth an average $169,000, or $1.15 billion in all.

Maggie Blair, who runs the Bellevue office, referred calls to Sacramento. The head office did not return calls. But others spoke.

``I was really shocked,'' said Sarah Gilcrist, a senior loan officer for United Pacific Investments in Federal Way. United was one of the couple dozen mortgage companies that relied on Capitol for funding.

``This is very scary,'' Gilcrist said. ``We didn't see this coming at all.''

Nor did the state of Washington's Department of Financial Institutions.

``They reported to us in March,'' said Scott Kinney, the regulator's communications director. ``It showed they had significant money to operate and do business.''

The news sent Connie Hollerith of Pyramid Mortgage in Edmonds scurrying from Capitol's quarters at the corner of 112th Avenue Southeast and Eighth Street Southeast.

``I've got two loans that desperately need to fund today,'' she said. But Hollerith didn't hold the problems against Blair's staff.

``They're great people,'' she said. ``This office didn't do anything wrong.''

Judging from comments from a handful of mortgage-market pros, Capitol was hurt when interest rates skyrocketed right after Capitol guaranteed lower rates to borrowers.

``With the high volume of loans today and the rise in interest rates, it is possible a lender cannot fund all the loans it has committed to at the rates they have committed,'' said Dale Miller, president of the Washington State Mortgage Association.

Miller, who operates Paramount Mortgage in Bellevue, said the lag between when a consumer gets a rate guarantee and when it actually is funded usually takes about six weeks.

Six weeks or so ago, mortgage rates were at a multiple-decade low of 4.75 percent. Today, the rate is 6.25. That's a 32 percent leap in rates in a short time period.

The situation is painful for consumers. A 1.5 percent difference in a mortgage can mean many tens of thousands of dollars to be paid over the 30-year life of the mortgage. But there are other costs, too.

Gilcrist said when a loan doesn't fund by its deadline, the borrower has to pay penalties of $50 to $100 a day. Plus there's a big psychological dip.

``People think their rates were locked'' for a month or two, Gilcrist said. ``Yesterday we were told the loans would be funded. But today, they said no money.'' She was told to come to Bellevue and pick up her company's loan files.

Gilcrist estimated that Bellevue Capitol certainly had hundreds of deals, ``probably thousands'' in the mix.

``They're very aggressive,'' Hollerith said. ``They thought interest rates would never turn, and somebody made a mistake.''

Being aggressive ``means to me they're on the street with lower loans than others, trying to garner a larger market percentage,'' Miller said. ``That works fine as long as rates are stable, as long as they've covered their pipeline.''

Miller said that as rates cascaded, the market was flooded, mostly by existing homeowners refinancing older mortgages. He said many would pass as the rates fell, trying to time the bottom of the market. That stuffed the pipeline, making it more difficult for the first-time borrower to get service.

Miller, who runs the trade group for the state's mortgage industry, believes other lenders will step in to help Capitol's discards. He does not anticipate a worsening of the problem. And he thinks rates may improve.

``I've been in the business 30 years,'' Miller said, ``and I've never seen interest rates go up this fast without retracing. It wouldn't surprise me if it was 50 percent.''

In the heat of battle Friday, Gilcrist couldn't imagine such a rosy prospect.

``We're all really stressed out,'' Gilcrist said. ``We could lose our jobs.''

Some already have.

Greg Heberlein can be reached at greg.heberlein@kingcountyjournal.com or 425-453-4228.

http://www.kingcountyjournal.com/sited/story/html/140438

[CAlady]

That depends where you live, of course. I live in CA and our roads are great. 30 minutes to the west, and that's a different story.

[CAlady]

My first mortgage payment to Capitol Commerce is due September 1st. I have contacted my mortgage broker who said he is in touch with his General Manager and hopefully will be back to me in a few days. I don't want to send a $1,600 plus check to a company that's gone belly up. I also hope my rate is secure. I hope, I hope, I hope! Any suggestions?