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.
That's a polite way to put it. Many people have been suckered by easy credit. That's the fact. Woe be to them.
A doctor and his wife just bought the small house next door for $385,000...purchased from a realtor couple who bought it a year ago for $260,000 (top of the market, really) and spiffed it up with new paint, tile floors and some landscaping.
I'm amazed the sale made it through the appraisal process. Only thing I can think of is that we don't live in tract homes, so there are lots of intangibles.
The complaints are more about economic scaremongering than anything.
Of course, being in the business, you know that 2% down or 20% down is about security for the bank, not the buyer. The worst case scenario for the buyer is losing a job and not making the payment, and at that point having 20% equity is awful. On a 200k house that means you have 40k tied up that could be used to pay bills while you are between jobs.
Where ever the nation is economically, there is always the potential for disaster and that disaster is almost always avoided.
If TEOTWAWKI comes tomorrow as these people are saying, they will still deserve no credit for predicting it because they have always been predicting it with the next sunrise. They are simply stopped clocks that will eventually happen to be right.
With consumer spending being such a large component of the economy it could woe be to us.
That goes on here in Minnesota too. People purchase older cabins and homes on highly sought after lakefront property and tear them down to put up mini mansions.
However, these stocks peaked and were shorted, sorry, sold off in June.
They have not rebounded to a new high in July. So trend is your friend as they say and down to year 2000/2001 levels.
It all depends on bonds, the equity market and the 2004 election. Anyway, Good Luck...
Financial wizard or not, you are way ahead of most people.
I'm counting on there being more sanity in the world than stupidity. Perhaps I'm optimistic when I shouldn't be.
If you put 20% down as opposed to 2%, you save a whole lot of money over the life of the loan and you are liable to get a better interest rate, no PMI (why isn't that MPI?), and the chances are you can pay the loan if things get rough. Makes perfect mathematical sense to me.
I was talking with a couple people a month ago --- they were planning to buy new cars and actually said --- we can't bypass a deal like 0% interest ---- it can't get any better ---they're about giving the cars away with that kind of interest rate". Giving away???? Not at $20,000+ you see these new cars with 0% interest rates going for.
Yup, its coming. I have heard "there is no better time than now to buy a home". I don't think so. Wait about three to five years and there will be a huge foreclosure market.
Too many people want to think it is, though.
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