Mortgage company suddenly closes doors

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

[riri]

A friend of mine just sold her house for 130K. The folks that bought it went FHA and put down less than 2K. The market won't stand for funny business like this

I bought my first house for 120,000 four years ago. I put maybe, $3,000 down on it and most of that went to fees and other closing costs. I sold it 3 years later. I bought a new home and was able to put $25,000 down.

[FITZ]

Money about to dry up, is more like it.

It is drying up already, wages in the USA have been falling quite fast in spite of cost of living rising. People are way too far in debt and some are barely living paycheck to paycheck. Outsourcing of jobs isn't stopping anytime soon so more people will be seeing their pink slips.

[HurkinMcGurkin]

PMI (why isn't that MPI?),

Because it stands for Private Mortgage Insurance.

[Lijahsbubbe]

I talk about it to my friends all the time and none of ud can understand where the salaries are coming from to pay these insane prices.

And the people selling those houses are moving into even bigger houses. Where does it end?

I show my kids homes that were considered to be 'living large' houses when I was a teen and they laugh!

[RightWhale]

The mortgage rate rises 1% and this pseudo-banker goes out of business instantly. Is that the end of increases in mortgage rates? Real banks are probably okay for the time being. Savings and Loans had a problem a while back. How about Credit Unions?

[FITZ]

And the people selling those houses are moving into even bigger houses. Where does it end?

When they get their property tax bill --- or when the county starts hiking it up --- here an average home will cost $4000 in local taxes and that's what is causing some people to lose their home. Even a small cheap house is getting unaffordable with taxes this high.

[Lijahsbubbe]

I had a loan officer tell me, "you have so much equity in your home, you can do anything with that!"

So I says to the guy I says "Well, yeah, but you have to pay it back, or it's less money you have in your home if you want to move."

He acted like it was free money!

[Eala]

Housing prices have been going up 20% per year in my area, and they're still selling like hotcakes.

Our increases haven't been quite that high, but have held steady for years. But I note that those moving in now seem to be largely Microsoft marriages (they both work there -- which makes for a very quiet neighborhood).

[gitmo]

Since you're an insider, help me with this story.

Is this a case of the company simply failing to manage the float properly and getting caught when the interest rates went up? Or is this a case of load brokers getting stung by borrowers getting in over their heads?

Many of the posts in this thread seem to indicate the latter. I thought the article was indicating the former.

[knak]

where's the grass?

[HurkinMcGurkin]

He acted like it was free money!

Yeh, and another problem is that many loan officers have no allegiance to the lending institution. They knowingly make bad or extremely risky loans, only caring about their commission. I had one tell some friends of mine they could take a cash advance off a credit card to make the down payment and he wouldn't count it against their loan.

It seems like the entire tone of the refi industry is "why should you leave that equity in your home?". Of course, when their pay is based upon writing a loan, that's what you get.

[Lancey Howard]

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.

I've seen this happen a hundred times. It happens every time there is an extended ratcheting down of rates and then a turn in the market.

Unscrupulous (read: "crooked") mortgage companies promise customers that they have "locked in" a rate for, say, 30 days or 60 days, whatever, and meantime, the company is routinely selling into the secondary market at a 15 day price. This scheme can result a significant profit and it is commonplace. In effect, these mortgage originators are gambling with other peoples' money.

The company goes out on a limb with a pipeline that is "floating" (ie., customers believe they have a guaranteed rate but the originating mortgage broker has NOT locked in the rate with their secondary buyer) and the company gambles that rates will go down, or in a worse-case scenario, stay the same, so they can then sell the loan at a significantly greater profit than they would have made by playing it straight (ie., locking in the rate with their secondary buyer).

But if the company is sitting out there with a big pipeline that is not locked in, and rates take a dramatic turn and go up, then they can either honor the rates they promised their customers and sell into the secondary market at a loss (not gonna happen) or they can empty out the office at midnight and disappear.

This is happening all over the country, and it has always happened just like this in the past.

[Lancey Howard]

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 should go to jail, in my opinion.

[Friend of thunder]

It seems like the entire tone of the refi industry is "why should you leave that equity in your home?". Of course, when their pay is based upon writing a loan, that's what you get.

Of course when they do this they are ignoring there true responsibility which – if they work for a bank – is to the depositors and stockholders. It is not good business to make questionable loans.

[steveo]

This is just a case of greed on the part of one or more owners. When rates go down you can make millions by not covering your locks with your
investors. Selling higher interest rate loans in a lower interest market increases your profit 10 fold or more. If you continue this strategy when rates go up
you loose on every loan the same amount. They were well known for having the best rates and would extend locks where other companies would
say 'no way'. These owners were betting they rates would go back down and when they didn't the brokers, borrowers and employees were left holding
the bag. Where are these profits now? Don't look in any US bank account. Word on the street is losses were at least 70 million.

[Lancey Howard]

So,if you have an existing mortgage with this company,what happens?

Nothing.
See, most loans are already packaged into mortgage-backed securities which are traded like bonds on Wall Street. Most of the companies that people believe to be their "mortgage company" are really only the processors who take the monthly payments, handle the escrows, go after the deadbeats, etc., and forward most of the money they collect, minus their processing fee, to third parties.

Every time you get a notice that your mortgage has changed hands, all it means is that somebody else is processing your payments. Technically, they are all "mortgage servicing companies" who use a lock-box operation (nothing to do with Algore) to process payments.

[Lancey Howard]

Is this a case of the company simply failing to manage the float properly and getting caught when the interest rates went up? Or is this a case of load brokers getting stung by borrowers getting in over their heads?

The former.

[mrweb]

"...the company gambles that rates will go down, or in a worse-case scenario, stay the same..."

There are a lot of companies such as GE, Ford, GM that are in the mortgage business. I wonder which way they gambled?

[lelio]

Giving away???? Not at $20,000+ you see these new cars with 0% interest rates going for.

If you a 'give away' wait till these people try and sell their used cars in 2-3 years. There's going to be a huge glut of cars and they'll be worth less as everyone got a better finance deal.

[Beck_isright]

Ping....

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