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.
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.
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.
Because it stands for Private Mortgage Insurance.
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!
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.
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).
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.
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.
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.
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.
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.
The former.
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