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.

Yeh, and another problem is that many loan officers have no allegiance to the lending institution.

They don't need to since it all about doing a high volume of business and then selling off those mortgages to someone else who in turn packages them up and sells them again. It all isn't as simple and cut and dry as it seems. Literally trillions of dollars in financial bonds, secruities and derivatives riding on the ability of the monetary authorities and central planners to keep the housing market bubble inflated and growing.

Richard W.

Those 125% equity line mortgates are really going to hurt a lot of people when it comes time to sell the houseI really can not envision a scenario where a whole lot of people are not going to be in a whole lotta trouble in the not too distant future.

Almost everyone I know has refinanced and taken a little something out also. I don't know about where you live but where I live people are buying $300,000+ house like they are buying Big Macs.

Except, I am envisioning a bizarro world scenari where our currency is so devalued that the $50,000 they are in debt and the $300,000 they owe on their homes will be the equivalent of buying a new couch or washing machine. And in tha scenario, it will be folks like you (presumably) and me who tried to do things right, stayed debt free and have some cash stashed away--who will be really hurt.

Doom, gloom and more doom

Use the money to pay off every other debt you have, and put the rest in the bank.

I have no other debts --- I can see putting the money in the bank could be a good idea ---- especially if there is possibility of someone losing a job --- several months of mortgage payments could come in handy.

GM is so desparate they are packaging their car loans for sale to investors, to pay down their unfunded pension liabilities...GMAC's Real Estate Division brings in half the bacon at GM these days.

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

Those 125% equity line mortgates are really going to hurt a lot of people when it comes time to sell the house.

I can't imagine how anyone could be foolish enough to take out one of those ---- where they owe more on their home than it's worth?

GM is so desparate they are packaging their car loans for sale to investors

Car loans to investors? A car isn't any kind of investment ---- almost nothing drops in value as fast as a car. If they have to repo a car, they don't get much back.

I can't imagine how anyone could be foolish enough to take out one of those

Very few people are ever able to master the two basics of personal financial security and success: The ability to delay gratification and self-discipline.

Richard W.

I wonder why a couple of generations ago when fewer people had degrees, more people knew the difference between an investment and consumer item. I was talking to a woman who was wondering how she could get her money back from a computer they had purchased several years before ---- I told her it could probably be sold as a boat anchor and she actually said "but we made a $2000 investment in that computer".

NEW YORK, Aug 5 (Reuters) - Two auto loan deals totaling
over $4.5 billion priced on Tuesday in a busy session in the
U.S. asset-backed market.

General Motors Acceptance Corp. sold about $3 billion of
auto asset-backeds via its CARAT trust.

The deal was backed by car loans. GMAC is a unit of General
Motors Corp.

The deal's $525 million class A2B, with an average life of
2.1 years and rated triple-A, was priced at one-month Libor
plus 6 basis points.

>>>>Car loans to investors? A car isn't any kind of investment ---- almost nothing drops in value as fast as a car. If they have to repo a car, they don't get much back.

"where they owe more on their home than it's worth?"

You got it. Doesn't make sense to me either but I guess its the bank's way of giving you an "unsecured credit line" that you can write off at tax time.

I know a couple who are at 105% on their mortgage. Figure it will take 6% for the Realtor to sell the house. The house recently appraised for $300,000. That means to sell the house they will need to get $333,000 just to break even...which isn't going to happen anytime soon so they are "stuck" until the market appreciates significantly...which its not doing anymore in this area.

General Motors Acceptance Corp. sold about $3 billion of auto asset-backeds via its CARAT trust.

Incredible! I guess they view cars as investments also.

You'd have to wonder what they were buying with the excess money --- very unlikely they were buying any real kind of assets or anything that would add value to their home ---probably threw it away on more consumer items.

Car loans to investors? A car isn't any kind of investment

Yes it is. A very bad investment, and anyone and everyone who was chasing yields over the past year and investing in junk bond funds probably owns some of that worthless crap and doesn't even know it. Again the idea is for the big players at the top to make their commissions and fees and pass all the risk and losses down the ladder until it reaches the ultimate bagholder for all the excesses. That bagholder is generally the small investor regularly putting $100 a month into a mutual fund of one sort or another, and who usually also has no idea exactly what it is he is buying.

Richard W.

I'm saving my cash up now so when a good deal comes by, I'll be ready.

There seems to have been a number of instances lately where dealers have refused to sell vehicles for cash -- personal watercraft, motorcycles, etc. Don't know for sure about new autos, but cash does seem to be a disincentive to the dealer unlike the "deal-maker" it once was.

I don't think homes can appreciate much except in a few areas. I know a guy who thought a house would make a good investment so he bought one, then he found out a portion of the roof needed repairing and some plumbing needed to be replaced. He said he was better off without a house because he was sinking money into real estate taxes, insurance, and repairs that could have been better if invested in something.

Just the fear alone may cause the bubble to burst. I had posted not too long ago that housing prices are going to fall. Was roundly flamed. The nice thing about this website is one can look up the previous post and demand an apology. May not get it...but nice to be able to find it and demand and apology. Will be researching.

I think that Roger Arnold expected up to 60% of mortgage loan operators to be out of business within a year.

Highly likely just as it happened around 1994-1995 also.

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