One lender implodes, and three deals go south.
We have a solid, prime deal with no issues scheduled to close at 11 AM this morning (call it property B). Our buyers are selling their home at 9AM (property A). The sellers of property B have a purchase later in the afternoon (property C).
Three transactions, all tied together. None of them are happening right now.
We received a frantic call from our buyer at 8PM last night. The lender for the sale of their home (property A) isn’t funding the loan for its purchase. Without the proceeds from transaction A, transaction B can’t happen. Without transaction B, transaction C can’t happen. A bloody mess. Everyone is working this morning to salvage the deals.
One lender with a cash flow problem has turned not just one, but three deals upside down. Three buyers out in the cold; lives packed up with nowhere to go.
But it doesn’t stop there – there’s collateral damage:
6 Real Estate Agents won’t receive commissions
2 Other lenders won’t book deals this month
3 Title Agents won’t write title policies
3 Homeowners insurance policies won’t get written (and so on…)
A single lender’s problems aren’t an isolated incident. The ripples move far and wide. Everyone gets to feel the pain.
7 responses so far ↓
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Diane Cipa, General Manager, The Closing Specialists® // August 1, 2007 at 9:09 am |
David, the American Home Mortgage fall has me very concerned because it stands alone as a demonstration of loss of funding sources rather than a collapse due to bad loans – subprime defaults and repurchase demands. We don’t have all the info on AHM but if warehouse lenders and the ultimate purchasers of mortgages are starting to panic, we have a real problem, the sort not entirely expected.
Federal regulators – I hope – have tools to deal with potential crashes and I hope they can see a potential crash of the secondary market that if it happens, it will happen so quickly it will seem like “shock and awe”.
I have five deals pending with a mortgage broker – prime – who told me yesterday that the funding lender dramatically changed underwriting guidelines without notice. It sounds like a loss of a funding source. These guys are big and the underlying loans weren’t anything out of the ordinary and not sub-prime. The mortgage broker to maintain the expectations of the consumers is attempting to find another source capable of handling the consumers’ needs. Due to rate changes, the mortgage broker will likely take a big hit on each deal just to maintain ethical standards.
This is one of those historical moments in our business. I’d like it to be less memorable than more………Wall Street are you listening? Keep the money flowing for mortgages that are not going into default. Find some way to support the teetering and fragile framework of the mortgage market. Think of the greater good and you will ultimately protect yourself.
Robert A. Franco // August 1, 2007 at 3:23 pm |
I believe that the “loss of funding sources” is a result of bad loans. At least it appears to me that the loss of credit was a direct result of the failure of AHC to meet their current obligations and my guess is that bad loans are most likely the reason. Though, I doubt all of them would have been considered “bad loans” when they were made… circumstances change. More “A” borrowers are in default now.
I believe that Alan Greenspan warned Congress that a collapse of the secondary market was a possibility before he left office. He recommended limiting the holdings of Fannie Mae and Freddie Mac.
Dave Wirsching // August 1, 2007 at 3:38 pm |
Quick update. Yesterday (the day of settlement) a local bank was able to provide a loan for the buyer of property A (less than 24 hrs turnaround – pretty impressive).
By the end of the day, all 3 settlements had closed and funded.
Local institutions have flexibility (and funds). They can fill the void left by the demise of a handful of lenders and the evaporation of the Alt A wholesale channel. But how much slack can they take up before all their resources are committed?
Diane Cipa // August 1, 2007 at 6:48 pm |
Glad to hear the good news, David. Also, an update, the truly terrific mortgage broker I mentioned did some fancy footwork today and found another source to help these consumers. It’s not a done deal but so far looks good. My advice to everybody is to close as soon as possible. This isn’t a market in which to dilly dally.
Diane Cipa // August 1, 2007 at 6:50 pm |
One more thing…rate locks only work if the company is in business and there just isn’t any good way for consumers to pick those who will survive and those who will not. Close as quickly as you can.
Dave Wirsching // August 1, 2007 at 7:19 pm |
I’m not ready to yell fire! yet, but I am looking around to see where the exits are located.
I think that Mortgage Brokers (including mortgage ABAs) are going to be in for a rough few weeks.
The direct (non-broker) lenders are gearing up to capture as many of the broker deals as they can. Survival of the fastest.
Those with shaky loan apps are likely to fall through the cracks, with no hope of finding a decent lender. Expect lots of FUD.
It’s going to be a stressful August for everyone.