Oops...Guess Capitol should have spent that Waikiki money on some hedging:
Firm closes; loans dry up
By Bob Susnjara Daily Herald Staff Writer
Posted 8/16/03
Some prospective suburban homeowners are finding themselves forced to obtain mortgages with higher interest rates due to the sudden closure of a California-based company.
Capitol Commerce Mortgage Co., which had offices in Lisle and 15 states in the West, ceased operations late Thursday. Local brokers said they're seeking new mortgages or refinancing deals on behalf of clients because Capitol will not honor its commitments .
At least 300 to 400 Chicago-area residents had Capitol loans that were supposed to go through for refinancing of existing mortgages or to buy homes, according to the Illinois Association of Mortgage Brokers.
No one answered the telephone calls made to Capitol Commerce's Sacramento headquarters Friday. Calls to Sean Hennessy, an account executive at Capitol's Lisle office, were not returned.
Local mortgage brokers said it appears Capitol went under because it didn't spend money to protect itself from the recent spike in interest rates.
"That is one of the dangers of dealing with companies that have the best rates," said Marvin Stockert, executive director of the Illinois Association of Mortgage Brokers in Lombard.
Before interest rates started rising, those who wanted loans for a new home or to refinance a current mortgage were able to lock in with Capitol more than a month ago at a 30-year fixed interest rate of 5.25 percent or less.
Now, those people no longer have mortgage or refinancing deals with Capitol and must seek new ones at more than 6 percent, brokers said. They said some homeowners may decide not to refinance.
Stockert said he knew of a closing set for Friday afternoon in the North suburbs that fell apart because the home buyer's Capitol Commerce mortgage had evaporated.
Mark McConnell at Benchmark Mortgage in Schaumburg was among the local brokers with clients affected by Capitol's closing. He said three refinancing deals and a new mortgage have disappeared.
"I've never heard of this happening," McConnell said. "I've been in it for 13 years."
Stockert said there will be a trickle-down effect from Capitol going out of business.
In addition to those who have lost mortgages or refinancings, he said, sellers likely will be forced to stay in homes longer than planned and brokers will lose commissions they thought they had earned.
Stockert said the financial hit on those who lost their deals will be significant. For example, a $100,000, 30-year fixed loan at 5 percent requires monthly principal and interest payments of $536.82, compared to $615.72 at the current 6.25 percent benchmark.
Local mortgage experts said Capitol Commerce expanded to the Chicago area about six months ago. Capitol's interest rates were lower than most competitors, which is why mortgage brokers often selected the company for their clients, McConnell said.
It's believed Capitol shuttered because the cost of borrowing has gone up, and it did not have enough money to honor the loans in the 5-percent range, McConnell and Stockert said. They said Capitol Commerce got into the financial bind because interest rates climbed rapidly.
To prevent being caught short when rates suddenly go up, a mortgage company typically hedges its portfolio risk by buying what amounts to be insurance on possible interest swings, the local brokers said. McConnell said he was informed Capitol didn't spend the money to take precautions when the interest rates were lower.
Capitol Commerce, which had a motto of "Commitments Made and Met," boasted of funding more than $7 billion in residential and wholesale loans since opening in Sacramento in 1986.
Closed: Financial hit will be significant
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