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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (12482)	8/16/2003 9:51:39 PM
From: Ramsey Su	Respond to of 306849

The article said they funded $3.7B in loans during July. Countrywide funded record $52B. biz.yahoo.com WM funded $120B last qtr. biz.yahoo.com Wonder if they are experiencing the same problems as Capitol?

To: Jim McMannis who wrote (12482)	8/17/2003 10:02:44 AM
From: Rarebird	Read Replies (2) \| Respond to of 306849

"Capitol Commerce primarily acted as a wholesaler that sold its loans in the secondary market after funding them. The lender appealed to mortgage brokers by offering some of the lowest available interest rates, employees said. Even employees said that what went wrong isn't clear. The aggressive pricing could have landed the lender in trouble if Capitol Commerce's management didn't take adequate protective measures, known as "hedging," to guard against the recent spike in mortgage rates. The rate on a 30-year conventional mortgage averaged 6.6 percent as of Thursday compared with a low of 5.31 percent on June 11, according to HSH Associates, a Butler, N.J., firm that surveys 2,000 lenders nationwide. "That's the kind of difference that can set you on your ear real quick," said Keith Gumbinger, an HSH vice president. "I'm surprised we haven't seen more failures like this. It might not be the last." A small or midsized lender unprepared for a sudden swing in rates can get into trouble if it is holding a large basket of unfunded loans locked in at the low rates available a few weeks ago, Gumbinger said. Getting the money to fund the loans would be difficult now because low-rate loans diminish in value in a rising-rate environment, Gumbinger said. Capitol Commerce began making loans in 1986, according to its Web site. Chris Sordi is listed as the company's principal on its California incorporation records. The lender has a clean record with its chief California regulator, the state's Department of Real Estate." redding.com The reason is simple. The company offered the borrower a rate which they had NOT locked in on the secondary market where they sell the paper to raise the funds to give the mortgage borrower. When rates spiked, they could not make good on the rate they offered the borrower without taking a loss. This is the tip of a very large and ugly iceberg. Just as there were many companies in the red for every one which came to light during the early stages of the financial meltdown of Japan in the early 1990s, there are many US mortgage companies in the same boat as Capitol Commerce which have not yet come to light. They will. Many customers of US mortgage brokers will find that the highly advantageous long-term rates they THOUGHT they had locked in are not available. The longer this takes to come out in the open, the more damage it will cause, as new mortgage holders blithely continue to spend on the assumption of a monthly mortgage payment lower than the one which they will end up with.