Business & Technology: Saturday, August 16, 2003
Mortgage company suddenly closes doors
By Bradley Meacham and Peter Lewis
Seattle Times staff reporters
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." |
