- ---- for those of you living in a bubble - i have replaced my old post with updated info ---- Lewis Poretz
I believe the 1% option arms are the next really BIG hit the mortgage industry is about to take ----
Tracking the housing finance breakdown: a saga of corruption, stupidity, and government complicity.
Latest count of major US mortgage lenders that have croaked since late 2006:
lenders have now gone kaput
Quote of the Week:
"I am not a forecaster of the future; I'm a historian. And history says this will blow up. It always has. And there will be some blood on the street." — Wells Fargo & Co. Chief Executive Officer Richard Kovacevich, in December, 2006.
(as of Q2 2006; from the Mortgage Banker's Assoc. Red are shutdown and/or bankrupt, blue are no longer operating independently) -
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Top Mortgage Banking Bust News and Commentary:
- 2007-05-17: Only One Thing You Need to Know: The Bernanke Put - Kevin Depew at Minyanville thoroughly roasts Bernanke. Implode-O-Meter used as heavy ammunition. Color us proud.
- 2007-05-17: Doral Announces [$610 million] Recapitalization Plan and Related Equity Investment - Key planned moves: repaying existing debnature notes (due soon), and funding the battle against class-action litigation: "Although highly dilutive to existing common shareholders, the Board believes it is the best, and probably the only, means to retain some value for existing shareholders and enable them to participate in the future of the Company" ...
- 2007-05-17: OceanFirst shutting down subprime mortgage subsidiary - ... after executives learned OceanFirst would have to buy back mortgages that had turned sour. Posted on our list (Columbia Home Loans).
- 2007-05-17: Bernanke: Go slow on subprime regulation - Fed chief cautions against wholesale action to solve the subprime lending crisis.
- 2007-05-17: Subprime mortgage lender to cut jobs in Chicago area - ACC, parent of Ameriquest: "The move is part of a final resolution arrived at last year with attorneys general in 30 states who investigated the company for possible predatory lending practices."
- 2007-05-17: H&R's subprime lending unit Option One to cut jobs - "H&R Block said its subprime lending unit, Option One Mortgage, would eliminate about 615 jobs, triggering a $19 million pre-tax charge."
- 2007-05-17: U.S. leading indicators point to slower growth - The leading indicators, designed to forecast turning points in the economy, have now fallen 0.2% over the past six months.
- 2007-05-17: No spillover from mortgage woes - Bernanke - "Housing market weakness has persisted longer than expected, he noted."
- 2007-05-17: Bernanke Says Subprime Lending Curbs Will `Restrain' Housing - The Fed didn't publicly rebuke any bank for failing to follow up on guidance on lending practices in the period. Regulators could have ``done more sooner,''
- 2007-05-17: Foreclosures Spur Ohio-Led States to Rescue Homes From Default - `Saving' People-NOT Saving a few well connected Lenders
- 2007-05-17: Is the Housing Market on the Road to Recovery? - April's rebound in starts is something less than it appears.-"new buliding permits is the true measure of confidence"
- 2007-05-17: Bay Area home sales drop, prices up - It's likely that potential buyers are biding their time, as are sellers. i.e. "stagflation has hit the housing market"
- 2007-05-16: Countrywide To Issue $2 billion In Convertible Bonds To Fund Buybacks, Operations - So let's see: Countrywide is issuing a bunch of convertible debt, buying back a relatively insignificant amount of outstanding stock, and shutting the door on any potential buyouts thanks to a change of control provision. Seems bullish to us!
- 2007-05-16: Former Lennar Homes Employee Speaks Out - Lennar in hot seat for shoddy building: "Huisman told us some 15 inspections should take place during the home-building process. We spoke with one Wescott home owner who told us, he asked north charleston for all of his inspection records. He says his home had only four on record."
- 2007-05-16: Next subprime wave brings more bad news - Excellent piece by Gordon Schlicke: "Real estate professionals could be punished if Rep. Barney Frank, D-Mass, has his way. He wants to let delinquent subprime borrowers sue the investment bankers who bought the loans and turned them into securities. A major sea-change in mortgage lending would follow."
- 2007-05-16: More face auction of homes - The rise in scheduled auctions of homes is an indication the fallout from delinquent mortgages among subprime borrowers in Massachusetts is growing,
- 2007-05-16: Spain On The Brink - "Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust - despite membership of the eurozone." -- The US's problems are matched to varying extents by other deficit-encumbered Western countries such as Spain.
- 2007-05-16: Mortgage raters grapple with subprime piggy-backs - "Second-liens are in big trouble. If there is no home price appreciation then there is almost no recovery on these loans"
- 2007-05-16: Greenspan to join Gross at Pimco - "The road, as most roads do, ultimately winds back to the central banker controlling the world’s reserve currency". And what most people don't know is that the FED owns PIMCO
- 2007-05-16: U.S. Economy: Housing Slump May Linger, Production Up - subprime mortgage defaults add to the glut of unsold properties, economists said. The housing recession remains the biggest threat to the Fed's forecast of ``moderate'' economic growth.
List of the Defunct Lenders:
This is our list of lending operations that have "imploded" (see also ailing lenders). "Imploded" is somewhat subjective and does not necessarily mean operations are ceased permanently: it can mean bankruptcy filing, temporary but open-ended halting of major operations, or a "firesale" acquisition. Important: All information here is provisional. If you are planning on doing business with any of these companies you should inquire with them on whether they can still meet your needs. Many are still operating in some capacity.
The Companies include all types (prime, subprime, or a mix of both; retail or wholesale; subsidiaries and entire companies). The list, with links to stories and whatever details we have available (most recent first) follows:
- 2007-05-17: Columbia Home Loans, LLC - Mortgage Lending Subisidary of OceanFirst Bank - story
The story above announces the closure of this NY-based lending subsidiary of OceanFirst:
OceanFirst Financial Corp. said it decided to close down its mortgage banking subsidiary as the unit incurred significant operating losses in the last two quarters from subprime mortgage loan originations.
The bank holding company estimates $900,000 in employee severance and lease cancellation charges related to the closure of the unit, Columbia Home Loans LLC, it said in a filing with the U.S. Securities and Exchange Commission.
"The discontinuation of Columbia's operation is expected to be completed within six months," the filing said.
On April 25, OceanFirst had said it was in talks with an interested party on the sale of Columbia Homes and that it would shut down the unit if the talks failed.
We now know how that turned out.
Based on the company's web site, they had Conventional, FHA, ARM, Non-Conf. Jumbo, First-time and Home Equity line programs. However, we are unsure of the loan mix in practice. They claim to have financed over $1.5 billion for the five years ended whenever the web site's "about" page was last updated—a modest volume, but somewhat probably out of date.
- 2007-05-17: New York Mortgage Company (Wholesale and Retail Ops) - Subsidiary of New York Mortgage Trust (REIT) - story
The company has sold off what is left of its lending platforms; wholesale went to Tribeca Lending Corp, and retail went to IndyMac Bank. We are classifying this as an "implosion" due to the near-total atrophy of the units:
Total headcount reduced to 35 as of March 31, 2007, from 616 as of December 31, 2006. Headcount reductions are attributable to exit from lending business and are expected to decline further as remaining loans held for sale are liquidated.
See the link above for more information.
- 2007-05-16: Mortgage Tree Lending - Retail Originator, Non-Prime Centric - (no MSM story yet)
Mortgage Tree was to be acquired by WJ Bradley Company as of the beginning of April, but sources tell us that that deal apparently has fallen through. The following profile, which was listed for Mortgage Tree on WJ Bradley's company portfolio list, is now gone:
MortgageTree Lending Corporation - 2007
Founded in Modesto, California in 1986, MortgageTree Lending Corporation is a privately held retail originator of residential mortgage loans that acts as both a mortgage banker and broker. In 2006, the company originated $788 million in residential mortgage loans. The company holds mortgage license authority in 32 states, has 390 employees and originates conforming, non-conforming and subprime loans out of its 55 retail branch offices located throughout the country.
Here is a description of WJ Bradley (which is still going, as far as we know):
Our Portfolio Companies are residential mortgage originators with superior management teams, sustainable competitive advantages, and identifiable value enhancement opportunities. Since January 2005, WJB has orchestrated 10 acquisitions of residential mortgage bankers and brokers. Our Portfolio Companies generated approximately $5 billion in origination volume in 2006 across the spectrum of the A, Alt-A, Alt-B, and subprime product classes. Collectively, WJB's companies originate loans in 40 states, occupy more than 200 office locations, and employ approximately 1,500 mortgage professionals.
- 2007-05-03: Homeland Capital Group - Wholesale Subsidiary of First Greensboro - (no MSM story yet)
We have multiply-obtained official notice that this company has ceased accepting wholesale submissions (below). As is typical in these tumultous times, there is no word on future plans:
Effective immediately, we will no longer accept Wholesale submissions for approval. It has truly become impossible for us to compete in the current environment with the consistency that we, as well as our brokers, are accustom to and deserve.
Therefore, we will accept any legitimate prior approvals in the form of final packages between now and the 15th of May. Those, and any current files pending, must have stips cleared and close by the 22nd of May.
Executive Vice President
First Greensboro Home Equity, Inc.
We're currently not clear on the loan mix of this company or other vital stats; stay tuned (or send in information if you know more). Their web site is still up and operating.
- 2007-05-02: Nation One Mortgage - Alt-A Wholesale Lender - (no MSM story yet)
This company has definitively stopped lending; we have seen multiple reports of this and have obtained the following letter sent out to brokers:
Effective immediately, Nation One Mortgage Company, Inc. is ceasing the origination of all mortgage loans. No new loan submissions are being accepted at this time. If you have received this message, our records indicate that you do not have any loans that are currently in an approved and locked status.
We have appreciated the opportunity to serve you and your customers.
Nation One Mortgage Company, Inc.
If you call their number at 1-800-624-6662, it confirms the above.
Their web site is still up and you can read a bit about the company here.
We have no specifics on the size of the company, but they appear to be a mid-sized East-coast lender, working in VT, VA, MD, MA, CT, NH, FL, RI, and ME (check the list of AEs). No word on what their future plans will be.
- 2007-04-30: Dana Capital Group - Wholesale Lender - (no MSM story yet)
Rumors have been swirling around since at least the beginning of this year that Dana capital was in trouble, largely because of missed payments to brokers, though apparently there is a smattering of lawsuits against the company as well.
More definite reports now put the company in liquidation status:
Dana Capital is Closed!
I personally went in to their office today to pick up a check for a file they´ve been holding funds on since mid Jan. The following text was posted on their door. I´ll be able to get the picture off my cell phone later and post a link:
"Dana Capital has chosen to wind down its activities through dissolution under State Law. Dana Capital will not be filing a bankruptcy -- but rather will orderly liquidate its assets. You should receive notice of such and a status report within the next couple of weeks via email."
Posted on the door of 8002 Irvine Center Drive, Ste. 1200, Irvine, CA the headquarters of Dana Capital Group at least as of 4/30/07.
See more discussion at the thread here.
The web site, which is still up as of this writing, describes some basics of the company:
Founded in 1995 by real estate industry veteran Dana Smith, Dana Capital Group provides a broad range of loan products to customers nationwide. The company's mission is to provide fast and efficient mortgage services to customers, while making the loan process as simple and convenient as possible. Dana Capital's extensive mortgage lending experience and knowledgeable staff have driven the company's tremendous growth, with volume just under $3 billion annually. Dana Capital is privately held and headquartered in Orange County, California.
The thread above also describes some potentially questionable dealings involving one "Sage Credit," which seems to have some connection to Dana.
- 2007-04-27: Millenium Funding Group - Non-prime Wholesale - story story
We've been hearing about this for a couple days now, and the notice posted to Millenium's web site today confirms it:
Due to the current market conditions in our industry, Millennium Funding Group has elected to discontinue third-party origination of residential mortgage loans. For the time being, we will no longer accept new third-party mortgage loan applications, or issue approvals on new loans. However, in order to accommodate our borrowers, and our mortgage broker partners, we will continue to fund loans on which we have sent closing documents out through May 11, 2007.
To best serve your customers, we request that you place loans currently in the pipeline on which we have not sent closing documents to other lenders.
We regret having to take this action at this time and are hopeful we can partner with you again sometime in the near future. We are not closing Millennium Funding Group; we will continue to monitor market conditions and hope to return to third-party originations when market conditions allow.
If you have any question please call 360-433-6260.
Thank you for your understanding.
I have not seen a MSM story on the closure per se; but posted above is a link to news on March 7th layoffs of a significant fraction of employees of the Vancouver-based company. 120 people were said to remain after that round of layoffs.
- 2007-04-20: MILA - Online-based Lender - story story story story
This lender (full name: Mortgage Investment Lending Associates) was an online market-maker in residential loans. The following notice was posted on their site at the time of writing:
MILA would like to thank all of the mortgage brokers we've done business with over the years. Due to current market conditions, we do not have the resources available to continue lending. It is with great regret that we announce we are ceasing operations effective April 20th, 2007.
MILA was owned by Washington Consumer Loan Company, and based in Washington state. As of 2006, they had around 600 employees, with $4.5 billion in loan volume for 2005 and $5.5 billion projected for 2006. On this Google cache of one of their information pages, they state:
Current monthly loan fulfillment through the AccessPoint platform averages $400 million from activities in 26 states. MILA generates its revenue through fixed monthly fees charged to broker/subscribers and derives additional revenue through the sale of product to major investors.
As of 2006, that subscriber base was 5,000 companies, 10,000 offices, and 40,000 mortgage professionals. Their activities were mostly centered in the West and Mid-West, with a full list appearing in the cached page above (again, as of early 2006).
According to announcements previously sent to the Implode-O-Meter, on February 16, MILA had eliminated subprime, ratcheted Alt-A up to 620, and moved conforming up to 660. Their origination and portfolio mix up until that point is unknown.
Update: I've added two more MSM articles on MILA's shutdown, forwarded to us by a reader. The first article states that MILA's employment peaked at 700, and was about 300 when the company shut down. It also contains this telling quote:
Former employee Mary Linares of Marysville, let go last year, said she was appalled at the nature of loans MILA was funding.
"We would see things that shouldn't have been happening," she said Monday. "When we pointed it out, instead of being grateful, they'd get mad at us."
- 2007-04-20: Home Equity of America - Prime Second Specialist (sub. of Fifth Third Bank) - story
Update, April 23: We have received unofficial word that HEA's freeze is temporary, due cutting outside AE staff. Business is reportedly still going on with "core" brokers to the handful of remaining inside AEs; if you think this is relevant to you, you should check with the company before assuming anything about their status. Stay tuned for updates.
Update, April 25: Fifth Third was kind enough to send in an official clarification of their situation, the essentials of which we are posting here with permission:
The streamlining refers to HEA’s decision to re-align its business and eliminate its Outside Sales function. HEA is retaining its Inside Sales function, which will report into Fifth Third Bank’s Residential Mortgage line of business. The Inside Sales team will have responsibility for brokers retained by HEA as well as new brokers.
In addition, the Cincinnati HEA Regional Credit Center will continue to support the Inside Sales team.
... there is no “freeze” regarding business between HEA and some of its brokers. Existing applications in the pipeline will be handled by HEA through April 30, but brokers may partner with a representative if they need to close a loan during the first week of May. Inside Sales representatives will contact brokers retained by HEA, and future submissions may be made through Account Executives or Client Relationship Representatives.
At this time, Fifth Third Bank’s Residential Wholesale Mortgage group will continue to originate business through the HEA brand. However, as new products and services (including first mortgages) are made available, a decision may be made regarding the continuation of the HEA brand. In any event, Fifth Third Bank will continue to offer products and services to those active brokers.
Public Relations Specialist
Fifth Third Bancorp
(Original entry follows).
We have obtained a letter announcing that HEA is shutting down (or more accurately, had ceased accepting new business on Tuesday). Despite HEA's focus on prime, Fifth Third apparently determined it was not worth keeping the unit open, as second liens have become much harder to fund. Housingwire comments on this topic:
We're told that while the prime market in general isn't likely to see much upheaval, that same logic doesn't apply to second liens, which have fallen out of favor with Wall Street at nearly every credit level. [HEA's closure] would seem to be the first item of evidence backing that sort of logic up.
I would also add that it becomes much more difficult to extract one's home equity when one is already near 100% LTV and the "V" portion isn't going up anymore.
HEO operated in 23 states. No word yet on their loan volume or size of the workforce effected.
- 2007-04-19: Opteum (Wholesale, Conduit) - Alt-A Lender - story story story
Opteum is shutting down its conduit and wholesale operations. Retail will remain. The Marketwatch story has a rather definitive announcement. There is also a notice posted to Opteum's conduit site. Update: We have also obtained a similar notice explaining the terms of the wholesale shutdown.
As the HousingWire story points out, they used to do subprime, until that became untouchable. Stay tuned.
The following lenders and lending operations haven't shut down, but they're significantly-downsizing or are otherwise in manifest financial (and/or legal) distress. Unfortunately, most of the industry now falls under this description, so I am forced to reserve this list for the more glaring cases. Watch this list—some of its members may move to the above one.
- 2007-03-14: Option One - Non-Prime Lending Unit of H&R Block - story story story
Option One is a top-10 subprime lender. H&R block has been looking to jettison this manifest liability for the better part of a year; in their own reports they list Option One under "discontinued operations".
H&R has delayed filing their latest quarterly report due to Option One-related write-downs, $29 mln of which will be added to Q3 2006.
Berkshire-Hathaway has been selling shares of H&R block. Perhaps Buffett connected the dots to the CDO "financial weapons of mass destruction" underlying this business.
- 2007-03-14: Accredited Home Lenders - Non-Prime Lender - story story story
In the same kind of liquidity crunch that has taken out numerous other non-prime lenders. Margin calls have hit it for $190 mln in 2007. The company is now exploring firesale-type options, workforce reductions, and just "the kindness of strangers" in general. Stay tuned.
The stock has tanked from about $20 to $4 in March.
Update March 16th: Accredited has managed a fire sale selling off loans at a discount to buy some time to consider "strategic options". By strategy, they mean scrambling to find a someone to take their business over.
- 2007-03-05: Ocwen Loan Servicing - Lender & Servicer - (no MSM story yet)
A reader sends in this report on a former bank and now only loan servicer & lender, which seems to have been largely predicated on fraud:
OCWEN LOAN SERVICING
Services loans for the former Aames Home Loan dba Aames Funding Corp. They used to be a bank, OCWEN FEDERAL, until they ran afoul of the OCC. Now they're just one of the worst predatory loan servicers and lenders. Here's a sampling of the litigation they're currently facing:
Borrower Class Action Lawsuits:
Over 500 separate class action lawsuits have been combined into one jumbo class to be heard in the Northern District of Illinois. Former employees testifying about how OCWEN intentionally defrauds borrowers -- it's built in to their software which was designed by this IT guy who is blowing the whistle.
Employee Lawsuit(s): Settling in favor of the Plaintiffs
Investor and Supplier/Vendor Lawsuit(s): Just getting started
U.S. Federal Government Lawsuit(s): According to OCWEN's SEC filing, they are being sued by the U.S. in the amount of $700 million +. Suits arose after one of their subsidiaries filed for bankruptcy protection in the District of Delaware Bankruptcy Court for that amount - $700 million in debt. Here's the part the Feds and the investors are upset about: This subsidiary transferred ASSETS to OCWEN just before filing on their liabilities. That's called a fraudulent conveyance.
Other Lawsuits: Everyone's suing them.
According to the SEC and OCWEN's own report, their net worth is $325 million--oops not enough to satisfy the Feds and investors. Borrowers who were defrauded and wrongfully foreclosed are at the bottom of this 'crumby' food chain.
According to Moody's Rating Service, they've decided not to rate OCWEN's stock--this after downgrading it. The $325 million may be a negative $325 million by this time.
My online sources included the public records found at Moody's, the SEC, Delaware District Bankruptcy Court, George Miller, Trustee, and The Rip-Off Report and others.
Looks pretty bad.
- 2007-03-02: Doral Financial Corp. - Mortgage Lender - story
The company swung to a net loss of $117 million in 2006, from a gain of $13.2 million in 2005. It needs to refinance $625 million by July or it faces a terminal cash crunch.
More on recent scandal and errors from the article above:
Last year, Doral agreed to pay a $25 million penalty to settle fraud charges with the U.S. Securities and Exchange Commission. Doral did not admit or deny the allegations.
The SEC said Doral overstated profit by about $921 million over several years. The mortgage company's former senior management is accused of manipulating the underlying assumptions for mortgage-sale related gains that helped the company generate 28 straight quarters of record profit.
Doral's lending unit is actually "Doral Mortgage". I'll put up information on the relative size of that unit as it becomes available. However it seems a foregone conclusion that the influence of Doral Mortgage is enough to potentially crater the entire company.
- 2007-01-25: Evergreen Investment/Carnation Bank - Subprime builder and financer - story story
This duo, operating chiefly in Ohio, built homes and financed them for marginal borrowers. Evergreen appears to be the main operation, with Carnation just serving as a financing partner. Recently Evergreen hit the skids as investors apparently figured out it was insolvent, yet still operating. The pair of companies is now being sued by investors and investigated by local, state, and Federal authorities. Here are some stories:
- Investigators search mortgage company
- Law suits against Evergreen Investment Corp.
- Sheriff says raid was bigger -- Carnation Banc search includes 2 other sites
I get the feeling these companies' days are limited.
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