The Mortgage Meltdown Part 1

The mortgage companies have shown extreme vulnerability to this recent drying up of the availability of instant funding for brokered home mortgages. As I count, 30,000 to 40,000 people have seen their livelihood also dry up. Part 2 will cover the future of the mortgage industry and who the winners will be.

Part One

The widespread closures and layoffs in the mortgage industry is more than just a slow down or a shakeout, it directly points to a flawed business plan. The same question keeps popping up; should a company based on a business model that can not withstand a short term drying up of “borrowed” money survive.

Of course the last ten years have brought home ownership to more Americans than ever before; many of us have been able to buy the American dream using non-conventional loan programs. But the problems in the industry didn’t start with the average home owner, the problem was started by speculation, the belief that you can build and they will come, the belief that what you charge will become the new base line for pricing and the belief that all property will automatically grow in value.

This was the part of the industry that was begging for a shakeout. But as the shakeout continues, some other areas of the mortgage industry that are normally unseen have shown extreme weakness to any tightening of the credit flow.

The party is over. As the promised above average returns dry-up for investors, and the values of the underlying assets diminish, the pools of investor money that was used to fund these mortgages are disappearing and the investors are taking what is left and heading for greener pastures. This part is bad and is causing enormous problems for many, but the overall effect is that all debt instruments are being revalued and the less than squeaky clean are now experiencing massive withdrawals.

This is far from over and what effects it will have on the average Joe and Jane are yet to be seen, but our for those that are suddenly put out of a job, the meltdown has literally hit home.

Orange County Mortgage Damage

Mary Ann Milbourn, of The Orange County Register, has been following what is considered ground zero for the lay offs hitting the mortgage industry. To follow her story more closely and/or to view a comprehensive listing, click on her article: UPDATE Orange County mortgage casualties

Many thanks to Ms. Milbourn

Mortgage Industry Producing Lots of Unemployed

I’ve written quite a bit about the nations biggest and best banks sending tens of thousands of jobs overseas; Citigroup 26,500, Washington Mutual 10,000, New Century 6,500 and American Home Mortgage 6,250. But there are hundreds smaller companies involved in the mortgage industry that are closing or belling up to the bankruptcy bar.

Some of the following names haves no numbers attached, Mortgage Lenders Network USA laid off 80% of their staff or 1,440 in January.

So the following is a lists of the ones that I have been able to come across. From The Truth About Mortgage.com:

Aegis Funding – closed
Accredited – rumors of a closure
Acoustic Home Loans – closed
Ameriquest – laid off 3,800, closed 229 retail branches after $325 million settlement
Argent – for sale
Axix Mortgage – closed
Bank of America – continued layoffs, mulling Countrywide merge
Broad Street Mortgage – sold to Wausau Mortgage Corp.
Citigroup – bought ABN AMRO Mortgage Group
Clear Choice Financial – in default, Bankruptcy possible
Concorde Acceptance – rumored to be closed
Countrywide – layoffs, may be bought out by Bank of America
DeepGreen Financial - closed
Decision One – closed six regional centers
E-loan – closed sub-prime wholesale division
ECC Capital/Encore Credit – sold to Bear Stearns
Equibanc - closed
Fieldstone Mortgage – closed Las Vegas branch
Fremont General – exited secondary sub-prime market
FundingAmerica - not accepting any new business
HMIC – closed
Indymac – bought retail arm of New York Mortgage Trust
Lender’s Direct Capital Corporation – closed wholesale lending operations
Loancity – closed 7 branches
Loans 123 – no longer taking anymore business
Mandalay Mortgage – closed
MGIC – bought rival mortgage insurance provider Radian Group
Millenium Bankshares – closed mortgage division
Mortgage Lenders Network – stopped residential loan production
New Century – stock plummeted after announcing huge losses and buybacks
Novastar – facing potentially huge lawsuit
Oak Street Mortgage – closed
Option One – for sale
Own It Mortgage – closed
Popular Financial Holdings - exited the wholesale sub-prime mortgage market
ResMae – for sale
Right Away Mortgage – closed
RFC – layoffs
Rose Mortgage Corp. – closed
Saxon – layoffs
Sebring Mortgage – closed
Secured Funding – closed
Silver State Financial Services – closed
Sovereign Bancorp – exited wholesale market
Summit Mortgage - closed
Wachovia – layoffs
Washington Mutual – exited correspondent market

These lay offs are just in Orange County, CA and was posted by djGT in the forums at DI.FM:
(Updated July 26, 2007. Citigroup and new Impac Mortgage layoffs added.)
Acoustic Home Loans, Orange. Closed in April 2006. Laid off 203 people.
ACC Capital Holdings, Orange. Laid off an estimated 3,000 of the 6,000 employees at its Ameriquest Mortgage Co., Argent Mortgage Co.and AMC Mortgage Serviceson March 15. Reported 1,072 layoffs in Orange County as of June 22 to the EDD. Last year, the companies laid off more than 4,000 people.
BNC Mortgage LLC, Irvine. Reported 94 layoffs to the EDD, effective Aug. 12.
Citigroup Inc., Brea. Reported 77 layoffs to the EDD effective June. 29.
Countrywide Home Loans, Anaheim. Reported 59 layoffs in January to the EDD.
ECC Capital, Irvine. Sold its mortgage operation to Bear Stearns in February but said it would keep its 350 local workers. The company laid off about 600 people nationwide last year.
Express Capital Lending, Newport Beach. Reported 36 layoffs March 30 to the EDD.
Dana Capital Group, Irvine. The lender reportedly closed the first week of May. Layoffs unknown.
Ditech.com, Costa Mesa. Reported 181 layoffs effective July 3 to the EDD.
First NLC Financial Services LLC, Orange. Reported 113 layoffs in March to the EDD.
First Street Financial, Irvine. Ceased operations June 15. Layoffs unknown.
Fremont Investment & Loan, Brea. The company announced March 2 that it was exiting the subprime business after federal regulators issued a proposed cease and desist order. Reported 62 initial layoffs in Anaheim March 5 to the EDD. Additional reported layoffs in Anaheim and Brea brings total to 470 as of Aug. 6.
H&R Block Mortgage Corp., Irvine. Announced 50 layoffs May 17. The company reported additional layoffs effective July 10 bringing the total to 183.
Home Loan Center Inc./Lending Tree Loans, Irvine. Reported 271 layoffs effective July 10 to the EDD.
Homeview Lending Inc., Lake Forest. Reported 21 layoffs March 16 to the EDD.
Impac Mortgage Holdings Inc., Irvine. Announced May 9 that it laid off about 100 people out of about 800 in its workforce nationwide. On July 25, the company said it would lay off an additional 190 workers nationwide, including 43 in Orange County.
IndyMac Bancorp., Irvine. Announced 400 layoffs nationwide July 19 including 20 in Irvine.
Master Financial Inc., Orange. Stopped lending March 14. Reported 50 Orange County layoffs to the EDD.
New Century Financial Corp., Irvine. Filed for bankruptcy April 2. An initial 2,000 workers were laid off nationwide, including nearly 500 in Orange County. The company reported to EDD that as of May 4, it had laid off a total of 1,051 people in its Irvine and Santa Ana offices.
Novastar Mortgage Inc., Lake Forest. Reported 56 layoffs March 16 to the EDD.
Opteum Financial Services, Foothill Ranch. Reported 130 layoffs as of June 23 to the EDD.
Option One, Irvine. Parent company H&R Block said in November that it would sell Option One and close 12 branches, none in Orange County. On May 16, it announced 615 layoffs nationwide, including 133 in Orange County.
People’s Choice Home Loan, Irvine. Filed bankruptcy March 20. Reported 242 layoffs effective May 22 to the EDD.
Quick Loan Funding, Costa Mesa. Owner Daniel Sadek told the Orange County Register in May that the company payroll had shrunk from 700 at its height to about 125 now.
ResMae Mortgage Corp., Brea. Filed bankruptcy Feb. 12, saying it would keep 800 out of 1,037 jobs. Reported 185 layoffs effective May 19 to the EDD.
WMC-GEMB Mortgage Corp., Costa Mesa. Reported 29 layoffs effective May 7 to the EDD.

American Home Mortgage Investment Inc. No Time Wasted

American Home Mortgage Investment Inc. is just the latest in a long list mortgage companies defaulting. They currently have approximately 7,000 employees and will be letting all but 750 go by this Friday (today). The speed at which this happened has caused many investors to start looking at anyone who has the slightest exposure to the mortgage industry.

Monday, July 30th AHM missed a required $95 million payment to RAIT Investment Trust, a Philadelphia mortgage real estate investment trust.

Thursday, August 2nd AHM announced that they were ceasing most of their operations and would need to terminate employment of 6,250 workers.

Thursday the lawsuits started to pile on:
PHILADELPHIA, Aug. 2, 2007 (PRIME NEWSWIRE) -- Law Offices Bernard M. Gross, P.C. announced that a class action lawsuit has been commenced in the United States District Court for the Eastern District of New York, Civil Action No. 07-3193.
NEW YORK, Aug. 2, 2007 (PRIME NEWSWIRE) -- The law firm of Seeger Weiss LLP announces that it filed a class action lawsuit today in the United States District Court for Eastern District of New York on behalf of purchasers of American Home Mortgage Investment Corporation.
NEW YORK, Aug. 2, 2007 (PRIME NEWSWIRE) -- Kirby McInerney & Squire, LLP announces that it has filed a class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all persons who purchased or otherwise acquired the publicly traded securities of American Home Mortgage Investment Corp. ("American Home Mortgage" or the "Company") (Nasdaq:AHM) between April 26, 2006 and July 30, 2007, inclusive.

RAIT Investment Trust wasn’t left out of the fun:
PHILADELPHIA, Aug. 1, 2007 (PRIME NEWSWIRE) -- Law Offices Bernard M. Gross, P.C. today announced that a class action lawsuit has been commenced in the United States District Court for the Eastern District of Pennsylvania on behalf of purchasers of the securities of RAIT Financial Trust ("RAIT" or the "Company") (NYSE:RAS) between January 10, 2007 and July 31, 2007.

Friday, August, 3 AHM leaves the mortgage industry keeping only it’s S & L portion alive to maintain the companies remaining assets.

So far all the bad news has been confined to the subprime part of the mortgage market. AHM specialized in Alt-A’s, not subprime loans and are considered less risky than subprime. The unfolding of AHM illustrates just how precarious the existence is of any company that requires borrowed funds to operate on.

It’s interesting how AHM describes there business in the Investors Section of their website:

"American Home Mortgage Investment Corp.'s primary goals in managing its portfolio are to gain yield through the benefit of self-origination, and otherwise seek to reduce risk. The Company attempts to minimize the risks associated with holding a leveraged portfolio of securitized loans held for investment by approximately matching the duration of its securitized loans held for investment with the duration of the liabilities the Company utilizes to finance those loans. The Company further seeks to mitigate risk by investing primarily in adjustable-rate mortgage ("ARM") and hybrid-ARM securitized loans."