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.

First Magnus Another Casualty Of The Mortgage Meltdown

Is First Magnus Financial Corporation (FMFC), who is headquartered in Tucson, Arizona back in business? Last week their web-site posted a notice that they where discontinuing their mortgage operation. Today their site has been changed remaking the company into an online mortgage broker.

How many where laid off? From a Cathy Luebke article in The Business Journal of Phoenix FMFC has released 5,000 employees immediately. That info came from an E-mail sent to staff on Thursday. From the E-mail:

"Despite our efforts to continue normal operations, we have come to a point when we must substantially reduce our work force," the Austin email states. "What this means for most of our employees is that Thursday, Aug. 16, 2007, will be your last day of employment. Detailed information regarding payroll, benefits and other human resource related matters will be available as soon as possible."

Besides their wholesale operation, the list of retail offices is sizable.

From an AP article dated Friday FMFC has laid off 99% of their staff or 6,000 people. If it is 5,000 or 6,000 there are a lot of people put out of work with less than a day’s notice.

From the ESRI web-site:

“Starting out as a small retail mortgage bank in 1996 with only a handful of employees, FMFC has grown into the largest privately held mortgage bank in the United States and ranks in the top 20 of the largest mortgage bankers overall.”