Mortgage lender graveyard filling up

American Home Mortgage is clinging to life, but its time will come. And when it does, it will join a very long list of failed mortgage lenders. The Implode-O-Meter blog, one of our favorites for news on the mortgage industry, now counts 105 lenders that have imploded.

While we're at it, we also want to express our support for The Implode-O-Meter, and Aaron Krowne, in their current legal battle. Loan Center of California sued The Implode-O-Meter in May, alleging that an e-mail posted on the blog in April caused such damage to the company that two of its major sources of funding -- Credite Suisse and Washington Mutual -- withdrew nearly $4 million in funding.

Aaron fears that the lawsuit could embolden powerful interests to attack blogs that dare to challenge them. If the lawsuit succeeds, he writes, "Major corporations could interpret this as 'open season' on bloggers and other conversants who criticize their companies (irrespective of merit).

This is from Blown Mortgage's coverage of the lawsuit and its importance: "The whistle blower has always had the tough road. Few people believe them at first; then come threats, lawsuits, illegal discrimination and pressure brought to bear on friends and family. It is no different with blogs. ML-Implode has chosen to shine a bright light on the mortgage industry and it makes those in the light uncomfortable. They react to this unwanted attention by attempting to shut down the light - to shut down the whistle blower through any and all means. The law and precedents set have ensured that whistle blowers are protected. It is vital to the progress of public discourse that bloggers are afforded the same protection."

Thoughts? Comments?

Comments

[Todd]

When learning of Loan Center of California suing The Implode-O-Meter for doing nothing more than telling the truth, I'm reminded of a quote by Mark Twain in a speech given in 1879:

"I don't mind what the opposition say of me so long as they don't tell the truth about me. But when they descend to telling the truth about me I consider that this is taking an unfair advantage."

Clearly, Loan Center of California (and perhaps a majority of the 105 lenders that have collapsed) believes that truthfulness and freedom of speech are nothing more than weapons of mass destruction. To them I say the pen--and keyboard--are mightier than the sword!

[LA]

The most surprising aspect of this whole mortgage crisis is that the average home in Los Angeles is STILL $535,000! With foreclosures sprouting like weeds, credit tightened and rates higher, how the hell have prices managed to stay so level?

[cdgreen198@aol.com]

I'm not sure that I would blame American Home Mortgage in this case. Frankly, I don’t think anyone would like to see 50% of these shipwrecked companies suing random bloggers for their comments, yet at the end of the day, there is much more to be worried about than that, if only because it is a threat and not necessarily a reality. While many loan originators are looking for work, some have managed to hold on for dear life. I would be very upset as well if someone other than my clients were to cut that rope. We have to remember that public opinion can ruin just about anyone these days. People tend to see companies as this huge, over-powering mass of money, but there are only people trying to make a living behind the veil. In the end, whether or not that company is to implode, it would mainly affect the "little guys" in the grand scheme of things. As we all know, the big-wigs just write these losses off anyway. It is those guys who knew 120% financing and adjustable rates which only go up would destroy people lives. This is still the David vs. Goliath battle that everyone wants it to be, but I think they may have the roles misplaced.

[investorguy]

LA: Supply and demand. It's simple. Plus the high end of the market (multi-million dollar homes) is as strong as ever, which holds up the average.

If you look at the actual numbers of foreclosures, not the percentages, the overall number is not that high for a market this size. And a lot of this is media hype. If sales drop 5 percent, that still means that 95 percent as many houses are selling this month as did in the same month last year. But that's not a great headline.

People will be much happier when they stop trying to compare LA to other housing markets. It's a creature all its own, and not subject to the "normal" rules.

[larry,long beach,ca]

Between the shady brokers and the predatory lenders, there is enough blame to go around. Having past dealings with a predatory lender (New Century) I rejoiced when they went under.

Folks, READ everythings and UNDERSTAND it before you sign on the dotted line!

[Morgan]

A couple of things -

1. Peter - thanks for posting this - it is important that all voices are heard, even ones that aren't out of the company's PR department.

2. Freedom of public discourse is important - it can be squashed by frivolous lawsuits that have no merit. How many of us could afford $20K in legal fees just to keep our personal blog up? Not me.

3. The damage to the business has little to do with the web site. No one pulls $4 million with out a good reason and that doesn't include internet rumors. As a borrower of warehouse lines of credit myself I can tell you the annual (or quarterly) recertification process is one of due diligence not of cut and run. There is no way Credit Suisse or WaMu made those decisions without much more substantiative reasons.

Thanks for bringing attention to this important matter.

[Sam Garcia]

The power and swiftness of blogs is undeniable. But unchecked power can be fatal. Just as reporters and their publications will be held liable if they publish untrue information and don't verify their facts, bloggers should also be held accountable for wrong information they publish -- especially those as well-known as Aaron. It's easy to make superficial comments about unverified casualties -- but it's not so easy to recover if your company was wrongly branded as failed.

Our publication, MortgageDaily.com, contacted Loan Center before publishing a story and found out that they were not closed down.

[cdgreen198@aol.com]

I am certainly flattered that anyone would believe that I’m am out of this companies PR department, seeing as how I am only 22 years old, and a real estate agent J. Nevertheless, the point that I wish to illustrate here is that as an agent for Playa Marina Properties, we service the relatively new community of Playa Vista, and within our company alone, I have sold three condos in the last month and a half!

With that said, the state of the market in my humble opinion is almost secondary to the meaning of this purported slump in real estate. It is all relative. Therefore, for one to say that these lenders are at fault is also relative. I just think that many people are a bit too trigger happy when it comes to these lenders falling out of the sky when in many cases, it is the consumer who has lied to the lender about their income in the first place.

Consequentially, Countrywide has virtually no competition and can sell you whatever packages they please and to whom they please. This means that they almost solely have control over the future of any given family’s living situation. I’m not entirely comfortable with that. As someone previously pointed out, this is merely about supply and demand. If there is a shortage in supply of lenders, the people who give out the money for buyers to purchase their homes with, the market will slump: relatively. Therefore, on top of people losing their homes, equity in those households who actually can afford their mortgage is diminishing rapidly as well. This is not something to be happy about, this is a Greek tragedy with the usual conclusion of everyone losing in the end, and foreshadowed from the outset.

Unfortunately, I was not present for either of the retreating company’s discussions, nor would I doubt that there are other reasons for their actions in addition, but if I believed the public to distrust a company in an already volatile situation, I wouldn’t fund for that company either.

[BetterVillage]

Foreshadowed is right... dig deep into the companies who lobbied, consulted, financed and developed your area, cd, and you will find some pretty nifty foreshadowing.

[Johnmac2]

Those people who should never have qualified to buy a home in the first place are being shaken out of the market with the passing of the exotic subprime loans. We're seeing a normalization of the market, not a collapse. People are thinking too much in terms of bubble markets when in fact we are talking about a market that cannot pop due to the intrinsic value of land and housing to buttress the sliding value.

What we are losing ground on is the speculative value, not the real value of land.

[www.BetterVillage.com, XYZ, PDq.]

From Investopedia: "1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value."

Value, any way you slice it, is based on perception. The forces (people) that control markets make money by influencing perceptions.

[Something's Rotten]

If buyers were liars on their loan applications, it's because they were encouraged to do so by everyone who stood to make a buck off closing the transaction. I was a real estate agent in Hawaii, an expensive locale with relatively low wages. Most of the residents were not qualified to buy their homes, but that didn't stop them from buying. Thanks to the "No Doc" programs, buyers (with the help of their agents and loan brokers) could calculate how much they needed to earn to qualify. Questions about the terms of the loan were overshadowed by the big question: What do I need to state my income as to qualify? If you could sign your name, you could get a loan and I saw tour bus drivers making $25k a year "qualifying" for $500k houses with 2/28 loans.

To blame the implosion on "lliar buyers" is reprehensible. If the lenders truly cared, they would've required documentation of income, assets and LTV.

Bet we won't see No Doc loans again.

Something's Rotten

[T. Blake]

We agree with your analysis. Freedom of speech meets many challenges. Our watchdog website - Household - HSBC Watch - received unwanted attention from Household International, Best Buy, and later HSBC USA. Strategic Lawsuits Against Public Participation - SLAAP suits - can be expensive to defend against. Letters from HSBC USA's attorneys also accused us of cybersquatting, which we defended successfully.

Companies love their own press release controlled positive spin. When websites and dedicated bloggers serve the public with facts, constructive criticism, and news other than company-spun news, everyone benefits in the end.

[Sean]

I was at a cafe just three months ago in San Mateo and overheard a disgusting 20-something female mortgage broker telling two men in their 50s "just write down that you are the manager and you have to increase that number a little."

I was stunned because I knew this fraud is rampant, but the market had already started to crack and something like 50 mortgage lenders had already gone bankrupt. It was all over the papers. But not everyone reads the paper.

I approached the table and explained to the two men that I was an attorney and that this mortgage broker was advising them to lie on a loan application in a way that could result in them being charged with felonies if they ended up defaulting on the loan. The broker told them that what I said was nonsense. She said that SHE was the mortgage broker and SHE knew the rules and that everyone put down a higher income on the applications for no doc loans and that this was the PURPOSE of a no doc loan. "If the law required you to write down your real income, then why have a no doc loan in the first place? I mean why would someone pay a higher rate if they really made the income they wrote down? Would they pay extra interest to avoid having to look for their W-2 forms?" she said.

The men thanked me, but clearly did not believe me. They proceeded on with their meeting.

My own wife told me seven years ago when we bought our first home and I questioned the terms in the loan proposed to us by a mortgage broker, "the mortgage broker WORKS FOR US. She is a trained professional and we are paying her to get the best loan terms for us. You don't know what you are talking about because you have no experience with this. You just read up on it for a few hours. This mortgage broker is an expert and it is her job to help us."

While I can't hold completely without responsibility the average borrower who ended up with a no down/no doc loan, 2/28, 3/27, exploding ARM, etc., the average person is socialized to believe that these suits are "experts" who are fiduciaries. They clearly aren't. They are no different than used car salesmen. But the public doesn't get that because the MBA, the Fed and lots of other institutions promote the falsehood that mortgage brokers and real estate agents have a fiduciary duty to their clients. They are nothing but salespeople. That's why you don't need to graduate from high school to become one and why they all have photographs on their business cards. There isn't any reasonable measure of competence other than that 40 hour course -- it requires more training to get a driver's license.

[Something's Rotten]

Will somebody please explain the benefits of a short sale, or deed in lieu of foreclosure. I have a client who owes 308k on her home which was appraised at 425k. She's been out of work since January, has 80k in retirement savings that she's living on. I've been trying to sell her house, to no avail. She's been advised to "give it back to the lender" and walk away with the rest of her retirement saving intact. She has perfect credit and doesn't want to ruin it. And has more than 100k in "equity" in the property. Can she negotiate with the lender (CountryWide) should she walk away?
Any advice?

[cdgreen1984@aol.com]

While I dont wish to insult anyone in this medium of discussion, I must say that as an agent I have always made it clear to my clients that buying a house is a bit deeper than they realize. I try to help them understand that 100% financing is not available anymore for the aformentioned reasons. Many of them do not understand that no money down means that you are upside down from the get go. I encourage them to save money for a down payment to lower their rates. However, as an agent, I am a salesman. And just as the rest of the world revolves around sales, I see no reason to make sales seem like such a serpents profession. It is a meeting of the minds, it is nothing more than an agreement. As an attorney do you not sell your legal advise to your clients? And just so that you know, brokers must have a degree, in addition to their initial training, and additional training thereafter. The loan originators do not require any training at all.

On another note, it looks to me like everyone including myself has had a finger to point. That was not the intention that I set out with. I merely wish for people to understand that as much is at stake for these companies as is at stake for the average citizen. If there are no lenders, the price point will continue to fall. And as I stated earlier, even those who can afford their mortgage will suffer in loss of equity. People lie on their credit card applications too. If suddenly those companies had to close due to delinquent funds, the same thing would happen.

There needs to be a clear understanding here: It is not just the brokers faults, or just the buyers faults, this is everyones problem! Everyone is suffering in some way shape or form, and that truth cannot be denied. So where does it go from here? Burn the mortgage companies? Put all of the people who commited fraud on their applications in jail? Sue the bloggers?

[don Hosek]

It's amazing that there are people who will still insist that the rules don't apply to Los Angeles. We heard that before the last real estate crash. Hell, substitute internet stocks for L.A. homes and we heard that even more recently in another venue.

Land has no intrinsic value. It's only worth what people are willing to pay for it. Yes, they aren't making any more land, but they also aren't making any more people willing to pay a million dollars for a 2-bedroom house next to the freeway in santa monica either.

But post all you want. All the blog comments in the world won't keep your house from losing value in the next few years.

[cdgreen1984@aol.com]

To answer your question Something's Rotten, I came across a blog somewhere around here in the Times' blogs which was explaining the tax consequences of a short sale. Basically, when you negotiate a short sale with the lender, the lender must notify the IRS on the amount that they let "slide" to relinquish the borrowers debt, and to write off the loss. The IRS then in turn treats that amount as income to the client and is taxed on it according to her tax bracket. If your client has the money to pay that amount off, then I would say go for it, otherwise, I wouldn't advise it. A foreclosure obviously will ding your credit, however, if your client is planning on retiring anytime soon, they might be setting themselves up for a reverse mortgage. However I know of a company that might be able to help you. If you would like, you can email me your contact information to the address listed on my posts.

[Inland Empire]

For Somethings Rotten - If your homeowner cannot sell her house, rent it out, get a roommate or do anything (legal) that can allow her to hold onto it. If the lender can help her, great. If not, don't walk away unless there is absolutely no other choice.

[tthgcontractor]

I suspect the real reason housing hasn't dropped more than it has is because of the inflation being caused by record deficits. I remember the house I had bought for $26,000 in 1972 nearly doubled by 1975 due to inflation caused by the Vietnan war spending deficits. This war is costing more and we are going to be feeling the pain very shortly.

[theMortgageBrat]

I find it frightening that a medium which seeks to bring information about the mortgage industry is being assaulted. Consequently, it has got us thinking (and I am sure other bloggers as well) that maybe we need to be more careful about what we print despite the protections afforded to us by the First Amendment. But isn’t truth still the ultimatum defense? Apparently not, rather what is happening to the Implode-O-Meter demonstrates that money and the ability to hire a lawyer may be more important. Hopefully, this is not the case, and to make sure that avenues of information stay open you can start by supporting the Implode-O-Meter and the MortgageBrat.

With respect to the lawsuit, Warehouse Lending Agreements contain convenants that the borrower (i.e. LCC) must adhere to. These convenants, among other things, relate to the financial condition of the borrower and, among other things, permit the offset of funds to rectify certain problems from over under accounts and other bank accounts in which the agreement gives the warehouse bank a security interest. Anyway, It would be my belief that the warehouse lines were pulled because of some such breach of contract and not the implode-o-meter website. The only remaining issue might be whether the website’s posting somehow caused LCC not be able to meet its financial convenants. That my friends would be a hard thing to prove. Just my thoughts and opinions on the matter.

[smokey]

I'm amused by the "but it's different here" crowd. A few years back, in what we now call the "dot com bubble" I remember the same kind of talk. "But this is the internet, it's different", yeah whatever. Households making 100K a year don't buy million dollar homes and pay them off. New year's day 2009 the "real estate ALWAYS goes up" crowd will be singing a different tune. We call it the BLUES.....

[Steven Wilson]

Who cares if they lost Washington Mutuals funding. Wasington Mutual is begging for money from the overseas lenders in the oil conglomerates to bail them out financially. That could be a good reason that they pulled the plug in the first place. Jim Cramer is even saying a bunch of these banks have a really good chance at insolvency.

These banks have repeated the same mistakes made before the Great Depression. Leverage upon leverage.....easy, easy money, for all, to feed at the trough.
Now they are whining about the lay people telling everyone to get out of their stocks before they implode?
To you know where ....they can go. These companies only care about themselves and their bottom line. They could care less about the guy they took to the cleaners on a shady loan.

Keep blogging.