News from Lenders Direct Capital Corp Website :
Lenders Direct Capital Corporation Announces Layoffs, Closure of Wholesale Lending Operations
Lake Forest, California based nonprime mortgage company Lenders Direct Capital announces the closure of wholesale lending operations.
CEO Michael McQuiggan cited the lack of investor demand for their loan products and the current state of the US nonprime lending industry as factors in reaching the decision to cease wholesale originations effective immediately.
2 comments:
I wonder just how hungry these realtors are getting, seeing the easy subprime money is basically gone.
Revenge is a dish best served cold.
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Title agents on high alert as subprime funds dry up
As subprime lenders flounder to stay afloat, title agencies need to follow a good-funds policy — making sure funds are in hand before disbursing. Read on to see how the fallout from the subprime market will affect the title insurance industry.
(2/5/2007)
Real estate transactions can be thought of as a row of dominoes — one part of the process relying on the other. When one domino falls, so do the rest.
When a lender fails to provide funds at closing, the remaining steps in the process tend to fall like dominoes as well. This scenario has become an alarming trend over the past few months as several subprime lenders have had warehouse pipelines of credit dry up — leaving title agents without funds needed to close.
The list of subprime lenders shutting down or at least closing their mortgage lending lines grows almost daily. The latest subprime lender to leave borrowers, as well as title companies, in the lurch was Mortgage Lenders Network USA. MLN sent a fax Dec. 29, which The Title Report obtained, warning title agents that it was suspending its wholesale business.
“There’s a big demand of Wall Street investors to take back loans that are in default or violate covenants of agreements, so originators are in this bind that their warehouse lines are being shortened. These investors are requiring a buyback, and these lenders don’t have the cash to do it,” said Roger Blauvelt, senior vice president, eastern regional counsel for LandAmerica. “We are entering a phase of consolidation in the subprime market. Expect to see a lot of changes made.”
The fact that the Middletown, Conn.-based company furloughed much of its 1,800 work force is just the latest sign of turmoil in the subprime mortgage sector. Ownit Mortgage Solutions, the 11th largest subprime lender, closed shop Dec. 5. It followed by filing for Chapter 11 bankruptcy on Dec. 28.
Others to shut down their mortgage lines in the past year include Harbourton Capital Group, Sebring Capital, Acoustic Home Loans and nBank. Many others, including ABN AMRO, have reduced workforce.
Subprime lenders aren’t the only ones finding the times difficult. Several hundred mortgage banking firms could fail in the next year or so as the industry works out its excess capacity, according to Doug Duncan, chief economist for the Mortgage Bankers Association.
During a forecast conference in January, he said there could “be a significant” amount of firms that close in 2007.
The trade group, though, does not think residential production will fall off the cliff this year. The MBA is forecasting that home lenders of all types will fund $2.4 trillion in loans this year — 45 percent of it refinancings — compared with $2.5 trillion in 2006.
Good-funds policy
The subprime shakeout is expected to continue as investors pressure for more buybacks. Because of this, underwriters and title agents have been put on alert to make sure they have good funds before closing a transaction.
“Any time a situation like this occurs, it gives an opportunity to beat the drum for not dispersing unless you have good funds,” Blauvelt said.
Diane Cipa, general manager of The Closing Specialists, agreed that the industry is in “alert mode,” adding that she recently held a company meeting about why good-funds policies are important. “You can’t take chances. You have to watch for signals. You need to watch if lenders are delaying funds more than normal. This is a time when title agents go out of business as well and we don’t want to get caught up in that domino,” she said.
Cipa said she experienced a lender going out of business while a transaction was in the process of closing in 1999 during the last major downturn.
“There was a well-known, well-thought-of mortgage lender because he was a former employee of Fannie Mae,” said Cipa, who has more than 30 years of experience in the real estate industry including sales, mortgage lending and title insurance. “He was issuing checks to closing companies that were not good funds, not cashier checks.
“That is contrary to the contracts title agents have with their underwriters. We are required to get a certified check or wire before we disperse. I refused to take his checks. He made a fuss saying all the other title companies were taking them. I told him I didn’t care, that I wanted a wire. The company went under with loans in the process like the current ones. There were title companies that had dispersed on the checks that bounced. Then the underwriter has to come in and make good on it.”
Cipa, a former mortgage underwriter who is a licensed title agent for First American and Lawyers Title, said an extraordinary number of agents will disperse without having good funds. She added that on refis, companies need good controls to make sure the post-closing delivery department confirms funds were received from the lender before actually dispersing the mortgage payoff.
“If you don’t have a good internal control, that’s another way to get into trouble,” she said.
She said it only takes one bad player to throw a wrench in the entire process. If a title agent that is doing one transaction doesn’t insist on wired funds or a certified check, the bad practice can have ripple effects through all other transactions. Checks for mortgage payoffs, recording fees, transfer taxes and proceeds checks to sellers all can bounce, leaving the title agent holding the bag.
“You will always find that it is a title agent at fault when checks bounce, because the title agent guards the money gate,” Cipa said. “So if they are a good gatekeeper, they have stopgaps in place to control it. The title underwriters sent flurries of faxes and e-mails when companies starting going out of business this month trying to mitigate damages and trying to find the agents that may have made the mistake.”
Blauvelt and Cipa agreed there probably aren’t too many title agents that got caught in this latest subprime shakeout.
More than likely, an agent just held the documents or delivered a mortgage and note and were controlling damage by making sure the documents weren’t recorded at the courthouse.
Blauvelt said agents do sometimes close without having the funds in hand — anticipating the money will come. “The next thing you know, you get a recorded message saying that they aren’t funding any loans and the agent has got a problem.”
“We are suggesting, based on reports from the press predicting that there will be further consolidation in the subprime market, that agents dealing with subprime lenders follow the good-funds requirements of their particular state law and preferably have wired funds in account before making dispersements. That’s the prudent thing to do,” Blauvelt said.
He added that some good-fund statutes in different states permit dispersements on bank teller checks and allow attorneys to disperse funds on trust account checks. “It just keeps commerce going. If you were to require wire funds all the time, it would shut down business,” Blauvelt said.
Scott McBee, the national claims counsel for Stewart Title, said he doesn’t require a title agent to accept only certified checks or wired funds, only when there’s reason to be suspicious.
“If Mortgage Lenders gets on the ground again, I think we would want wire transfers and verification that the funds are there for a while. If they were to get back on their feet, we would require a level of confidence to accept other methods of funding,” he said.
Trouble spots
Blauvelt said LandAmerica received several inquiries about MLN’s funds from agents in Massachusetts, Connecticut and Louisiana. He said one agent closed a transaction Dec. 22 and a week later was scrambling because they couldn’t get an answer from MLN. About 75 borrowers in Rhode Island were left without funds from MLN.
“The agent is getting pounded by the borrower ‘Where’s my money? Did you pay off my existing mortgage?’ ” Blauvelt said.
PJ Garcia, escrow manager for Pacific Beach Escrow in Huntington Beach, Calif., said this current trend is unusual. She said in past years the subprime market surged when the industry started to slow.
“The lenders have been a little reckless at relying on the appreciation to cover themselves,” said Garcia, who has 27 years of experience in the escrow industry. “I would think that is why you see a different cycle among the subprime lenders in this market — other than the fact there are too many for the current volume of business.”
Garcia said there hasn’t been a problem of subprime lenders failing to provide funds in Southern California because it isn’t a “wet-closing” state.
“Once the documents are signed, they are returned to the lender,” she said. “We wait three days while they review the documents. Once the lender is satisfied, they release funds to the escrow or title company. Upon receipt of funds, the escrow company or settlement agent will release the documents for recording.”
Blauvelt said a pullback in subprime lenders won’t affect title companies’ profits. Borrowers will simply get service from other lenders, he said.
“Business will still be there unless Wall Street and loan originators decide to no longer make loans to the most credit-impaired borrowers,” he added.
Proceed with caution?
This current trend of subprime lenders closing their doors shouldn’t discourage title companies from doing business with other subprime servicers. McBee said many subprime lenders provide a needed product. “I wouldn’t want to brand the whole industry,” he said. “If there is one subprime lender who is unable to fund loans, the consumer can find other options.”
Cipa doesn’t think title companies should be any more cautious when working with subprime lenders than other lenders. She does advise that title agents be more diligent in guarding against fraud when dealing with subprime lenders because there’s a bigger potential for fraud in that realm.
“When you have title agents that are trying to follow their contractual obligation of being the gatekeeper and requiring good funds, lenders need to understand there is a reason for it,” Cipa said. “There are lenders that really do fight providing a wire or cashiers check. They will refuse to do business with a title agent that won’t accept a draft, to the extent that a lender is holding a hammer over a title agent’s head. They need to understand there is a really good reason why title underwriters want their agents to only take good funds. When there are examples in the marketplace where people can look to, then it helps people understand why the rules exist.”
Feedback? Contact Jeremy Yohe at jyohe@octoberresearch.com.
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