Lenders sound the retreat as mortgage woes mount

Lenders that focused on mortgages enjoyed tremendous growth during the housing boom, but now a credit crunch is forcing them to retreat from the market, leaving full-service banks to fill the void, industry sources said.

As if to underscore the point, Houston-based Aegis Mortgage Corp., one of the nation's largest mortgage lenders, laid off a "substantial number" of its employees Tuesday, as it shut down mortgage operations.

The company would not say how many employees were terminated, but as of July, it had a 1,200-person staff, with 300 in Houston.

"The change in market conditions, coupled with the rapid decline in the secondary mortgage market, has forced Aegis to take this action," CEO Dan Gilbert said in a prepared statement.

Aegis said it is still maintaining its servicing business, but the division has been up for sale for a while, spokeswoman Pat Wente said.

Aegis, which stopped taking new loan applications Monday, is the latest in a string of lenders caught up in the mortgage industry turmoil.

American Home Mortgage Investment Corp. on Monday filed for bankruptcy protection, and National City Corp. said its wholesale home lending division, which serves mortgage brokers, had stopped accepting new loan applications.

The shakeout "is very disturbing," real estate agent Shad Bogany said.

As more lenders leave the market, consumers have fewer options on the kinds of loans they can find, he said.

Bogany noted that it is the wholesale side of many lenders, the side that sells to brokers, that seems to be affected the most.

Some brokers, in turn, now look to full-service banks for loans to match home buyers with.

"Right now, we only want to sell to those guys because they have deposits," said David Zugheri, president of First Houston Mortgage.

No matter where the home buyer goes, to a bank or a broker, the loan is mostly likely to come from the likes of Washington Mutual, Wells Fargo, Bank of America and other large banks, he said.

Guy Cecala, publisher of Inside Mortgage Finance Publications, said the phenomenon could last a few years.

"It's going to drive a lot of people out of the marketplace for now," he said. "It's not going to be forever, but the market is in such turmoil now that it's very hard for anyone that's not a large bank to operate."

Another viewpoint
Some mortgage brokers see an overreaction.

"There's all this hype out there, and people are panicking unnecessarily," said Tom Wilson, a broker and president of Optima Mortgage Corp. of Houston. "You can still get into a house for 500 bucks or less or with no money down."

Consumers can get 100 percent financing with no down payment on so-called "agency loans" — those less than $417,000, he said.

Home buyers also can get the 100 percent financing, Wilson said, if they have a credit score of at least 620, can document their income and conform to programs such as Freddie Mac and Fannie Mae — government-sponsored agencies that buy loans in the secondary markets.

In a sort of guilt by association, jumbo loan interest rates are increasing, said Greg McBride, a senior financial analyst at bankrate.com. The rates are going up even though jumbo loans haven't had default or delinquency problems, he said.

"It smacks of an overreaction, and it's likely to be a cloud that blows over soon," McBride said. "For prime borrowers — the majority of borrowers — it's business as usual."

Unexpected development
It wasn't business as usual this week for New York-based American Home Mortgage Investment Corp., which filed for bankruptcy protection Monday and stopped funding loans — much to the surprise of Gwen Washington.

She had already been approved for a loan from the company and had moved into her new 2,000-square-foot home in Pearland when she got word that the company had decided to stop funding loans.

A representative with her builder told her it still owned the house because American Home Mortgage hadn't funded the loan despite closing.

"I said, 'You got to be kidding,' and I almost fainted," Washington, 55, said. "I said, 'I'm not moving.' "

She didn't have to.

The builder worked to get her into another loan with its lending arm and managed to keep her in the house. Washington said she has excellent credit and put $45,000 down.

Seeing it as adjustment
While some mortgage brokers are losing their jobs and homeowners are failing to repay loans, some view the tightening as a market correction.

"That's what we're seeing," said Olga Kucerak, president of the Texas Association of Mortgage Brokers. And she's tired of brokers getting all the blame.

"People think it's mortgage brokers, but really it's mortgage originators, and that includes banks."

Others said the correction could help consumers in the long run.

People with damaged credit will start to shift to government programs with more conservative guidelines, Bogany said.

"The consumer is going to win because now you're going to have to have some money saved and your credit is going to have to be halfway decent to get a home," Bogany said. "Then you won't have people who can't afford it getting loans."

source:chron.com