Melting mortgage industry – American Home Mortgage shuts down…
As many of you have already hear, one of the well established “Alt-A” lenders in the U.S. 
recently announced that they are shutting their doors.
Wow! This market is getting weirder and weirder every second! It’ll be interesting to see what the heck the mortgage and real estate markets will look like in 12 months time.
Back on track…
American Home Mortgage announced that they are shutting their doors after 20 years in the business. They say the closure is as a result of their business “no longer being viable”.
The head of the company wrote in an internal memo as detailed by the Housing Panic blog,
“It is with great sadness I announce today that American Home Mortgage has been forced to close. Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable,” Strauss wrote.
Who would have thought that this would reach far past the sub-prime and into the Alt-A?
Right on the American Home Mortgage website they have a blurb that says:
“American Home Mortgage is no longer taking mortgage loan applications.”
Must be a real reality check for all of the mortgage brokers out there who now see that they have to work a bit harder for their money.
As you know, I exited the lending industry last year just before the major chaos began to take place. Did I get out because I saw this coming?? Nope… just hated the industry and the entire lending business. Just not for me. But, boy am I glad I got out when I did.
Now, what’s next? Are there more lenders on the downhill slope getting ready to fall off the edge?
Well, below is an email from a rather conservative wholesale lender that I worked with often. I worked with them because they did things right. They didn’t catch the mortgage fever and stuck to their underwriting guidelines, which were more strict than 9 out of 10 lenders out there. Heres the message they sent to all of their mortgage brokers:
“I wanted to send out a brief explanation of what is happening with pricing and loan programs the past week or so. Daily you are seeing lenders raise pricing, cancel programs, or just get out of product lines all together. And you think “What the heck?”.
Due to the subprime woes, that have stretched into the Alt-A world, and is now stretching into the Jumbo and possibly conforming world, the secondary markets where loans are sold are basically in a mess. Fannie and Freddie are fine but they don’t stretch into the Jumbo and Alt-A worlds. When lenders big or small go out to Wall Street to sell loans these days there are simply no buyers. All of the entities (foreign governments, pension funds, etc.) that normally buy the securities created by these loans are currently putting their money elsewhere until they can determine what is going to happen with the U.S. housing market. With delinquencies rising along with foreclosures at a record pace, even on loans with good credit scores, no one is willing to invest money in these types of securities. So that means companies must hold the loans or simply not make them until liquidity (i.e. “buyers”) return to the market. And that could be weeks or months or who knows?
What this means to you and your customers is that products and pricing may change daily. A program that is here today may not be here tomorrow. Or the pricing could go through the roof overnight or even during the day. Alt-A is changing or tightening on a daily basis hoping it can be made attractive enough to securities buyers. Next “could” be the agency SISA and Stated Income products; we could see lower LTVs, higher score requirements or the programs going away all together.
So, here is some advice from a guy who has been doing this for 29 years and hasn’t seen this particular market scenario EVER before:
1. If you see a program you like, upload it and lock it. Don’t play the market because it may not be there tomorrow. You could have an approved loan but if the program goes away in a day that approval won’t mean a thing. But we always honor our locks.
2. If you have a Jumbo loan with us and the pricing has gone sideways, call the lock desk and see if they can do better. We have other sources that may get you a better price during these turbulent times but the players change almost daily so putting out the best price on the rate sheet is hit and miss right now.
3. Explain to your customers what’s going on when you take the application so they won’t be totally surprised if you call them the next day and say that program is no longer available. All of the news websites have articles you can share with your customers if you’d like.
We will all get through this and eventually things will calm down. But I expect them to get worse before they get better when it comes to Jumbo, Alt-A, Subprime and 2nds.
Take care and be vigilant!”
Pretty sobering huh?
As a borrower, if you don’t have a 720+ credit score and 10-20% to put down… getting the loan you want might not be as easy as you think. So, while this may be shaping up to be a “buyers market” according to some realtor… the buyer simply won’t be there in the masses that were there in 2005 when mortgages were as easy to get as buying a gallon of milk.
For us investors, this means that we need to look to alternative sources for financing. If you are a serious investor, you have already built up a list of private money lenders that will help you stay strong through this messy market. If you don’t have a list of private lenders… you better build one or your business just might disappear.
Anyhow, I don’t think this is the end of the real estate weirdness and there is likely many more never before seen evens in the works.
Time will only tell… but this is still a great time to invest and a great time to sell on alternate financing.
I’m not bummed by the market… just cleans out the mortgage brokers, realtors, and investors who shouldn’t be in the market in the first place. In another 5 years or so, we’ll see another rash of crazy loans and “green” investors out to make a quick buck on the next market boom.
Until then, hold tight and go back to the basics.
Hey, my name is Trevor and I'm the founder of The REI Brain and a real estate investor since the age of 21. Right now, my focus in real estate investing is multi-family income properties and I have plans on moving more into the commercial real estate investment world in 2008 and beyond. 
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