If you have not seen it yet, there's a web site that tracks how many mortgage lenders have gone belly-up. Born out of the current economic climate—loose lending standards having once fueled the housing boom by making homes and home loans more readily available and now causing a credit crunch across more than just housing's economic spectrum, The Mortgage Lender Implode-O-Meter (http://ml-implode.com/) is a product of its time.
As of Sept. 13, it had charted 155 companies that since late 2006 have stopped making loans, filed for bankruptcy, or simply closed their doors due to the weight of the subprime mortgage industry bust. New Century Financial Corp., which made news when it stopped offering loans in March, is merely No. 36 on an ever-expanding list.
To some observers, the disappearance of some of these lenders and the products they pitched is welcome.
“These are subprime lending specialists?” Asks NAHB chief economist, David Seiders. “So what? We know the market is gone. It shouldn't have been there. Good riddance.”
Though divisions of such stalwart lenders as Ameriquest Mortgage Co., Wachovia Corp., and Wells Fargo & Co., are closing up shop, few banks or major financial institutions have gone or are likely to actually go out of business, says Christian Weller, senior fellow for the Center for American Progress. But at least one major lender, American Home Mortgage, did close its doors for good.
Consolidation in the banking industry has left banks with plenty of financial reserves, unlikely to get crushed by the credit crunch, Weller says. Still, banks will feel some impact, he adds.
“This is not the 1990s, where you see thousands of little banks failing. The banks are well capitalized; there's lots of money there,” Weller says. “While it probably won't bring down banks, and it won't bring down a large chunk of the financial sector, it certainly will take a big bite out of profits. That's where the rubber hits the road.”
As profits erode and lenders see more foreclosures as well as less demand from investors to buy mortgages, expect them to be wary of making mortgage loans, Weller says.
“Overall, lenders will pull back from mortgages as a product,” he says. “You will see continued tightening. That poses a problem for residential mortgages in terms of people buying a home, but it also means it will be harder for unincorporated businesses to get financing.”
And home builders are seeing their ability to borrow from banks shrinking, says Seiders. While large builders can generate cash internally or by going directly to the credit markets, smaller builders typically borrow from banks.
“We have been picking up some signals, while not dramatic, that some of the builders aren't getting as much credit as they'd like in terms of volume and the cost of it,” Seiders says.
Weller says he'd love to be a fly on the wall when a small home builder goes to a bank seeking a loan to fund new construction.
“If I were a loan officer, I'd be very, very concerned about this,” Weller says. “You're going to apply different rules. You're a small business and you're in an industry that's having trouble right now, so you're going to have a hard time convincing somebody [to give you a loan].”
SOURCE: THE MORTGAGE LENDER IMPLODE-O-METER, COMPANY PRESS RELEASES, AND PREVIOUSLY PUBLISHED REPORTS