American Home Mortgage Declares Bankruptcy More To Follow
May 15th, 2008 written by Tilman Otto of "The McTigue Team"This week has been a very difficult one for the mortgage industry. This is a brief explanation about what is japanning the lending industry.
As many of you may be aware, Meridias Capital lost its credit line last week and has been left with the option to only broker loans. This morning American Home Mortgage, the 10th largest mortgage lender, closed its doors and has filed for bankruptcy laying 7,000 of their employess off and leaving them without a paycheck.
American Home Mortgage didn’t go out of business necessarily because they were doing something wrong. They just fell victim to our current market conditions, primarily in the secondary mortgage market. The secondary mortgage market supports a big part of the U.S. mortgage industry. The secondary mortgage market has basically come to halt in the past few days. After mortgage lenders offer loans they often package them for sale to institutional investors as mortgage-backed securities. If the loans conform to the standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, those organizations can buy them. If the loans don’t conform they are sold in the private secondary market to other investors such as hedge funds and insurers. The problem is that the secondary market has frozen up and volume of activity is down dramatically. It’s currently not possible to complete a securitization of so-called Alt-A mortgages. Alt-A mortgages are offered to more creditworthy borrowers than sub prime loans, but they often have adjustable rates and sometimes require little or no documentation of a home buyer’s income. Mortgage originators can hold on to the loans but that requires a lot of cash and the investment banks that provide these warehouse lines have been pulling back. This mortgage market disruption has caused some companies to make drastic changes. Some are abandoning the Alt-A market altogether. What this disruption will do, is cause companies to originate more loans that conform to Fannie Mae and Freddie Mac guidelines. For borrowers who can only qualify for an Alt-A mortgage it means they will have to pay much higher interest rates.
Some analysts call it the End Of The Credit Party and worry about more credit woes to come and effect the stock markets worldwide.
If you are currently shopping for a New Las Vegas Home or a Resale Home ensure that you consult a reputable lender. Your New Home Las Vegas Realtor will assist you in any way.
