Approved Home Loans No Longer Done Deals

By Dina ElBoghdady
Washington Post Staff Writer
Thursday, August 16, 2007

Joy Siegel, a Bethesda lawyer who handles home-sale closings, uses a spreadsheet to track which mortgage lenders are filing for bankruptcy protection these days.

"It's getting incredibly nerve-wracking for us," said Siegel, president of Settlement Pros. "There are banks I haven't even heard of, pages and pages of them, who have stopped making loans."

Investors were rattled yesterday after a stock analyst predicted that the nation's largest mortgage lender might soon do the same. Shares in Countrywide Financial fell 13 percent after a Merrill Lynch report raised the possibility that the lender could be approaching bankruptcy. The stocks of other financial firms with investments in mortgages, including KKR Financial Holdings and Scottish Re Group, were also battered because of fears that the mortgage problem is metastasizing.

These problems are unfolding in an extremely fragmented industry, which is why it has become difficult for people who are buying or selling homes, and the professionals working with them, to figure out which lenders they can depend on to close a deal.

More than 8,000 lenders operate in this country, according to federal data. Dozens of them have shut down in recent months without warning consumers. Two of the larger ones, American Home Mortgage Investment and Aegis Mortgage, filed for Chapter 11 bankruptcy court protection this month.

For buyers, sellers, real estate agents, settlement lawyers and mortgage brokers, there is no longer reason to believe a deal is done until money changes hands.

Letters from lenders approving loans "used to be a reason to exhale, a reason to believe that a deal is done," said Leisa Hart, an agent with Long & Foster Real Estate. "We no longer have reason to exhale until we've gotten to the settlement table and until that loan has been fully funded."

Eric Iversen learned that the hard way. Half an hour before he and his wife, Catherine, were scheduled to settle on a house in Bethesda, their loan officer at American Home Mortgage informed them that the company would no longer fund any loans, including theirs. The Iversens were among 175 Maryland borrowers who found themselves scrambling for a new loan because of that lender's decision, state regulators said.

"I was driving, talking on the phone on the Beltway, trying to keep the car going in one direction," Iversen said. "My wife was next to me with this stricken look on her face, especially when she heard me say: 'Should we turn around and go home?' "

The consequences went beyond the Iversens. The sellers were relying on that money to close on a house that day. That kind of domino effect can further weigh down an already ailing housing market, experts said.

Fortunately for all involved, the loan officer at American Home Mortgage, Jim Feely, managed to transfer the loan to First Savings Mortgage about 36 hours later. The Iversens and the sellers got the homes they wanted.

But many consumers can expect a less happy ending, said Guy Cecala, publisher of Inside Mortgage Finance Publications.

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