The mortgage industry has been seeking to extricate itself from the quicksand it has been mired in since last year. However, it is in this year and in recent weeks that the mortgage industry, including mortgage lenders and mortgage brokers has been hardest hit. Huge companies like American Home Mortgage, Ameriquest Mortgages, and Countrywide Home Loans have faced the brunt; the first two have gone bankrupt. Thousands of mortgage lenders and mortgage brokers are out of a job.
As the anxious housing market looks for a safety net, so does the mortgage home loan market. The subprime mortgage crises have led to disastrous consequences for Wall Street as well. Recently, two Bear Stearns funds worth over a billion dollars, invested heavily in risky mortgages lost over 90% of their value. The home loan crisis has even affected the stock markets overseas.
There is complete agreement amongst various experts that something dreadful has happened in the mortgage arena, but they disagree to the extent the mortgage crisis will last. Major brokers and mortgage lenders are already in ‘crisis mode.’
The crisis is only deepening day by day as mortgage lending standards have become stricter, oversupply of homes, lessening interest in home buying, rising foreclosures, increasing defaults on mortgages, and Wall Street investors fleeing mortgage-backed securities. Due to higher interest rates, a homeowner is not even performing a mortgage refinance.
The most troubling sign in the marketplace is that investors are not purchasing certain mortgage backed securities, especially risky mortgages such as adjustable rate mortgages, interest only mortgages, and subprime mortgages. This is one of the reasons mortgage lenders like American Home Mortgage went belly up because these lenders raise capital for new home loans by re-selling their mortgages on the secondary market. Herein, if investors are not willing to buy these re-packaged home loans, mortgage lenders cannot raise the cash needed to stay afloat; it is a slow death likened to rotting on the vine.
Certain Real Estate Investment Trust (REITs) companies who hold quality mortgage loans have had trouble on the capital front as well. Recently, Thornburg Mortgage, a REIT who purchases mortgage home loans delayed its dividend payment by a month and its shares fell almost by a half.
Given the precarious position of many mortgage lenders, who are still in existence; the uncertainty of the mortgage market in the next few months will be a severe test of their abilities to stay afloat. However, this test will be even more difficult if the current state of the national economy spirals downward. Already, many mortgage lenders and mortgage brokers have been forced out of the industry; those who remain will find it an uphill struggle on a daily basis.