Atlanta Mortgage Lender Left No Room For Error
If.
In examining last week’s demise of HomeBanc Mortgage — the latest casualty in the problem-plagued industry — its fortunes seemed to rest on a series of “ifs.”
The company would have remained golden if:
- U.S. mortgage rates had remained at record and near-record lows.
- Loan origination volume had stayed robust and customers had continued applying either to buy homes or apply for a mortgage refinance.
- Wholesale lenders, eager to make money on a red-hot real estate market, had kept delivering cash to mortgage originators.
- Investors or other secondary market players had continued to buy the pools of mortgages that HomeBanc and others like it were selling.
- The Florida housing market, which accounted for about 50 percent of HomeBanc’s business, hadn’t collapsed.
- Investors had given it enough time to right itself.
With little wiggle room, the slightest hiccup meant disaster. Unfortunately for the Georgia mortgage lender, everything hiccupped.
The Atlanta-based firm filed for Chapter 11 bankruptcy protection Thursday, three days after announcing it had run out of money to fund new mortgage applications.
The parent company, which listed assets of $5.1 billion and debts of $4.9 billion, said it was selling the operations and related assets of the mortgage unit to Countrywide Mortgage.
It isn’t accepting mortgage loan applications and has exited the business because it no longer has access to credit to fund those loans.
What happened to HomeBanc Mortgage — once the envy of many in the industry — illustrates the problems dogging the home loan business.
It underscores the problem anytime a company depends on factors — some beyond its control, such as Federal Reserve interest rate increases — always being in its favor.
HomeBanc says the concerns about borrowers’ ability to repay, particularly subprime mortgage borrowers, hurt the industry.
Though HomeBanc did little subprime lending — less than 1 percent of the roughly $5 billion in loans it made last year were in that segment — nervous lenders that HomeBanc relied on to fund loans started retrenching.
Wall Street investors who purchased pools of loans through the mortgage-backed securities also retreated.
“The majority of the events were not in HomeBanc’s control,” said Carol Knies, the company’s vice president of investor relations.
“The mortgage meltdown, the continued negative news about the industry, the growing inventory of homes for sale — all of those things have built up. Other mortgage companies that were not able to remain functional just compounded the fear.”
If time had been on the Atlanta mortgage company’s side, some of the moves it had been making, such as paring staff and expanding into other Southeast markets to lessen its dependency on Florida and Georgia, might have allowed it to survive.
“I think they probably could have gotten that right,” said Derek T. Watkins, president of the company and also Atlanta chapter president of the Mortgage Bankers Association of Georgia.
But nervous Wall Street firms put on the brakes.
With their refusals to provide capital to fund new loans or buy pools of loans because of rising fears about mortgagees’ ability to repay, HomeBanc and other companies — including American Home Mortgage Investment Corp., New Century Financial Corp. and SouthStar Funding LLC — collapsed.
“When the warehouse mortgage lender pulls out from you, you don’t have a way to fund home mortgage loans,” Watkins said. “And when you don’t have money to fund loans, you’re basically out of business.”
Follow the link to continue reading the Atlanta Journal-Constitution’s examination of the demise of Homebanc mortgage …