Correspondent Loan Follow Up Part 3

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As some of you know my company is a mortgage bank, which means we lend money using a short-term warehouse line of credit and then sell the closed loan to the investor. There are a lot of benefits but there are also risks, such as when a lender won’t purchase your loan for compliance or other issues.

We have a loan that we weren’t able to sell because New Century, who was scheduled to buy it, closed its lending doors the day before our loan was supposed to be purchased. At the same time many investors were tightening the guidelines so they were no longer able to buy it either. We had to sell the loan on the ’scratch and dent’ market at a discount of 87 cents on the dollar. This results in a net loss to the company of about $55,000. A big loss.

Now the scratch and dent company is telling us that the appraisal, which New Century signed off on, has been cut, because property values are declining in the area. They now want to buy it at 77 cents on the dollar, which now represents a 99,000 dollar loss. Almost double the already big loss. If we have to sell it at $100,000 loss it is going to severely damage our company.

Fortunately we have other options and we’re in the process of exercising them now. It’s amazing to me that so many small mortgage banks like ourselves will end up footing a good portion of New Century’s bill, while some Wall Street bank makes a fortune by buying their assets for pennies on the dollar.

[end rant]