It is being reported that American Home Mortgage will cease business today and is declaring bankruptcy. In the very near future Accredited Home Lenders will also probably file. Both cite recent losses and their inventories of less than high quality mortgages as the reasons for their failures.
Even mortgage giant Countrywide Financial (my mortgage is with them) says it is taking unprecedented losses this year.
It would appear the overabundance of subprime loans has come home to roost. Not a surprise to me. I saw many lenders making loans that they had to have known the borrowers would have trouble repaying in the future. Some of my buyers were encouraged to use novel mortgage products and stretch their buying power to the limit. That is fine as long as they can repay the loans. But no-interest loans with negative amortization, high interest loans, ARMs that are now rising rapidly, etc. are playing havoc with consumers. Wages are not rising as fast as the monthly payments. Add to that the insurance premium increases that we are seeing here in Florida and you have a disaster waiting to happen.
However, even now I still see ads on TV for $200,000 loans with monthly payments of under $600! The fun never stops in Fantasy Land it would seem.
In the past several months 30 mortgage companies have gone out of business. Rumbles are that those are just the first snowflakes to hit the ground. Are we in for a blizzard down the road? It would not surprise me.
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida