A major mortgage lender filed for bankruptcy-law protection yesterday and other financial companies curtailed lending or laid off employees as the end to easy credit on Wall Street continues to trickle down, leaving consumers with fewer choices for home loans.
American Home Mortgage Investment Corp. filed for bankruptcy-law protection after laying off several hundred employees in Maryland and thousands across the country in recent days. Also, First NLC Financial Services closed an office in Greenbelt and subprime lender Fieldstone Investment Corp. of Columbia stopped accepting new loan applications last week.
Cleveland-based National City Corp.'s home equity unit suspended additional loans or lines of credit yesterday, and Houston-based subprime lender Aegis Mortgage Corp. said it would not accept any more applications.
Mortgage brokers who remain in business say they are no longer able to offer many of the loans that became the rage during the housing-market boom but led to a spike in defaults and foreclosures. Many of those loans require little or no money down, or little documentation of income or assets. Now homebuyers with the worst credit histories or lowest incomes - those who were likely to get a subprime loan - might not qualify for any loan.
"As the mortgage market shrinks because investors are drying up, you're going to see more of this," said Joseph E. Rooney, deputy commissioner of Maryland Office of Financial Regulation. "It's a huge problem from Wall Street to Main Street."
Mortgage-industry workers and consumers looking for loans are the latest casualties of the subprime market implosion that began earlier this year and has spread like a contagion. About 110 lenders have stopped funding new loans, closed offices or gone bankrupt since the beginning of the year. Half of those lenders have operations in Maryland, according to Rooney's office.
Nationally, about one-seventh of subprime borrowers were more than two months late on payments in May, almost twice the rate from a year before, data from First American LoanPerformance show. Foreclosure rates for subprime borrowers also doubled to nearly 5 percent. In Maryland, one in 10 borrowers were delinquent and 2 percent of subprime loans went into foreclosure.
The distress in the mortgage industry has worsened as investor demand for bundled loans has dried up and as Wall Street firms have pulled credit lines to home lenders. That has crimped operations at subprime lenders and at companies that extend so-called Alt-A loans, which are made to borrowers with better credit.
In response to the growing problem, mortgage giant Fannie Mae wants federal regulators to raise the limit on the amount of mortgage securities it is allowed to hold as investments, the Wall Street Journal reported online last night. That move could boost demand for mortgages.
American Home Mortgage, the nation's 10th-biggest home lender, fell into bankruptcy after a stunning turn of events. The Melville, N.Y.-based company laid off more than 6,000 people nationwide on Friday, including several hundred people at dozens of offices in Maryland, according to state regulators. The cutbacks had been announced one day earlier.
"It is unfortunate that American Home Mortgage, a company which we built into a highly successful business, experienced this sudden reversal of its fortunes due to the unanticipated and rather sudden deterioration in the secondary and national real estate markets," the company's chief executive, Michael Strauss, said in a statement yesterday.
Columbia-based Fieldstone stopped accepting new loan applications last week. Several Fieldstone employees, who did not want to comment publicly because of corporate policy, said yesterday that the company laid off some headquarters staff Friday.
Fieldstone was acquired in mid-July by Credit-Based Asset Servicing and Securitization LLC, a New York firm that last week revealed it was facing a cash crunch amid margin calls from lenders. Officials with both companies either declined to comment on layoffs or could not be reached yesterday.
First NLC Financial Services, based in Boca Raton, Fla., shuttered offices last week, including its Greenbelt branch, where it laid off about a dozen workers. About 645 were laid off nationwide. The company, which specializes in subprime mortgages, had been owned by Friedman Billings Ramsey Group, which sold a majority interest last month to Sun Capital Partners Inc., a private investment firm.
"Unfortunately, we had to let some people go in order to compete in the marketplace as it is today," said Andrew Henschel, a vice president of corporate governance. "It's a very, very difficult time."
He noted that the company retained more than 700 employees and kept offices in Gaithersburg and Annapolis open.
Industrywide, people working in mortgage-related jobs fell to 458,800 in June, down from a peak of 507,000 in October, according to MortgageDaily.com. Layoffs at Washington Mutual Inc., BNC Mortgage LLC and GreenPoint Mortgage were reflected in the latest statistics.
A string of companies also have curtailed lending for products such as no-documentation loans, which are often used by self-employed borrowers, and jumbo loans, which offer amounts over a certain limit.
Lenders are also less likely to write risky second loans so that borrowers can avoid paying mortgage insurance, which is required when they can't afford the standard 20 percent down payment. Those loans became especially popular as home prices rose.
Christopher Ortiz of Neighborhood Housing Services of Baltimore Inc. said that problems arose with subprime loans because unscrupulous brokers and lenders extended loans that many buyers couldn't afford over the long term. Now, with many loan products no longer available, he said those borrowers will be hit hardest in Maryland, where housing prices remain high.
"Housing prices haven't sunk significantly, and credit standards have tightened," Ortiz said. "How much money can you put down if you are low-income? Chances are you can't save that much even though you have the dream of home ownership."
Charles DiPino, president of the Maryland Association of Mortgage Brokers, said that borrowers are going to see more traditional loan offerings such as fixed-rate mortgages sold by lenders since those products don't carry as much risk. But DiPino said consumers still have a wide range of options.
He called the mortgage industry shakeout the "natural progression" of a cycle in which the housing boom and credit expansion inflated the ranks of those in the business.
"If your home purchase was closing tomorrow and your lender is going out of business, you're going to have to start all over, and that's a scary situation. That's where people are scrambling." said DiPino, who owns Universal Trust Mortgage Corp. in Columbia. "But there are still plenty of options out there."
Staff reporter Stephanie Newton contributed to this article.