The Housing Bubble

The Sacramento Bee reports from California. “A meltdown in the subprime mortgage lending market might mean trouble for a Sacramento-area market many believe is slowly coming out of its housing slump. Last year an estimated 27 percent of area buyers took out subprime loans. Now, many here and across the country are having trouble making payments, threatening the companies that issued the loans.”

“Currently, there are 11,400 existing homes and condos for sale in El Dorado, Placer, Sacramento and Yolo counties.”

“Nationally, mortgage officials expect the number of subprime loans in 2007 to fall 30 percent from last year. Locally, that might mean thousands fewer loans.”

“‘That takes a whole group of purchases and stops the food chain,’ said John Fabish, president of the Sacramento chapter of the California Association of Mortgage Brokers. Fabish said removing ‘that whole tier of no-equity folks, pretty much all first-time homebuyers, from the buying pool’ can easily start a negative domino effect.”

“‘Business will slow way down. Move-ups will slow way down. If nobody’s there to buy your house, there’s two transactions that don’t happen,’ he said.”

The Santa Cruz Sentinel. “As of March 6 this year, trustee deeds, which transfer ownership of property in default, total 105 for Santa Cruz, Monterey and San Benito counties, an exponential increase from this time last year, when nine such deeds were recorded.”

“Notices of default and properties in foreclosure have doubled in the three counties overall, with rates in Santa Cruz lower than in Monterey.”

“Peter Ogilvie, president-elect of the California Association of Mortgage Brokers sees a need for changes in mortgage industry practices in light of the increase in defaults and foreclosures.”

The Daily News. “Foreclosure activity soared an annual 145.3 percent across California during last year’s fourth quarter to its highest level since 1998, (Dataquick) said.”

“During the last three months of 2006, the DataQuick report showed that 7,445 property owners in Los Angeles County received foreclosure notices, up an annual 113.9 percent. The peak was 21,444 notices in the first quarter of 1996.”

“About 2.03 percent of subprime mortgages in California entered foreclosure, which is more than the 1.83 percent of loans that were already in foreclosure during the third quarter.”

The North County Times. “Stung by bad loans, a worsening credit crunch and a dramatic plunge in its stock price, Accredited Home Lenders announced Tuesday it was considering putting itself up for sale. ‘It’s clear the industrywide issues are really hurting everybody,’ said Bud Leedom, a San Diego-based stock analyst. ‘When one domino falls, it pushes over the domino it’s touching.’”

“The damage is likely to spread beyond the subprime sector to the real estate market as a whole, said analysts such as San Diego-based Rich Toscano and economist Christopher Thornberg. These analysts, who have long warned of a housing ‘bubble,’ say that a stream of must-sell homes re-entering the market will depress home prices by increasing supply.”

“San Diego County, one of the most expensive real estate markets in the country, is especially vulnerable, Toscano and Thornberg said. The price of real estate roughly doubled in the county between 2000 and 2005.”

“The number of foreclosures in San Diego County has nearly tripled from 4,541 in 2005 to 13,249 in 2006, according to RealtyTrac. To put it another way, 1 out of every 229 houses in San Diego County went through foreclosure in 2005. In 2006, 1 out of every 79 homes in San Diego County went through foreclosure.”

The Orange County Register. “New Century Financial of Irvine, once the nation’s second-largest subprime lender, disclosed Tuesday it’s under investigation by the Securities and Exchange Commission and that it has been subpoenaed in a federal criminal probe.”

“New Century offered no update on its efforts to salvage the business, which has nearly 7,000 employees, including 1,800 in Orange County.”

“As the problems mount, concerns are spreading to other local companies. New Century’s landlord, Maguire Properties of Los Angeles, said Tuesday it could lose $6.5 million if New Century stops paying rent for its Irvine offices, assuming it takes up to a year to find a new tenant for the 267,000 square feet of office space.”

“Maguire also was counting on New Century to occupy the top four floors of a 20-story tower under construction in Irvine.”

The LA Times. “Economists have been arguing for weeks about the crisis in mortgage lending to risky borrowers and whether it could turn the entire economy sour. Wall Street cast its vote Tuesday: It looks like trouble.”

“‘People have been using their homes as their banks,’ said retail industry analyst Adrienne Tennant. ‘When you figure you can’t refinance for the third time, you start wondering, ‘Oh, how am I going to pay for all this?’”

“Of the state’s 5.6 million mortgages, 3.25% were delinquent, or had payments past due, and 0.15% entered foreclosure during the period. Among the state’s 806,022 sub-prime home loans, nearly 11% were delinquent.”

“So far, the housing market in California has fared better than those in many other parts of the country. But the crisis in the sub-prime lending industry threatens to change that, economist Patrick McPherron said.”

“‘All it could take is a few more precipitous falls,’ he said, ‘and the bottom could fall out.’”

The Press Enterprise. “California is among the states hit hardest by late payments on subprime home loans made to borrowers with blemished credit histories, according to new figures released Tuesday. California by far had the most subprime loans being serviced of any state, with more than 806,000.”

“An economist for the mortgage banking group said California, on a year-over-year basis, has been hit harder than many states when it comes to rising delinquencies in the category of subprime home mortgage loans.”

“‘It’s a lot of people with weaker credit who put down smaller down payments on their mortgages,’ said Mike Fratantoni, senior economist for the state mortgage bankers group.”

The Daily Press. “The volume of February home sales swooned in the Victor Valley, falling 36 percent compared to the same period a year ago. Residential sale prices also declined slightly last month, falling 5.5 percent lower than February 2006, according to the Victor Valley MLS.”

“The price per square foot of a home in the High Desert jumped 27.9 percent in 2004, followed by a leap of 39.5 percent the following year before the market began to cool in the middle of 2006.”

“‘Declining affordability is driving down sales volume and home prices,’ said Janie Phillips, a broker in Apple Valley. ‘Prices have been accelerating too rapidly, and incomes have not been able to keep up, so a little price adjustment is a welcome development,’ she said.”

“Much more ominous than the decline in prices or sales volume is the dramatic rise in home foreclosures. ‘Since October, we have seen month-to-month increases in foreclosures of about 100 percent in the Victor Valley market,’ said broker Caroline McNamara.”

“‘Prior to that time, we saw little to no foreclosure activity for about two and a half years because the market was so solvent,’ said McNamara, who specializes in repossessions and foreclosures.”

“‘The drop in home values and the trend toward interest-only financing and other forms of creative lending is causing the rise in foreclosures,’ McNamara said. ‘We have been in a grossly over-inflated and over-built housing market, and we can expect to see a continuation in the correction of home prices.’”

A report from the Arizona Republic. “The number of Arizonans behind on their mortgages and in danger of losing their homes is at a two-year high and expected to keep climbing. Many homeowners staved off foreclosure a few years ago by refinancing to more risky adjustable-rate mortgages with lower monthly payments.”

“But now, those homeowners, and the many investors who used the same mortgages to buy multiple houses, are struggling to hold on as their payments begin to increase.”

“‘We’ve just started to see the head of the monster,’ said Margie O’Campo de Castillo of Arizona Dream Realty. ‘There were a lot of three-year, adjustable-rate mortgages done to buy Valley homes or refinance in 2004 and 2005. Payments on those loans are about to start rising. More foreclosures will follow.’”

“Statewide, 3.51 percent of homeowners are at least one month behind on their home-loan payments, according to the Mortgage Bankers Association’s quarterly snapshot of the housing market. The figures are for the last three months of 2006. In Arizona, about 9.2 percent of borrowers with subprime loans are behind on their mortgage payment.”

“‘There will be some pain,’ said Terry Turk, president of Mesa-based Sun American Mortgage. ‘A lot of people are shaking their heads at the subprime loans out there.’”

In Business Las Vegas from Nevada. “The Nevada Association of Realtors has predicted a ‘modest correction’ in the statewide housing market in 2007 by projecting home sales will decrease 12 to 18 percent and prices will fall 7 percent to 10 percent by early 2008. The reason: too much supply and not enough demand, the association said.”

“The report mentioned a high volume of speculative sales and current divestment of those assets in leading to instability. In Clark County, more than 55 percent of the 22,800 homes on the resale market in late 2006 were vacant or tenant-occupied.”

“New home sales in January were down 23 percent from December and 26 percent from January 2006. ‘We have anticipated drops in prices for some time because product is not moving,’ said Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association. ‘This is Economics 101.’”

“The report cites analysts who said Las Vegas is 33 percent to 42 percent overvalued.”

The Las Vegas Business Press. “Southern Nevada saw just 1,407 homes sales in February, a 21.3 drop from the previous year, reports the Greater Las Vegas Association of Realtors. And while there were only 5,210 new listings in February, slightly less than 12 months ago, there were still 19,639 units available for sale or 11.1 percent more than in 2006.”

“Condo/townhomes saw similar results with only 277 sales in February, a 42.8 percent decrease from 2006. New listings swelled to 1,447 units, a 29.8 increase over 2006, while the number of available units ballooned to 5,524 or 34 percent more than 12 months ago.”

“Realtors are responsible for 95,670 direct and indirect jobs statewide. Real estate professionals and their employees additionally generate $138.3 million in yearly state revenues, including $50.4 million in retail-sale and use taxes, $83.4 million in property taxes and $4.5 million in gambling-percentage fees. Real property-transfer taxes add an additional $165 million to state coffers.”

“‘Growth in the number of realtors and real estate transactions has increased tremendously during the past three years,’ said Catherine Sutton Cloy, NVAR’s executive vice president. ‘Our clients and members expect that we keep them informed, separating hyperbole from reality.’”

The Review Journal. “Nearly $30 million in construction projects on the Strip will carry Las Vegas through the next couple years of slowed construction in the residential market, economic analyst John Restrepo said.”

“Las Vegas will probably experience a continuing decline in residential building permits, which dropped to 33,000 in 2006 from a peak of 40,000 in 2005, Restrepo said. The next two years will return to the 30,000 level of 2003, he said. Construction still accounts for 12 percent of total employment, about twice the national average, (he) noted.”

“Irene Porter, a member of the coalition and president of Southern Nevada Home Builders, said recent home builder layoffs reflect a slowdown in the housing sector as both builders and buyers are finding the present market ’somewhat daunting.’”

“Affordability and price stability are both industry concerns, she said.”

“Restrepo said another problem on the horizon is the personal savings rate that turned negative by 1.4 percent in December. Combine that with subprime lending practices, and Restrepo said he can see why Nevada foreclosures rose to 6,900 in the fourth quarter, up from 5,800 in the previous quarter and more than double the year-ago period.”

“(Nevada) State Budget Director Andrew Clinger said Tuesday that the state will have to scale back its spending because of less than expected revenue. The statement in a hearing last week that revenues will be $50 million less than expected is ‘probably a conservative estimate,’ Clinger said.”

The Nevada Appeal. “Lyon County may have to resort to layoffs to solve its budget problems, but Human Resources Director Steve Englert said that would be a worst-case scenario.”

“Englert said the county could save by laying off everyone in positions created in the last three years (except emergency); by laying off everyone in positions created in the last two years, with no exceptions; or by reducing requested overtime.”

“The county’s budget headache can be traced to the building slowdown, the tax cap and a 3 percent tax abatement mandated by the state, said Comptroller Josh Foli. He presented the commissioners with revenue projections and budget requests that leave the county with a $1.75 million shortfall at the end of the next fiscal year.”

“Foli said the building slowdown hurt because it cost the county millions in sales tax revenue. ‘The economy has slowed down in Nevada,’ he said. ‘It’s kind of a domino effect, so our sales taxes have decreased. The real property transfer taxes decreased 27 percent from last year to this year,’ he said.”

Some housing bubble news from Wall Street and Washington. “Stock markets around the world tumbled Wednesday as investors moved to reduce risk, spooked by the sharp sell-off on Wall Street amid mounting fears over rising mortgage defaults. ‘The rise in mortgage delinquencies in the U.S. has to be one of the most predictable events of the century so far, but has nevertheless provoked a further reaction in financial markets,’ said Paul Donovan, an economist at UBS.”

From Reuters. “H&R Block Inc. shares dropped on Wednesday after the nation’s largest tax preparer said it was boosting its third-quarter loss after cutting the value of a subprime mortgage subsidiary.”

“The nation’s largest tax preparer said a $29.2 million pretax cut in the carrying value of the mortgage business deepened its quarterly loss by $15.5 million to $60.3 million.”

“H&R Block said on Tuesday that it expects to delay filing its quarterly results with regulators after turmoil in the subprime mortgage market forced it to write down assets at its Option One Mortgage Corp. unit.”

From Bloomberg. “GMAC said yesterday that its home mortgage unit lost $651 million in the fourth quarter. ‘The residential mortgage market has been a tough area over the last three, four, six months for GMAC,’ CEO Rick Wagoner.”

“Subprime loan losses at the GMAC finance unit caused operating earnings to miss analysts’ estimates. ‘The falloff in GMAC combined with continued pressures in GM North America brought GM in well below consensus,’ Lehman Brothers analyst Brian Johnson wrote.”

“The perceived risk of owning GM’s bonds rose today, according to credit-default swap traders, as concerns about losses from the subprime mortgages pushed bond risk higher across the market.”

“Credit-default swaps based on $10 million of GM’s bonds jumped $40,000 to $455,000, according to London-based CMA Datavision. The contracts, used to speculate on the company’s ability to repay its debt, have risen more than $78,000 in the past two days, CMA prices show.”

From MarketWatch. “Losses on so-called Alt-A home loans are accelerating and could hit the value of lower-rated portions of some mortgage-backed securities, according to a study released on Tuesday.”

“These loans, known as Alt-A ARM IOs, have seen a four-fold increase delinquencies of at least 60 days, four times the level of similar loans originated in 2003 and 2004, according to the study by David Liu, head of mortgage credit research at UBS.”

“This ‘alarming’ deterioration could have dire consequences for some investors in the BBB- rated parts of mortgage-backed securities that contain these types of loans, but the market hasn’t priced these risks in yet, Liu warned.”

“Losses ‘could potentially wipe out most of the credit support on BBB- rated bonds backed by Alt-A hybrids,’ Liu wrote. ‘And yet we have not seen any spread movements that suggest investors are taking this into consideration.’”

“Liu’s study, which used LoanPerformance data from the end of January, is based on the housing market remaining relatively flat over the next few years. ‘If house prices fall over the next few years, everything in this scenario will be much worst,’ he said.”

“‘There is a 34% probability that the entire BBB- tranche might get wiped out,’ he wrote. ‘Similarly, there is a 17% probability that cumulative losses reach 300 basis points, which could make BBB bonds appear on the endangered species list.’”

“The percentage of mortgages that started the foreclosure process in the final quarter of last year rose to 0.54 percent, a record high. The previous high, 0.50 percent, occurred in the second quarter of 2002 as the economy was recovering from the blows of the 2001 recession.”

“Delinquency and foreclosure rates were considerably higher for higher-risk subprime borrowers, especially those with adjustable-rate mortgages. The late-payment rate for all subprime loans jumped to 13.33 percent in the fourth quarter, up from 12.56 percent in the prior period and the highest in four years. The delinquency rate for subprime borrowers with adjustable-rate mortgages was even higher; 14.44 percent, also the highest in four years.”

“‘Unfortunately, it appears delinquency rates will likely worsen before they improve,’ said Gina Martin, economist at Wachovia Corp. Economics Group.”

The Orange County Register. “Bill Spitalnick spent seven years reviewing appraisals for subprime loans, first at Ameriquest in Orange and then at Fremont Investment & Loan in Anaheim. Last year, he began to see more cases where the loans exceeded the home’s values.”

“‘The main problem was 100 percent financing and declining values,’ said Spitalnick of a situation that put the lender at great risk.”

“Subprime lending boomed by tapping into Wall Street’s mortgage securities market – now worth $6.5 trillion. This machine repackages loans into investor-friendly debts.”

“‘There was a global appetite for investing in subprime debt,’ said Stuart Gabriel, chair of the Lusk Center for Real Estate at USC. ‘New Century is an entity that couldn’t have survived – that can’t survive – without significant capital infusion from Wall Street.”

“This week, New Century said its financial partners were demanding it buy back up to $8.4 billion in loans, bringing the company to the verge of bankruptcy. Glenn Stearns, of Costa Mesa-based Stearns Lending, said as soon as one subprime lender’s financial backers pull out, others follow. ‘It’s just a house of cards,’ he said.”

“U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.”

“‘The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,’ Dodd told reporters.”

“Federal aid ‘would come at a cost,’ said Douglas Duncan, chief economist at the Mortgage Bankers Association. ‘It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?’”

The LA Times. “On Tuesday, the chairman of the Senate Banking Committee speculated that millions could lose their homes. It’s scary stuff. But not so scary that anyone needs to raise the possibility of a federal bailout. This means you, Sen. Christopher J. Dodd.”

“Standing up for homeowners doesn’t take much political courage. And mentioning the American dream makes a nice sound bite for a senator running a dark-horse campaign for president.”

“But providing forbearance is a job for lenders, not taxpayers. Lenders got very creative when they learned they could profit by unleashing a flood of easy credit. If they want to remain solvent and keep Wall Street happy, they’ll have to be equally creative when it comes to refinancing sub-prime mortgages.”

“The Federal Reserve and the Office of the Comptroller of the Currency took little action in public to police the $2.8 trillion boom in the U.S. mortgage market, whose bust now risks worsening the housing recession.”

“The Fed, which is responsible for the stability of the banking system, didn’t publicly rebuke any firm for failing to follow up warnings on home-lending practices between 2004 and 2006. The OCC, which supervises 1,793 national banks, took only three public mortgage-related consumer-protection enforcement actions over the same period.”

“‘There was tension between the responsibilities not to mess up some banks’ businesses and the responsibility to consumers,’ said Edward Gramlich, a Fed governor from 1997 to 2005. The result, he said, is that ‘we could have real carnage for low-income borrowers.’”

“Officials at the Fed and OCC say their examination process was rigorous and resulted in private enforcement and correction of abuses.”

“The agencies say they aren’t allowed to disclose how many non-public actions they took between 2004 and 2006 that were aimed at protecting consumers from home-loan abuses. Private enforcement action ‘contains confidential supervisory information,’ said Susan Stawick, a Fed spokeswoman in Washington. The OCC considers the information ‘proprietary and confidential,’ said Kevin Mukri, a spokesman in Washington.”

“‘Making sure people understand what they’re getting into is very important,’ Fed Chairman Ben S. Bernanke said in Stanford, California, on March 2. ‘We’ve issued several guidances. We hope that they’ll be helpful.’”

“Federally regulated banks and Wall Street firms are often the financiers standing behind state-regulated mortgage lenders. New Century Financial Corp., the nation’s second-biggest subprime lender, includes Morgan Stanley, Citigroup Inc., and Goldman Sachs Group Inc., all regulated by federal agencies, among its creditors.”

“‘There is no question that mortgage brokers are on the street committing systematic fraud on the American homeowner,’ said Irv Ackelsberg, a Philadelphia attorney who testified at a Fed hearing last year in the city. He said there is a ‘lack of will’ on the part of the Fed to use its power to stop abuses.”

“‘There is going to be a fraction of people that get the wrong product and that is regrettable,’ Richmond Fed President Jeffrey Lacker said in an interview. ‘Should we do something to limit that probability? Well, we could, but it would also limit credit to people for whom that is the right product.’”

“Critics say the regulators’ private responses harm consumers by depriving them of information they might need to take action on their own behalf. ‘Borrowers hurt by an abusive practice have the right to a remedy,’ said Alys Cohen, a staff attorney at the National Consumer Law Center in Washington.”

“Ackelsberg told former Fed Governor Mark Olson and Consumer Affairs Director Sandra Braunstein that the subprime market was ‘fundamentally broken,’ and presented an example of a loan that left a Social Security recipient with about $10 a day to live on after she paid her mortgage.”

“He and other critics say the lack of public action is symptomatic of a too-cozy relationship between the overseers and the overseen, with consumers and the U.S. economy paying the price. ‘We have regulators almost competing with one another to be clients of the industry,’ said David Berenbaum, executive vice president for the National Community Reinvestment Coalition in Washington.”

The Boston Globe reports from Massachusetts. “Massachusetts Secretary of State William F. Galvin said yesterday his staff has demanded documents from two Wall Street firms over their recommendations on subprime lenders such as New Century Financial Corp. of California, questioning whether analysts remained too positive on the faltering companies to prop up other financial relationships.”

“Yesterday, Galvin said he has also subpoenaed documents from UBS Securities LLC and Bear Stearns & Co. concerning their research on New Century and other firms. In an interview, Galvin noted analysts for both Wall Street firms had upgraded their recommendations on New Century at key points since February even as the California lender’s woes piled up and it said it would restate earnings.”

“One goal of the probe, he said, is to see whether other factors could have influenced the analysts’ actions, such as investment banking relationships or the dealings of certain hedge funds with the companies. Both UBS and Bear Stearns were part of a 2003 settlement with Galvin and other regulators in which 10 firms promised to avoid future conflicts.”

“But the case of New Century and others now suggests the terms of that deal haven’t been met, he said. ‘Our instincts were right in the past. We’ll see if they’re right this time,’ he said.”

From Reuters. “‘We want to know if there were any conflicts. Were there relationships, investment banking relationships? Did the brokerage company have a financial position in the company? Were there hedge fund clients that might have had those,’ Galvin said.”

“He said Massachusetts had been hurt by foreclosures on subprime lender mortgages and that the investigation had some urgency to it. ‘This is having an effect on the marketplace right now, so we want to make sure that we move on as rapidly as possible,’ he said.”

“In Massachusetts, where housing prices notched double-digit growth between 1995 and 2004 in a red-hot market, foreclosure filings surged 70 percent to 19,487 homeowners last year, as single-family home prices fell for the first time since 1993.”

“The Federal Reserve Bank of Boston blames subprime loans, saying they accounted for more than two-thirds of the state’s foreclosure filings in the third quarter of 2006, even though they made up just 12 percent of all mortgages.”

The Boston Herald. “The subprime-mortgage market teetered on the brink of collapse yesterday, threatening everyone from Wall Street investors to Massachusetts home buyers who have bad credit.”

“The state Division of Banks banned subprime giant New Century Financial Corp. from writing new mortgages in Massachusetts after the firm disclosed problems meeting financial obligations. Officials also ordered New Century to have other lenders take over any Bay State mortgages the firm was already working on.”

“‘We are forbidding them from taking any new loan applications and ordering them to place (all incomplete mortgages) with other lenders,’ Banking Commissioner Steven Antonakes said.”

“A source familiar with the situation said yesterday’s order affects 450 to 600 Bay State loans already in the pipeline. The person, who spoke on condition of anonymity, said bankers worked over the weekend to find new lenders for these loans. But the source said about 100 of the riskiest mortgages might not find takers, leaving some home buyers without financing.”

“Somerville real estate broker Stephen Bremis said that, in the past two weeks, lenders have stopped approving no-money-down loans for people with weak credit. He said banks are also requiring private mortgage insurance on many subprime loans.”

“But Bremis actually endorses such moves. He said giving no-money-down mortgages to people with bad credit ‘was an accident waiting to happen.’”

“Massachusetts said it was coordinating its ‘cease and desist’ order with several other states, including New York, New Jersey and New Hampshire. ‘There probably will be others either today or tomorrow,’ Massachusetts Banking Commissioner Steven Antonakes told Reuters.”

“The order applies to three New Century subsidiaries — New Century Mortgage Corporation, Home 123 Corporation and New Century Credit Corporation.”

“Antonakes said in a statement the action was prompted by serious concerns about New Century’s finances after the firm on Monday said that all its lenders had canceled their lines of credit and it does not have enough cash to repay its own creditors.”

“The banking commission also issued a cease and desist order against Brandon, Florida-based Apex Financial Group Inc. after it failed to disclose three enforcement actions by other states.”

“It issued the same order against Garden City, New York-based Old Commonwealth Mortgage LLC after its owner pled guilty to a felony charge.”

The Record from New Jersey. “Bergen County mortgage banker David Sadek was riding high a year and a half ago, serving sushi and shish kebab to investment-banking clients aboard his yacht A Loan at Sea.”

“It was ‘a good time to be in the mortgage business,’ he told The Record in an interview. But in the second half of 2006, the business went quickly downhill.”

“Amid rising defaults by borrowers, wholesale lenders cut off Sadek’s funding last fall. Sadek quietly closed 18 lending offices in New York, New Jersey, Florida, Pennsylvania, California and Washington, firing all but about a dozen of the company’s 110 employees, said William Dimin, an Englewood attorney. Dimin is representing the company in civil suits to recover bad debt.”

“‘Overexpansion in a very bad market,’ Dimin said last week. ‘That’s what caused the downfall of the company.’”

“‘It’s a big shakeout,” said David Akre, co-chief executive officer of a New York City-based real estate investment trust. ‘For the most part, it’s loose underwriting standards,’ Akre said of the subprime lenders that have closed down. ‘Under competitive pressure, underwriting took a back seat to common sense. They didn’t want their volume to drop off.’”

“Meanwhile, loan brokers throughout New Jersey are reporting that their funding sources have tightened credit in recent months in response to rising defaults. ‘Our lenders are giving us much more stricter guidelines,’ said Michael Laheny, a broker in Paramus.”

“The banking industry is trying to fend off increased regulation of mortgage lenders being called for by lawmakers and consumer groups concerned about people losing their homes. ‘Market discipline in this industry is swift, can be severe, and is more effective at changing lending practices than any potential changes in regulation,’ said Doug Duncan, the Mortgage Bankers Association’s chief economist.”

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