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Thursday, May 04, 2006

Merit-less Mortgage Operations

Props to S Crow for pointing out the demise of yet another local mortgage company: Merit.

Kirkland-based mortgage company Merit Financial will meet with its 300 employees this morning to let most of them go as executives decide whether to file for bankruptcy, according to two people familiar with the company's plans.

Merit Financial will keep a skeleton staff to process loans in progress, but otherwise will be working to liquidate the company, said the sources.

Merit was founded in 2001, making residential loans during a hot real-estate market. It grew quickly from a company with 12 employees and $50 million in loan volume its first year to passing the $2 billion mark in cumulative loans last May, after just four years in business, according to the company's Web site. At that time, it had 430 employees and planned to hire more.

Like others in the mortgage business, Merit fell on hard times as the refinancing market dried up. Six months ago, it laid off about 20 people in its lending division and stopped making loans itself, acting only as a broker.
Hey at least there's always Senor Cartgage Mortgage. But don't worry your little head about the steady collapse of the mortgage lending industry in our back yard... real estate in Seattle is H-O-T HOT. Get in while you still can, before you get priced out forever!

(Melissa Allison, Seattle Times, 05.04.2006)


S Crow said...

Let me point out that we are not hoping that the market cools drastically, because it affects our small business and countless other allied real estate professionals as well. There aren't too many people who don't know someone in real estate: builders, contractors,lenders,escrow,title,agents,support staff etc...

The mission of any escrow firm is neutrality, so we see the market as it is and I comment on what it is. We don't break news, just report what many already have heard or read. I've been in housing long enough to know that cycles ebb and flow. I've caught the tide both coming in and have been left naked when it goes out. This time I have my suit on, flippers, goggles and a personal floatation devise. Real estate is a good LONG TERM proposition.

I find no pleasure in seeing the "demise" of anyone. For all I know, IF the market does go further south than many anticipate, it will impact our family too. I don't know. For some this is old news, for others it's just another reaffirmation of what happens when markets change. People don't close their doors if the market is doing well.

Anonymous said...

good fodder for this blog--national data for the most part but fun nonetheless. multiple articles connected, links at end of each page.

Anonymous said...

bad link

Anonymous said...

"Let me point out that we are not hoping that the market cools drastically..."

Speak for yourself. I want the market to tank, because I've been conservative with my money, and other people's rampant speculation has a real impact on my ability to live.

That said, I wish our economy as a whole weren't so dependent on real estate, but I don't see any way to get back to long-term economic fundamentals that won't hurt in the short term. Bubbles suck.

"Real estate is a good LONG TERM proposition."

Real estate is a mediocre long-term investment. The historic rate of return on single-family housing is lackluster (compare annualized median home appreciation from 1970-present with stock market index appreciation over the same period. You'll be surprised), and if you're dumb enough to get into multi-family housing, you'll face huge costs of business, with high risk.

Live in a house. Invest in the stock market. Historic trends are rarely wrong.

Anonymous said...

Case in point:
In the Long Run, Sleep at Home and Invest in the Stock Market

Anonymous said...

As someone who has saved scrupulously and allowed this bubble to blow right by me, I have to agree with Anon 3:06.

A lot of pain has been caused by this "irrational exhuberance". Gutting the American economy long term for short term greed, for one thing.

Scared idiots pushing the price of houses into the stratosphere for another, while fiscally sensible people stood by in amazement.

It's been sick as sick can be. The sooner it's corrected, the better.

While I won't be gleeful that people are getting hurt by the downturn, there is no alternative.

The only alternative would have been for it to go on FOREVER and THAT is clearly not possible.

I also believe that, for about the past year now, there's been plenty of warning on what was coming down the pike.

If people chose to ignore that info. then that is their own resposibilty.

Nick said...

I'd just like to point out that a lack of refi business in no way necessarily implies a weak real estate market.

Eleua said...

Does anyone else notice that all of the local radio advertising is mortgage companies?

KVI, KTTH, 105.3FM...

All they advertise are mortgage companies.

There is one with a really annoying phone number jingle...the one with the guy that won't "stick-it-to-ya."...the one where it should be easier than ordering a pizza...

I know I am certifiable, but this is just another example of the REIC imploding.

S Crow said...

Excellent point Anon 3:06.

Nick, I understand what you are saying.

For example, over the last few weeks there clearly has been an increase in purchase business in our small escrow office, including refinances.

Refinances are certainly a different market than purchase transactions. Although, I do think that there is a correlation. In the thick of things over the past year or so,people were tapping refinance money to buy property--we closed a healthy handful. So I do think that there is some market connection,the degree of which is hard to say.

Just yesterday 1st quarter refinance results by Freddie Mac showed that 88% of all refinance borrowers (all homeowners) increased their base loan amount (from their existing mortgages) by 5% or more. People are certainly not afraid of more debt.

The question remains: At what point does one believe the real estate market is getting weak, in particular, locally? More lending layoffs; more lending consolidation or closures; more resume's in my in-box?

seattle price drop said...

Speaking of loans, is there anyone here who is acquainted with these "first time buyer" classes that have been held in Seattle since the bubble started?

In 96 or 97, pre-bubble, I was lookng for property and no realtor ever mentioned the classes.

But at some point, they became part and parcel of buying a home in Seattle, right?

I knew 4 people who went to these classes. All of them felt they were basically designed to squeeze a person into more house than they could afford.

Does anybody here know the deal with these "classes"?

Who sponsors them? Are they really required for first time buyers? Is it a law or something?

As far as I know, seattle is the only place that does this.

S Crow? Tim? Anybody?

S Crow said...

Yes, I'm familiar.

The Realtors & Loan officers that hold these classes assist first time buyers with understanding the general process of buying a home.

My understanding is that the State requires the Realtors to go through a basic teaching course and submit a syllabus for approval--which I believe is almost always approved. But I'm not certain.

Sometimes there are good classes, sometimes there are lousy ones. I believe that the Phinney Ridge Neighborhood Center near the zoo and Red Mill burgers offers classes. Don't know if it costs anything.

Also, see the Seattle Times Real Estate section "calendar." This is where you will see scores of agents and lenders offering free classes.

Hope this helps. Our company is seriously considering offering a similar course soon, but am finding out the feasibility. Since escrow is a neutral party,we think that we can be of tremendous help in understanding closing issues, loan issues etc... and our attendees know we have no commissions to gain (not that there's anything wrong with that :) )

Dukes said...

s crow said: "Let me point out that we are not hoping that the market cools drastically, because it affects our small business and countless other allied real estate professionals as well. There aren't too many people who don't know someone in real estate: builders, contractors,lenders,escrow,title,agents,support staff etc..."

I am sorry S Crow, I feel it is inevitable what is going to occur in real estate. It was preordained by the insanity that we just went through and are continuing to go through now.

I also agree with anon, that I would rather invest in stocks, although at this point I AM SHORT the stock market as I feel it too is due for a major correction.

Never in the history of mankind have we gone through an episode of rampant liquidity like we are living through now, this should tell people something.

Does anyone remember just 10 years ago walking into a bank and having placards all over the place pleading to just LEND you something, anything. Banks, mortgage companies, mom and pop lenders, ccards etc...all lining up to throw money at you.

It takes a strong mentality to deny this onslaught, I for one watched this all in amazement. Many, many people have NO fear of debt, but cycles CHANGE. I think we will once again go back to a time when a 2nd mortgage on your home is a dirty or embarrassing secret, and the man who laughs last, is the man who is free and clear of his contractual debt obligations.

Anonymous said...

Well I just read that Merit's CFO said that he expects the employees who were laid off to start a new mortgage business similar to Merit.

That's like jumping from the frying pan into the fire I would say.

I find it funny that Merit was doing 95% of thier business in refinancing. Man, talk about a non diversified company. Did these guy's not foresee this? Seriously.

Anonymous said...

oops my link didn't post correctly

Anonymous said...

ok i give up just go the seattle times and look under the business/tech section and you'll see the new story.

biliruben said...

You see a percentage of any cyclical industry where the business plan seems to be:

a)Grab as much cash as you can while the grabbing's good, then
b)loot the company and
c)declare bankrupcy, then
d)retire to the Cayman Islands or get appointed Ambassador to the Netherlands if you've lined the President's pockets with anough filthy lucre along the way (see: Ameriquest head).