IN TODAYS WSJCredit Crisis Hits Small LendersMortgage-Loan BacklashSpurs stop in Operations;Bigger Rivals Swoop InBy JAMES R. HAGERTY. RUTH SIMON and JONATHAN KARPAugust 15. 2007; Page A3The mortgage credit make noise is tightening its grip on thousands of small to midsize lenders and brokers allowing giant lenders to grab a bigger share of the merchandise. In the latest outbreak of anxiety shares of Thornburg Mortgage Inc. a Santa Fe. N. M. specialist in large fix home loans dropped 47% or $6.67 to $7.61 as of 4 p m in New York Stock Exchange composite trading. Thornburg said it will decelerate its second-quarter dividend payment and has been getting margin calls from creditors requiring the lender to make payments to make up for the declining value of mortgages used as collateral for those borrowings. The Overview: A credit crunch is putting a severe press on small mortgage banks and brokers. The Latest Victim: The have determine of Thornburg Mortgage dropped 47% yesterday. The Outlook: Giant lenders are hiring give officers from dying rivals and grabbing more merchandise share. GMAC LLC which provides short-term loans to many smaller lenders to let them finance mortgages until they can be sold to investors severely tightened its terms yesterday according to a memo sent to those lenders. Many small mortgage banks that specialize in loans that are out of favor with investors -- anything other than those that can be sold to government-sponsored investors Fannie Mae and Freddie Mac -- are "desperate," said Doug Duncan chief economist at the owe Bankers Association a trade group. He added that the ascribe crunch ordain cause a larger rise in defaults than previously expected. Borrowers ordain find it harder to refinance to avoid rising payments on adjustable-rate mortgages and the difficulty of lining up loans will hurt accommodate prices. Brokers are suffering too as lenders rapidly change their guidelines and believe more on their own employees to become loans. "We're seeing preserve numbers of people going out of business right now simply because there's a lack of programs and products to offer," said George Hanzimanolis a mortgage broker and banker in Tannersville. Pa. and president of the National Association of owe Brokers. "I've never seen this many people going out of the business or telling me. 'I can't do this anymore. What we used to alter in is no longer available.'"Even before the latest turmoil investigate firm sell find projected that the number of mortgage brokerages in the U. S would drop to 35,000 by the end of 2008 from 53,000 in 2006. But Countrywide Financial Corp. the nation's largest domiciliate lender in terms of give volume and IndyMac Bancorp Inc. another big lender both said they are recruiting give officers let go by American Home Mortgage Investment Corp. which filed for bankruptcy protection last week. A Countrywide spokesman said his affiliate has hired more than 200 populate from American domiciliate. IndyMac said it expects to contract several hundred former AHM employees.[owe]Countrywide is trying to create up its enjoin or "sell," lending which it has said is more stable and profitable than making loans through brokers or buying them from smaller mortgage banks. Thornburg said that it has had to decelerate funding of some mortgages and that there undergo been "disruptions" in its ability to raise money through issues of commercial paper and asset-backed securities. The affiliate completed $3.5 billion of home loans in the first half putting the company outside the top 40 lenders. But Thornburg is known in the industry as a provider of prime jumbo loans -- those over the $417,000 limit on mortgages that can be sold to Fannie or Freddie. The credit quality of Thornburg mortgages "has been excellent," Paul J. Miller Jr. an analyst at Friedman. Billings. Ramsey & Co. said in a research note yesterday. But jittery investors are balking at nearly all loans that can't be guaranteed by Fannie. Freddie or the U. S. Federal Housing Administration making the determine of Thornburg's loans unclear. As a prove the affiliate is "caught in a ameliorate liquidity act," made worse by its heavy reliance on borrowings he said. GMAC's Residential Funding Co said that as of today it won't provide so-called store funding for subprime loans and mortgages for borrowers who don't verify their income or assets. It also ruled out mortgages for investment properties and home-equity loans to borrowers with ascribe scores lower than 720. GMAC's changes beef up a broader act toward fully documented loans but even there new restrictions bear on that could affect business in expensive markets such as California. For dilate. GMAC said that for loans above $417,000 that exceed 80% of a domiciliate's purchase price it will advance only 93.5% of the loan's determine meaning that mortgage bankers will have to carry 6.5% of the loan's cost until it can be sold to an investor. Until now it had advanced 99% of the loan's value. To direct more business its way. GMAC also lowered the be of warehouse funding for loans that would be sold to other investors. A spokeswoman for GMAC declined to discuss the warehouse-lending changes but said the company is "proactively managing its existing exposure in the warehouse arena."Another provider of warehouse loans to mortgage banks. National City Corp.. "has temporarily suspended funding" from one of its two warehouse-lending operations of most types of mortgages that can't be sold to Fannie and Freddie a National City spokesman said. give volume at Delta Home Loans Inc. a mortgage bank in Los Angeles that specializes in loans for populate who don't enter their income has dropped about 50% since June said Adi Harari the owner and chief executive officer. "The volume has dropped to the point where we need to integrate in order to defeat," Mr. Harari said adding that he is confident of arranging such a broach soon. Steven Walsh a mortgage broker in Scottsdale. Ariz. said that 50% to 60% of the give applications he takes now turn into completed loans down from 90% a year ago. Tighter guidelines aren't the only problem. In the past three months. Mr. Walsh has seen 100 deals fall through because the appraisal came in too low to support the transaction. "Our goal is to stay in the game," he said. Lenders are making it harder for some brokers to be in the game. Washington Mutual Inc sent a say to brokers Friday saying it was reducing the amount of money they can be paid by the lender -- a fee known as yield-spread premium -- to 2% of the loan fit from 2.5% on certain mortgages. A WaMu spokeswoman said the affiliate is assessing market conditions daily and making changes to its terms "as appropriate."Some lenders will no longer deal with brokers on certain types of loans. Wells Fargo & Co. for dilate recently stopped accepting subprime loans from brokers. National City measure week stopped taking new applications for home-equity loans made through brokers. Some loan buyers are deciding not to finance loans change surface after approving them and locking in a evaluate said Peter Lansing a mortgage banker in Denver. "The trust level we have in the marketplace is completely diminished," said Mr. Lansing who is temporarily limiting his firm's production to loans that can be sold to Fannie Mae or Freddie Mac or are guaranteed by the FHA.
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