Updated: May 3, 2013 12:14PM
Originally published: August 21, 2003
It’s happening again--a mortgage refinance ripoff. A California-based mortgage company that did business through brokers across the country, including Illinois, shut down, leaving hundreds of Illinois homebuyers without their promised low-interest-rate mortgages.
Capitol Commerce Mortgage Co. had a local office in Lisle. That office closed its doors over the weekend, leaving homebuyers stranded.
Many Capitol clients who tried to close on their homes this week have learned that the promised loans won’t happen. Other homebuyers aren’t yet aware that their brokers placed their loans through this now-defunct mortgage company. Now they will have to scramble to find new loans--at much higher rates.
The company is regulated by the Illinois Office of Banks and Real Estate, where spokesperson Clare Thorpe confirms that the state has launched an investigation. Each mortgage company doing business in the state must post a $100,000 fidelity bond, which could provide some protection against fees that were already paid. But Thorpe says Capitol’s bond had expired.
And even the bond won’t cover would-be homebuyers’ additional costs of applying for a new mortgage, not to mention the burden of paying higher rates. Those higher rates could actually put the home out of reach for some buyers.
Number to call
The state is urging those with Capitol Commerce mortgage commitments to call a toll-free number, (877) 793-3470, to report their situation, since the state does not have a complete list of those affected. Each report will be examined on a case-by-case basis, said Thorpe. But there is little that can be done for those in the pipeline, waiting to close on mortgages that now will not be funded.
Fifteen years ago would-be homebuyers in Illinois had a similar rude awakening. The low-interest-rate mortgages they had been promised were simply “not available.”
The conditions are ripe for a replay. Back in the late 1980s, many homebuyers dealt with mortgage companies that promised low fixed-rate mortgages at closing. But in the six or eight weeks between the “commitment” and the closing, interest rates started to rise in the bond markets. Just like today.
Then, just as homebuyers were about to close on the purchase of new homes, they were told that the mortgage money was not available at the promised rate. There was a small clause in their contract that read, “...subject to the availability of funds.”
Many deals simply could not go through. The monthly payments became unaffordable at the higher rate. Many homeowners were left owning two homes: the one they thought they were selling, and the one on which they had already made a deposit. Frustration made headlines, and created new state regulations on mortgage brokers.
The problem is appearing again as rates start to rise, and promised low-rate loans cannot be delivered. If one mortgage company could be squeezed by rising rates, it could happen to others.
Get it in writing
If you have a mortgage loan commitment made through a mortgage broker, you should take action now. Contact your mortgage lender immediately, ask for written confirmation of the commitment, and read the fine print. If you dealt through a mortgage broker, ask to see the commitment from the funding source for your mortgage. Show it to your real estate attorney to make sure there is little chance for them to weasel out of the contract.
But the sad Savage Truth is that if the lender who made the commitment cannot deliver, and closes its doors, there is little recourse. You’ll have to find another loan--probably at a higher rate. It’s better to find out before you come to the closing, so start asking now.
The larger banks and mortgage companies will stand behind their promises--even if it means taking a loss in the process. They have huge businesses, and reputations to uphold. But all those independent mortgage brokers who got rich selling loans funded by companies like Capitol Commerce should now start worrying about being sued by borrowers whose loans fall through.
Which reminds me of the old Savage Truth: There is no such thing as easy money.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange and McDonald’s Corp. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at her Web site, www.terrysavage.com