Mortgage Meltdown: One Family's Story

The story you are about to read is true. The names have been changed to protect the innocent. The wrongdoers are named at every turn to expose the problem.

And remember this will be JUST THE FACTS!

It was a beautiful morning in LA (lower Alabama). The sun had been up for a few hours and the good citizens of the south were enjoying a beautiful Saturday. A young family headed by Mark and Janet had just gotten word that their offer on their first home had been accepted.

I was sitting at my desk working through some old correspondence when the call came in. A routine call for an early morning. A citizen wanting a home loan. Even with the turbulent times, this couple looked good. I took the application and began the process of qualifying a couple for their first home.

Everything looked good. Their mortgage credit score was 683. Meaning if they can meet the income and reserve levels they are on track to getting what they want. All systems are go.

Fast forward 14 days to the date of August 15, 2007. The buyer, the seller, the attorney and I all meet at the attorney's office to complete the transaction. The seller signs their documents and Mark and Janet go through the loan documents with the attorney. There are a couple of questions but none that had not been anticipated. Mark and Janet sign their documents hand over their down payment check and receive their keys, garage door openers and a home warranty. The attorney hands them their package.

Now comes the real problem. This was a dry closing. Meaning that the funds would not be processed until the next day. The only time the closing could take place was at 8pm in the evening. Usually lenders will fund the purchase of a home on the day that the papers are closed but like most people today no one really wants to work past 5 pm.

At 9am on Thursday August 16, 2007, I called to check on the funding. The attorney's office said they could not reach the lender. They had called several times and faxed over all the requested documentation. I said ok and that I would call the realtors. This is a nervous time for loan officers and realtors because no one gets paid until the loan is funded. I wanted to head off the usual calls before they started coming in.

By noon I had made several calls to the closing department and had not gotten any response. I kept getting the answering machines. I even tried the personal cell phones area managers and account representatives with no luck.

At 3:03 pm I was checking my email when I got an alert from CNBC. The alert said that First Magnus Mortgage Corporation was closing it doors. I quickly went to the web site where the message had been posted. Quick research for press releases confirmed the fact that the company would no longer make or fund any loans that were currently in the pipeline.

I called the attorney. They had just gotten the same message. I called the realtors and Mark and Janet. They were devastated. This would mean going through the process again with another company. In the meantime the sellers had kept a contingent offer on the table.

This contingent offer was larger than the one they had from Mark and Janet. Once the funding fell through they were off the hook on that contract and quickly signed the contingent offer and have proceeded to sell the home. As for Mark and Janet they have had to start all over again.

The mortgage meltdown has caused a lot of stories just like this one. Be prepared as credit restrictions tighten up. Interest rates will probably stay about the same as they are right now for the foreseeable future. Don't despair and do the right things and you can still buy a home.