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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.

Mortgage Casualties Drop to Pre-Crisis Levels

82 mortgage-related firms close or fail in 2012

Jan. 7, 2013

By Mortgage Daily staff

The number of mortgage-related businesses to end operations during the final three months of 2012 was down by half from a year earlier. Full-year casualties fell to the lowest level since prior to the subprime crisis.

Last year, Mortgage Daily tracked 82 mortgage-related entities that either closed down or failed. Among the organizations were 51 banks, 15 credit unions and 16 non-bank mortgage firms

As shown in the following chart, it was the fewest number of casualties since 2006, when just 31 mortgage-related businesses went out of business.

Non-Bank Closings 16 26 31 74 87 157 22
Bank Failures (FDIC) 51 92 157 140 25 3 0
Credit Union Failures 15 19 22 20 14 7 9
Total 82 137 210 234 126 167 31

Prior to the financial crisis and housing market collapse, the subprime mortgage industry disintegrated. The sector had survived the savings and loan debacle in the eighties and the 1998 subprime crisis. But subprime lending didn't make it through the latest crisis, leading to 167 casualties in 2007, including 157 non-bank mortgage firms.

As the mortgage crisis spread to the general economy, bank failures jumped from none during 2006 to a peak of 157 during 2010. Just 51 federally insured banks failed in 2012.

The biggest casualty of 2012 was Residential Capital LLC, which -- along with 27 affiliated entities including, GMAC Mortgage LLC and Homecomings Financial LLC -- filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on May 14, 2012.

Some of last year's other more notable losses include Wells Fargo & Co., which abandoned the mortgage broker channel, and CitiMortgage Inc., which opted to exit the wholesale lending business.

Aurora Bank FSB, a Lehman Brothers unit, sold off its mortgage servicing to Nationstar Mortgage LLC and laid off much of its staff. It was a similar situation for Mortgage Stanley subsidiary Saxon Mortgage Services Inc., which sold off its assets to Ocwen Financial Corp.

Another blow to the sector came when MetLife Inc. announced plans to dismantle MetLife Home Loans and get out of the reverse mortgage business.

A report from the General Accounting Office found that ten states in the West, Midwest and Southeast experienced at least 10 bank failures from 2008 until 2011. These were some of the same sates where housing markets experienced strong growth during the prior decade.

The failure of small banks, those with less than $1 billion in assets, were primarily driven by credit losses on commercial real estate loans and the use of brokered deposits.

"The failed banks also had often pursued aggressive growth strategies using nontraditional, riskier funding sources and exhibited weak underwriting and credit administration practices," the GAO report stated. "The rapid growth of CRE portfolios led to high concentrations that increased the banks' exposure to the sustained real estate and economic downturn that began in 2007."

During just the fourth quarter of last year, 13 mortgage-related casualties were counted, fewer than the 17 recorded for the third quarter. In the fourth-quarter 2011, Mortgage Daily tracked 26 failures and closings.

Q4 2011
Non-Bank Closings 1 2 7
Bank Failures (FDIC) 8 12 18
Credit Union Failures 4 3 1
Total 13 17 26

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