November 9, 2007 1:38 PM
Subprime woes hit home
I have been covering real estate since the Rocky Mountain News hired me in September 1983, which I believe gives me the dubious distinction of writing about real estate longer than any other reporter in Denver's history.
For most of the past two dozen years, I have watched and written about the various real estate cycles from the sidelines.
But in August, I found myself mired in the middle of the subprime mortgage crisis, which has been stunning in way it changed the real estate landscape on a dime.
First, some background.
My wife Kimberly and I bought a home in the West Highland neighborhood in northwest Denver in 1984, convinced the area was poised to become the next Washington Park.
Little did we know we were buying at the top of that real estate cycle. We probably owned our home for seven years before we could have sold it for a profit.
Still, as the Texas real estate giant Trammell Crow once said: "The secret to great wealth is to own real estate and live a long time."
While our Victorian house didn't create great wealth for us, the $84,000 we paid 23 years ago now seems like a bargain. We spent about $60,000 remodeling it and sold it for $427,500.
This is where we experienced the turmoil in the capital markets firsthand.
Our buyers were putting 20 percent down on the purchase of our home and we were scheduled to close on Monday in early August.
On the Thursday before our closing, John Skrabec, the broker owner of Live Urban Real Estate and our listing agent, received a call from Trent Parker, of Megastar Financial Group. Parker was getting the loan for the young couple buying our home.
Parker told Skrabec that Countrywide wasn't going to fund the loan unless the buyers put down another 10 percent.
In other words, they would have to come up with about another $42,000 before in less than two business days.
Instead, Megastar reached what is called a "table funding" agreement with another lender.
Under the deal, the other mortgage company would take over the loan package and fund the deal through Countrywide.
But it was going to take a few weeks for the other company to create the program to allow the transfer.
Skrabec, thankfully, told Parker that was unacceptable. The greatly delayed closing would mean the sale might not be completed until late August or early September.
And if the deal collapsed, we would have missed the crucial summer selling season.
Also, the buyers were technically out of contract and could lose their earnest money.
Instead, Megastar stepped up the plate and agreed to fund the loan out of its own operating cash, until it was paid back by the other company, Anita Padilla, Megastar's owner told me last week.
That is the last thing that mortgage bankers want to do.
Megastar will close more than $1 billion in loans this year, and if it funded each one itself it would quickly run out of money, she said.
"But given the fact that Countrywide changed everything mid-stream due to what was happening in the capital markets, it put us in a bad position," Padilla told me.
"But I don't want to throw Countrywide under the bus," she added.
"It's like if the fires in Southern California burned so many trees that you couldn't buy enough newsprint to publish your newspaper, I couldn't very well blame the Rocky if it didn't deliver my paper in the morning."
We closed our loan on Friday, only four days after our original scheduled closing.
Alas, the story doesn't end here.
The company that cut the deal with Megastar is called GreenPoint, a mortgage division of Capitol One.
The Monday after our loan closed, GreenPoint announced it was shutting its doors, citing "an unprecedented set of market circumstances."
That must have been nail-biting time at Megastar's Cherry Creek North office.
Although we had received our money and used it to pay down the loan on our new home, I was curious what happened.
Parker of Megastar told me that on Friday, a week after our closing, GreenPoint decided to honor its agreement. GreenPoint wired the money to Megastar the next Monday.
If nothing else, this shows that timing is everything in real estate. Parker told me at the time that if we had scheduled the closing a few days earlier, it would have gotten off without a hitch.
And the subprime mess would have been just another story I covered from the sidelines.
Join the discussion