At a recent cocktail party, mortgage broker Robert Moulton chatted with a dentist who had just read an article about the industry’s woes. The dentist began to chide him about a loan officer at troubled Countrywide Financial who had allegedly overcharged clients.
“I knew what was coming, so I said, ‘Doctor, I just read about a dentist who fondled a patient and about another one in Levittown practicing without a license, so would it be fair to judge all dentists by their actions?” said Moulton, based in Manhasset. “Five percent of bad actors have hurt the reputation of everyone else in this industry.”
In Manhattan, America’s mortgage meltdown barely registers; property prices are holding up and sales are strong. But on Long Island, the credit crisis has blown through like a tropical storm, affecting not only homeowners but those in the mortgage industry, leaving those mortgage brokers with strong roots still standing but wrecking others that went out on a limb.
There are around 2,400 mortgage companies in the state. A higher concentration are on Long Island, due largely to the area’s high home prices and low office rents, said Pearl Kamer, chief economist at the Long Island Association, which promotes business development and prepares monthly updates about the Long Island economy.
“There are tough times ahead related to the mortgage industry, and I don’t see it getting any better in the short term,” said Martin Cantor, Director of the Long Island Economic and Social Planning Institute at Dowling College.
Tough times, indeed. Long Island lost around 2,500 jobs in the financial services industry during July and August, according to state Bureau of Labor statistics, almost all of them in the mortgage industry, according to Kamer.
“There will be a lot of consolidation,” said John Commons, president of the Long Island chapter of the New York Association of Mortgage Brokers. “Across the board people will be going out of business as underwriting becomes constricted, including honest brokers.”
The list of casualties is growing. In August, the island’s sixth-largest employer, Melville-based American Home Mortgage, declared bankruptcy and scattered its entire 1,682-person workforce. State and federal regulators have begun picking at the wreckage to see if criminal charges are warranted.
In addition, in late September, the Maryland Commissioner of Financial Regulation filed an inquiry accusing the company of bouncing checks from an escrow account.
The day after American Home Mortgage announced its closing, the West Hempstead branch of San Jose, Calif.-based Franklin First Financial placed job recruitment fliers under the windshields of cars parked in the company lot. Now, First Franklin has itself begun laying off workers company-wide.
Capital One Financial Group has shuttered GreenPoint Mortgage, based in Melville, which operated in 31 states and specialized in jumbo loans. The 100 employees in Long Island will be phased out by year’s end, according to a company spokeswoman.
Many former American Home Mortgage workers have also moved off-island — IndyMac Bancorp Inc., the second-biggest U.S. independent home lender (based in Pasadena, Calif., and mainly active in the Southeast and the West Coast), has hired as many as 850 former American Home Mortgage employees.
Meanwhile, Woodbury-based Delta Financial, which eight years ago paid $12 million to settle predatory lending allegations, recently eliminated 300 jobs, mostly in Florida, Texas and California. That was a 20 percent reduction in its nationwide workforce, which spared the company’s Long Island employees.
Yet several local mortgage brokers who say they refused to trade in risky paper are prepared to ride out the cycle.
“This, too, shall pass,” said Sheldon Glatt of SAS Consultants in Rockville Centre, the director of the Long Island Association of Mortgage Brokers.
However, the bleak figures are in part due to inflated employment numbers. Lots of fly-by-nighters came in during the boom, and now they’re gone, said Don Romano, president of Shelter Rock Mortgage in Lake Success.
Many brokers say they are happy to see those who lowered underwriting standards to dangerous levels forced to leave the industry.
“Many companies got into this business at its peak,” Romano said. “Now that there’s a contraction, those who have never been through a downward cycle will get weeded out.”
Lack of regulation created a Wild West atmosphere, and many Long Island agents have long supported the sheriff’s arrival. That will happen January 1, when the state’s Banking Department becomes more stringent. Brokers will be required to register for licenses, undergo criminal background checks and maintain continuing education requirements.
“We’ve seen this coming because the mortgage business has been broken for a long time,” said Michael McHugh, chief executive at Continental Home Loans in Melville. “Thankfully, the days of ‘have a pulse, get a mortgage’ are over.”
The new rules, set in place before the meltdown, may help prevent another one from happening, brokers say.
“We’re all for tracking those who flaunt the rules and hope this will straighten it out permanently,” said Moulton. “We had a bunch of penny stock brokers who came into this industry over the last five years who brought a lot of luggage we didn’t know about.”