Collateral damage – Homebanc bouncing checks.

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The AJC reported (here is the complete article) what I had already heard from a friend of mine over the weekend — on Tuesday, not only did Homebanc “exit the origination business . . . in order to preserve the value of it’s remaining assets” (which means they stopped taking new applications and cancelled all loans in process) but apparently they didn’t FUND some of the loans that had closed the day before, on Monday.  Some or all of the closings from Monday were [fake] funded by bad checks.  In other words, the attorney collected [what they thought were] the loan proceeds from Homebanc on behalf of the borrower and then wrote out checks to disburse the closing proceeds = a check to payoff the seller’s mortgage, a check for the seller’s proceeds, a check or two for the Realtor commissions, etc.  And now angry lawyers are filing lawsuits (wouldn’t you if you were missing a million dollars or more?). 

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Although most lenders wire funds to the attorney’s office for closing, apparently Homebanc’s practice was to send a check to cover the funds for the new loan.  It’s not surprising that attorneys in the Atlanta market sent out emails on Tuesday announcing that they would now only close transactions with wired funds.  Did you know that in the state of Georgia, you and I can be fined up to $5,000 and imprisoned for up to 3 years for writing a bad check for an amount over $500 . . . what happens when a corporation like Homebanc bounces checks in excess of $10 million dollars (estimate from the article linked above)? 

There will and certainly has been more collateral damage from the closing of Homebanc (aside from the loss of millions of dollars from closing attorney’s accounts) . . . one of the worst of them being the 1,000+ employees who were instantly out of a job (hopefully to be picked-up by Countrywide – although, I am afraid that their situation is just a blog-post waiting to happen).  Another problem from the debacle includes borrowers with current mortgages serviced by  Homebanc (Homebanc is not offering or allowing any subordinations, so if a customer wants to refinance his or her first mortgage, he’ll have to refinance the 2nd as well).  Usually a new first mortgage can be refinanced while leaving the current 2nd mortgage intact (with the 2nd mortgage lender’s permission). 

I am sure that will be more fall-out from the exiting of Homebanc (I wouldn’t go so far as to call it collateral damage), but instead of listing them out here . . . let’s just wait and see what happens. 

update to this story — “Judge Ok’s Homebanc deal . . . “ from the AJC

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.  

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