Borrowers in Limbo After Lender Closes

Mid-size lender Capitol Commerce Mortgage abruptly closed Friday, stranding hundreds of prospective borrowers who had been counting on the firm to finance home purchases and refinancings at low rates that no longer are available.

The closure came just a few weeks after Sacramento-based Capitol Commerce celebrated one of the busiest months in its 17-year history -- the lender funded $3.7 billion in mortgages during July, according to several account executives interviewed Friday. Up to 50% of Capitol’s loan pipeline was in California, according to the California Assn. of Mortgage Bankers.

“I feel sorry for consumers because they are really going to get stung by this,” said Steve Crago, a Capitol Commerce account executive who learned of the company’s demise after returning from a business trip.

Messages left at Capitol Commerce’s headquarters weren’t returned Friday.

Losing a loan now is particularly painful because mortgage rates have been rising since mid-June. That means borrowers who have to reapply for loans might get stuck with a much higher monthly payment than on the loans they thought they had locked into a few weeks ago.

Capitol Commerce had 15 offices in California, Oregon, Washington, Arizona, Colorado, Texas, Illinois and Florida.

Many of the prospective borrowers affected by Capitol Commerce’s collapse might not have been aware their applications were being handled by the firm. Capitol primarily acted as a wholesaler that sold its loans in the secondary market after funding them.

Loan originators now must decide whether to honor Capitol’s loans and interest rates that they already had approved for individual borrowers.

Many brokers at this week’s California mortgage brokers conference said they intended to honor Capitol’s loans, even if it means taking a loss, said Ted Grose, director of consumer research and economics for the California Assn. of Mortgage Bankers.

Aggressive pricing could have landed the lender in trouble if Capitol Commerce’s management didn’t take adequate protective measures, known as “hedging,” to guard against the recent jump in mortgage rates.

Nima Nattagh, research director of FNC Inc. in Costa Mesa, said the sagging refinance market cannot be entirely to blame for Capitol’s downfall. “I’ve got to suspect that there is something more than simply the interest rates going up,” he said.

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Times staff writer Elizabeth Kelly contributed to this report.