CLIFTON PARK — At one point during the housing boom, the Guardian Loan Company appeared to be “raising the bar for mortgage lenders,” or so one of its call center technology suppliers thought.

Between its founding in Brooklyn in 1932 and when it opened an office in Clifton Park in 2000, the family-owned mortgage bank slowly evolved, with its focus moving from personal loans to automobile loans. When the company focused its lending activities on lucrative subprime mortgages in 2001, its growth would become anything but slow — or safe.

From its Clifton Park call center, Guardian employees made up to 30,000 calls daily — many to potential subprime borrowers with poor credit ratings. At its peak, the company employed more than 200.

Then, the lines went dead.

Guardian shuttered its operations in August, making it one of the Capital Region’s largest casualties of the mortgage crisis that unfolded last summer. And area businesses and consumers will likely have to continue coping with the mortgage industry’s fallout this year.

‘Crazy market’

“It was a crazy market then. We knew it was going to crash. But it was not the banks. It was not even the Bank of Americas. It was the Countrywides,” 1st National Bank of Scotia President John Buhrmaster said of the Calabasas, Calif., mortgage banker.

Starting in 2005, Guardian attempted to distance itself from the subprime business, but only after a two-year nationwide boom for adjustable-rate mortgages and other alternative loans. Across the country, many ARMs’ low introductory “teaser rates” started to adjust in 2006 and 2007, resulting in monthly bills many homeowners could not pay.

A wave of defaults and foreclosures followed. The mortgage-backed securities that propelled Wall Street earnings to record highs imploded. The nation’s economy began to fall into what many fear could soon become a recession.

A few area banks dabbled in the subprime market, but others, such as 1st National and TrustCo Bank Corp. in Glenville, avoided that risky business altogether. Their conservatism helped shield the region from the mortgage crises.

“TrustCo has never been involved in this type of lending,” TrustCo President and CEO Robert J. McCormick repeatedly reminded investors while announcing the bank’s quarterly results in 2007. “We have always believed that mortgage loans are our most important asset and growth is never an excuse to sacrifice credit quality.”

KeyCorp entered the subprime residential mortgage market by acquiring Champion Mortgage in 1997. But around the same time Guardian was attempting to distance itself from the non-prime mortgage market, the Cleveland parent of KeyBank was moving to abandon it.

“Key had the foresight to sell Champion Mortgage in the fall of 2006,” said Helmut Gerstenberger, KeyBank’s Capital Region lending manager.

Key’s $2.4 billion sale of Champion to HSBC Financial came on the eve of the souring of the subprime industry, saving the Cleveland bank holding company from much of its financial fallout.

Yet Key was not immune to the tumult that followed the summer mortgage meltdown.

Key announced a series of restructuring initiatives in December, including the exit from or curtailment of some residential lending arms and the elimination of 570 existing and 300 vacant jobs, mostly around Cleveland.

“Key has been well-positioned to weather this unprecedented volatility in the credit markets, as we exited the subprime home mortgage business more than a year ago,” Key Chairman and Chief Executive Officer Henry Meyer III said in a statement announcing the December restructuring.

Market exits

In August, Guardian surrendered its New York mortgage banker license. It was not alone by any means.

During the first 11 months of 2007, mortgage bankers surrendered licenses for 54 headquarters and 689 branches, compared with 22 headquarters and 256 branch licenses for all of 2006, according to the state Department of Banking.

“Many people got into this industry [and they very candidly] didn’t belong there,” said Gerstenberger.

Many of those license cancellations were prompted by mergers, but others came from folding businesses, such as Guardian. Few licenses were surrendered by Capital Region mortgage bankers, who, like area community bankers, avoided the subprime industry.

“It always rubbed me the wrong way. … We could see they could be a problem in the future,” said Robert Hayes, president and chief executive officer of Provantage Funding Corp. in Clifton Park.

Since founding Provantage in 2000, Hayes said he has not dealt with subprime mortgages. In March, Wilber National Bank of Oneonta acquired Provantage, which it will use to spearhead its entrance into the Capital Region.

Wilber plans to open a retail branch this year on Route 9 in Halfmoon. The bank, which has 21 offices in Otsego, Delaware, Ulster, Chenango and Broome counties, recently named Hayes its senior vice president of mortgage lending and market development for this region.

Hayes said Provantage experienced robust growth last year and it should double its residential loan production in 2008 — even with the ongoing credit crisis.

Key is also looking to fill the void left by retreating mortgage bankers. During the first quarter, it will add up to three loan officers to its staff of seven, who share lending duties at the bank’s 50-plus branches in the region.

“A lot more people are looking to the local banks than they have in the past because the banks offer more safety,” said Hayes.

However, not all mortgage bankers share Provantage’s positive outlook. Mortgage originations nationwide are projected to reach $1.96 trillion in 2008, down 16 percent from $2.34 trillion in 2007, according to the Mortgage Bankers Association, a Washington trade organization.

The association expects mortgage originations to drop further to $1.88 trillion in 2009. Annual originations have not slipped below $2 trillion since 2000.

“It sets a tenor in the marketplace. It adds to the consumer’s level of angst and concern,” Siena Research Institute Director Donald Levy said of the mortgage industry’s impact on consumer moods.

By September, doubts about the economy seized New Yorkers, sending the state’s overall consumer confidence down to a four-year low. Confidence levels sat at similar lows throughout the remainder of 2007, according to SRI.

Upstate business leaders shared New York consumers’ pessimism going into 2008. An SRI survey found that 42 percent of Capital Region CEOs said they expect the state’s economy this year to worsen slightly or considerably.

Fifty-one percent of those executives said one of the challenges they might face this year is an unanticipated downturn in the economy. Even Hugh Johnson, the region’s financial guru, said last month that the case for a recession is getting stronger.

Credit crunch peaks

The subprime mortgage meltdown spread throughout the nation last year, almost crippling the credit industry as financial giants such as Morgan Stanley, Citigroup and Bear Stearns got burned by portfolios laden with risky mortgage-backed securities.

The credit crunch peaked in August, drastically slowing housing sales. The mortgage crisis also sideswiped Wall Street, which saw the Dow Jones Industrial Average reach a record high of 14,164.52 on Oct. 9 and plunge by 15 percent by mid-January.

“The problem is we know not all the bad news [in the mortgage industry] is out. We know some people are waiting for the other shoe to drop,” said John Colley, the portfolio manager for Colley Asset Management in Saratoga Springs.

Higher rates of mortgage defaults and foreclosures — coupled with higher energy costs — have also curbed consumer spending. The combination of those factors resulted in a 3 percent increase in consumer spending during November and December, creating U.S. retailers’ worst holiday shopping season in six years.

And the economic downturn could worsen, given that consumer spending accounts for 70 percent of the U.S. economy.

“A lot of retailers are feeling guarded over what will happen during the first half of the year,” said Rebecca Marion Flach, a spokeswoman for the Retail Council of New York State, an Albany trade organization.

The National Retail Federation last month said retail industry sales — excluding gas stations, restaurants and automobiles — are expected to rise 3.5 percent in 2008. The increase in 2006 was 6.3 percent.

Adjustments ahead

An estimated $514 billion in loans will reset this year and $398 billion in 2009. Seventy percent of the 2008 loans and 37 percent of the 2009 loans went to subprime borrowers, according to Banc of America Securities, Bank of America Corp.’s investment banking arm.

In November — a month before the Bush administration moved to stem a wave of foreclosures with a five-year freeze on certain ARM rates for subprime borrowers — Global Insight predicted that the U.S. economy would grow at a rate of 1.9 percent this year. That is a full percentage point less than it would have been if the mortgage crisis never happened, the research company said.

Congress and President Bush have passed a $168 billion economic stimulus package loaded with tax relief for consumers and businesses to mitigate a looming recession, which technically is when the nation’s gross domestic product sees two consecutive quarters of negative growth. The U.S. last fell into a recession in 2001.

The five-year rate freeze on some subprime mortgages “will likely forestall some — some — foreclosures. But it’s not going to have a large effect because it doesn’t cover enough of the market,” said James Diffley, a group managing director for Global Insight, a Lexington, Mass., financial analysis, forecasting and market intelligence firm.

Employers this year will likely become more cautious with hiring as consumers cut back on spending. Those factors could result in a $670.5 million loss in the Capital Region’s gross metropolitan product, according to Global Insight.

Global Insight expects the region’s GMP — the total value of goods and services produced in a metro area — to grow this year by 2.2 percent. That is $670.5 million, or 0.7 percent, less than what the area’s GMP could have been had the mortgage crisis not happened.

But other parts of the country hit hardest by the mortgage crisis will not be as fortunate as the Albany area. For example, Global Insight expects the Myrtle Beach, S.C., area to experience a $243 million, or 1.7 percentage point, GMP loss, resulting in an annual GMP increase of 1.85 percent.

“In many ways, we haven’t had the extreme fluctuation other places in Manhattan, the South and Southwest are experiencing, so our fall isn’t as jagged,” said Levy at SRI.