Is The Sub-Prime Mortgage Market In Trouble?
It appears that the sub-prime mortgage market, which reportedly accounts for 20% of all new loans, is currently in the throes of a meltdown as ResMae Mortgage Corp. of Brea, California, filed for bankruptcy last week, becoming at least the 20th mortgage company to be sold or closed as delinquencies rise and the market for home loans to high-risk borrowers contracts.
Apparently, $308 million in loans that the company originated and sold off to Wall Street powerhouse Merrill Lynch & Company have gone sour prior to the expiration of the "early payment default" buy back period, during which Merrill can demand that ResMae buy back the loans. Merrill has exercised its rights to demand of ResMae a buy back of those bad loans. In bankruptcy filings, the company attributes its "crippled" operations on the buyback demands that have been made of it.
Reportedly, other Wall Street big shots like J.P. Morgan Chase & Co., HSBC Holdings PLC and others are also trying trying to force mortgage originators to buy back the same high-risk, high-return mortgages that the big banks were eagerly buying over the last couple of years. In particular, HSBC, which has recently added $1.76 billion to cover unanticipated losses from delinquencies and foreclosures on the sour mortgages it's stuck with, has reportedly sued several small mortgage originators in federal court in Illinois after they refused HSBC's repurchase requests.
In addition, other mortgage companies have either announced cutbacks in subprime production, quarterly losses, or sharply-elevated delinquency rates. Some major banks have announced staff reductions in subprime and moved to tighten underwriting rules.
(I wonder if these sub-prime mortgage market problems have anything to do with the proliferation of inflated, bogus appraisals, see Is The Real Estate Appraisal Profession In Trouble?, or so-called "stated income" loans (aka liars' loans), see Problems With Stated Income (Liars') Loans???)
Fasten your seat belt. The problems are only just beginning.
Sources:
Apparently, $308 million in loans that the company originated and sold off to Wall Street powerhouse Merrill Lynch & Company have gone sour prior to the expiration of the "early payment default" buy back period, during which Merrill can demand that ResMae buy back the loans. Merrill has exercised its rights to demand of ResMae a buy back of those bad loans. In bankruptcy filings, the company attributes its "crippled" operations on the buyback demands that have been made of it.
Reportedly, other Wall Street big shots like J.P. Morgan Chase & Co., HSBC Holdings PLC and others are also trying trying to force mortgage originators to buy back the same high-risk, high-return mortgages that the big banks were eagerly buying over the last couple of years. In particular, HSBC, which has recently added $1.76 billion to cover unanticipated losses from delinquencies and foreclosures on the sour mortgages it's stuck with, has reportedly sued several small mortgage originators in federal court in Illinois after they refused HSBC's repurchase requests.
In addition, other mortgage companies have either announced cutbacks in subprime production, quarterly losses, or sharply-elevated delinquency rates. Some major banks have announced staff reductions in subprime and moved to tighten underwriting rules.
(I wonder if these sub-prime mortgage market problems have anything to do with the proliferation of inflated, bogus appraisals, see Is The Real Estate Appraisal Profession In Trouble?, or so-called "stated income" loans (aka liars' loans), see Problems With Stated Income (Liars') Loans???)
Fasten your seat belt. The problems are only just beginning.
Sources:
- Subprime Mortgage Meltown Could Squeeze Some Credit-impaired Home Buyers
- Sub-prime lender seeks bankruptcy protection
(ResMAE joins a list of mortgage companies hurt by the growing number of defaults) - Payback: Big Money Gets Tough On Bad Mortgages
posted by Home Equity Theft Reporter at 12:49 AM
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