Subprime Feature Story It seems as though the sub prime market in California seems to inspire feature story after feature story about someone who goes from rags to riches and then rags again. Bloomberg has a feature about someone who went from a manager at a warehouse for Target, became a salesperson for Costa Mesa based Secured Funding Corp. I am not sure how many more stories like these I can take. Quite simply the mortgage brokers in California were able to quickly package loans and sell them off to firms on Wall street or large banks

Under U.S. law, investors who buy mortgages or securities backed by them are typically not susceptible to lawsuits alleging fraud on the part of brokers.

I would encourage you to skip the obvious lead-in of the story and read some of the meat of the matter. The body of the article tells yet another sordid tale of the high pressure sub prime sales techniques. It seems nearly inevitable that some sort of new regulations regarding sales tactics, disclosures and appraisals will happen. With the new Democratic Congress these are sure to be more stringent than the previous Republican Congress.

Labels: securedfundingcorp, Subprime, subprimeloans, subprimemortgagecalifornia

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Fremont General Sells Subprime Portfolio Santa Monica based Fremont General is selling most of it's sub prime portfolio. The buyer is still undisclosed but there are some notable things about this deal.

• Fremont General is taking a 100 million dollar pretax loss.
  
• The deal is largely being underwritten by the sale of it's residential real estate assets to the same entity. "The Company alsoannounced that it has entered into exclusive negotiations with the same institution under an executed letter of intent to sell most of it's residential real estate business and assets." From PRNewswire
  
• After the sale the companies cash position remains strong with 1.5 billion in assets.
  

Fremont General will exit the sub prime market with this sale. The discount is pretty heavy but considering that the current subprime market has a foreclosure rate of 4%. Fremont General was smart to leave the market. Remember this is going to be the first year where ARMS are resetting to actually include principal. We can expect the ARM foreclosure rate to sky rocket in the upcoming years. This won't hit the California market as hard since the California economy is vibrant. I expect it to hit parts of Texas, Indiana, Georgia and other bid up secondary markets pretty hard.
Related Links:
Fremont General

Official Announcement of Fremont General's sale it's subprime portfolio

Labels: FremontGeneral, Subprime, subprimemortgagecalifornia, subprimeportfolio

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The Subprime Directive For all the talk of the minimal effect the sub prime defaults are going to have, it's pretty apparent that the "minimal effects" are going to be larger than anyone has expected. Let's just look at the current closings and layoffs

• Loancity closed on 3/22/07
  
• Countrywide's subprime mortage defaults for 2006 may exceed the company's highest on record.
  
• New Century lays off 54% of their workers (this company is headed for the dustbin)and files for Chapter 11
  
• Aegis Lending plans to shutter its Sacramento office
  
• People's Choice (another sub prime lender) files for chapter 11
  

The shake out in California continues. You can bet that you will hear about it hear first (or nearly first). New Century was one of the ones that we reported on very early on (when I got a few emails about the situation there).

Labels: aegislending, CAMortgageNews, countrywide, countrywidesubprime, NewCenturyFinancialCorp, Subprime, subprimemortgagecalifornia

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Defaults begin sink companies To quote Queen, "Another bites the dust". This time the mortgage company going under is Irvine based sub prime provider, New Century Financial Corp. It's creditors have cut it off as the defaults in the continue to rise. What's more telling is the percentage of sub prime loans, and their marketshare have skyrocketed in the last three years, going from 6% of the market to 22% of the market. Foreclosures and defaults will have a ripple effect throughout the California housing market.

The so-called sub-prime lending industry that specializes in loans to risky borrowers has been tormented for months by soured loans, creating huge losses and forcing about three dozen large lenders to be sold to other companies, to file for bankruptcy protection or to close operations altogether.

On Monday, New Century announced that the Wall Street firms that supplied its funding had either cut off fresh capital or were poised to do so, leading some industry observers to say bankruptcy was likely. The company's stock plunged $1.55, or 48%, on Monday to $1.66 before the New York Stock Exchange halted trading.

Less than a year ago, New Century shares were worth nearly $52 each.

As New Century's stock sank, those of other sub-prime lenders suffered too. Santa Monica-based Fremont General Corp. fell $1.30, or 16%, to $6.73. The firm said last week that it would exit the business under pressure from regulators.

Homebuilder shares also stumbled on fears that they will have fewer customers. Hovnanian Enterprises Inc. fell 6% and Pulte Homes Inc. dropped nearly 5%.

This is likely affect other mortgage providers with less exposures and will lead to a much needed tightening of lending standards. This will exert a downward pressure on California homes in several ways. First of expect more distressed sales of homes, secondly expect fewer offers on your home for sale since their will be fewer buyers competing for it.

Labels: CA, California, Mortgage, NewCenturyFinancialCorp, Subprime, subprimemortgagecalifornia

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Ownit - California sub prime lender closes 800 laid off Ownit Mortgage Solutions, a California company that described itself as one of the top 15 lenders to homeowners with weak or no credit histories, has shut down, citing "the current unfavorable conditions of the mortgage industry."

Merrill Lynch & Co. (MER) and private equity firm CIVC Partners hold stakes in Ownit, which built its book of new loans to $8.3 billion in 2005 from $1.1 billion in 2003, in part by introducing products like 45-year mortgages, according to its Web site. Ownit's demise comes as subprime mortgage lenders are being squeezed by higher funding costs, weakening loan demand and rising delinquencies.
"Effective Dec. 5, Ownit closed its doors, and we are no longer able to fund or process your loans," the company said on a recorded telephone message. "We apologize for any inconvenience."

Ownit ran out of cash needed to meet its obligations to repurchase loans from investment banks and others who bought them in the secondary market, people in the industry said. The banks, which convert the loan payments into mortgage-backed securities for sale to investors, can force the original lenders to repurchase loans if the mortgage borrowers default.

Bruce Dickinson, Ownit's chief operating officer, said he couldn't immediately comment pending discussions with lawyers.

In a letter to mortgage bankers and other business associates emailed Dec. 5, Ownit said, "For the past three years, we have pursued a mission to influence the mortgage industry toward increased affordability options for a changing market of home buyers. Change takes time, and we are saddened that the current unfavorable conditions of the mortgage industry did not afford us sufficient time to see our mission through."

Worsening conditions have pushed many owners of subprime mortgage firms to try to sell the businesses. Morgan Stanley (MS) bought Saxon Capital Inc. for $706 million earlier this month and Merrill plans to complete its $1.3 billion purchase of First Franklin Financial Corp., a large subprime lender that is owned by Cleveland-based National City Corp. (NCC) in the next few weeks.

National City bought First Franklin, which together with affiliates has $29 billion of mortgage loans, from its founder Bill Dallas, who went on to become chief executive of Ownit. Dallas didn't return a call for comment.
Merrill is believed to own about 20% of Ownit. A Merrill Lynch spokeswoman declined to comment. CIVC Partners, a Chicago-based private equity firm, also has a stake in Ownit and was an investor in First Franklin before Dallas sold it to National City. CIVC's Dan Helly, who oversees the Ownit investment, didn't return a call for comment.

The end came quickly for Ownit. "We were all working yesterday, assuming we were fine," Dave Hanthorn, a New Jersey-based employee who sells the firm's loans to mortgage brokers, said Wednesday evening. "At 5:15 last night we got the call that we were ceasing operations." He said the company gave no explanation for its funding problems.

Ownit laid off all its staff, according to a headhunter, who received an email that was reviewed by Dow Jones from a friend who worked at the firm. A voicemail message at the number of LesLee Delaney, a representative of Ownit in California, said the company will help mortgage brokers and other wholesale customers try to get their loans transferred to other lenders.

Labels: Ownit, Subprime, subprimemortgagecalifornia, subprimemortgagelending

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