"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

07 December 2006

Another Mortgage Company in Bankruptcy

OwnitMortgage No Notice SHUT DOWN- How's that for a derivative warning??

Isn't it interesting that the fates of H&R Block Mortgage, HSBC's mortgage unit, Champion Lenders and other that have gone belly up recently are ignored by the mainstream media? These vulture firms dress themselves up real pretty : we started out to offer "increased affordability options for a changing market of home buyers." Pleeeeeze ! It's like having a pay day lender explain that the usury laws he's violating are preventing from making loans to hard working Americans. CBS notes, "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."

Subprime lender Ownit Mortgage shuts down

Dec 6, 2006 NEW YORK (MarketWatch) -- 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.

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.

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."

Mike Shedlock's take on this situation is characteristically on target:

This should be a huge wake up call to individuals playing the "Greater Fool" game and even more so to hedge funds leveraged up 15 times in derivative plays thinking there will be time for an orderly exit. Well there won't. One day out of the blue we are going to go from record low volatilities to lock limit down three days in a row. The carnage is going to stun even bears like myself.

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.


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