11th largest subprime lender goes POOF!
I'm not surprised one bit. I've been following this industry in one capacity or another since 1998 -- ironically, the last time there was a mega-implosion in the subprime lending sector. Back then, the Russian bond default that led to the Long-Term Capital Management crisis also caused ALL high-risk debt markets to seize up. Subprime lenders had been originating lots of high-LTV loans, particularly a hot product called the 125% LTV home equity loan. Just like the name suggests, you could borrow up to 125% of your home's value as a second mortgage.
Almost overnight, the demand for bonds backed by pools of high risk mortgage loans dried up. Went Poof! That caused several firms to fold or sell themselves off to better capitalized institutions. It's worth noting that the 1998 implosion happened at a time when home prices were still relatively reasonable vs. incomes, and when housing wasn't coming off the biggest bubble in U.S. history (like it is now). Will the fallout be worse in this cycle? We'll see.