Interest Rate Roundup

Tuesday, January 02, 2007

More subprime mortgage crack-ups

A bit more breaking news out of the subprime mortgage sector today ...

* Ownit Mortgage Solutions has filed for bankruptcy, per Bloomberg. This was the subprime lender whose mortgage business skyrocketed eight-fold to $8 billion in 2005. It shut down virtually overnight in December, firing 800 workers, because it couldn't afford to buy back all the bad loans it had previously sold. Those loans totaled $166 million, according to this story. Ownit was the nation's 16th biggest subprime mortgage lender.

* Meanwhile, Mortgage Lenders Network is no longer making new loans, according to this story. It's also "currently exploring strategic alternatives" for its wholesale business. MLN was the nation's 15th biggest subprime loan issuer as of the third quarter of 2006.

The last time we saw several high-risk mortgage lenders drop like flies, it was 1998. The culprit was a seizing up in the secondary market for risky mortgage bonds related to the Long-Term Capital Management crisis and the Russian debt default. This time, liquidity is tightening up because subprime mortgages are performing terribly. And I'm not surprised by that -- not one bit. The fact is, too much easy money was doled out on too easy terms to too many borrowers who had no business getting loans. This problem should continue to plague the markets for some time to come.


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