Wednesday, March 21, 2007

MLN Closes its Doors

Mortgage Lender's Network USA, a $17 billion loan servicer of subprime loans filed for bankruptcy protection in early February. The company said it owed creditors $92 million. In a phone conversation with a representative earlier this week, learned that MLN will no longer accept any loan applications and will officially close its doors in mid April. MLN is just another in a string of several subrpime lenders who have made the announcement that they are shutting down. If you have a pending loan with MLN, they company advises you to contact their customer service department to have the loan documents returned to you for submission to a different lender.

People's Choice Files for Chapter 11

The privately held lender, People's Choice, filed for chapter 11 bankruptcy protection this week. The lender has been hard hit by the news of record number of home loans going into foreclosure, led by the subprime sector. People's Choice is only the latest to join the list which includes Mortgage Lenders Network USA Inc., Ownit Mortgage Solutions Inc., and ResMae Mortgage Corp., which all filed for bankruptcy protection as well. Filing the same day as People's Choice Home Loan was People's Choice Funding Inc. The companies are both subsidiaries of People's Choice Financial Corp., a real estate investment trust. Both subsidiaries estimate they have more than $100 million each in assets and liabilities. People's Choice Home Loans posted the following statement of their website, "People’s Choice Home Loan, Inc. is unable to continue the origination or funding of mortgage loans, and no new loans are being accepted. We are in the process of contacting customers and brokers to inform them that we’re returning their loan applications, and to assist them in obtaining funding for pending loans."

Tuesday, March 20, 2007

FMF Capital LLC and Domestic Bank Close Wholesale Lending

Domestic Bank announced on March 7 they would be shutting down their wholesale division due to low bids and lack of bids on some of its nonconforming loans that are coming from Wall Street. FMF Capital LLC announced on March 9 they would cease operations. They succumb to three class action lawsuits which were filed against them in Michigan, Ontario and Quebec, Canada. The suits alleged that the company "violated the Michigan Uniform Securities Act, committed fraud and took part in negligent misconduct."

Monday, March 19, 2007

New Century Watches as the Walls Crumble

Founded in 1995 by Brad A. Morrice, Robert K. Cole and Edward F. Gotschall, New Century focused on providing subprime loans that it then sold to investment banks, using that revenue to them fund more consumer loans, In 2003 and 2004, Fortune Magazine put new Century on their list of 100 fastest-growing companies. Over the years New Century Financial Corp. enjoyed flying high amid a strong housing market and a non stop demand from borrowers for subprime home loans to chase the American Dream. As recently as four months ago, CEO Morrice gave a positive outlook at an investor's conference. Despite acknowledging the growing challenges of subprime lending, Morrice said it was "an excellent business for the long term. However, faulty accounting and rising mortgage defaults have left New Century on the brink of bankruptcy. its stock has crashed and creditors and pressuring it to buy back billions of dollars in loans. Like many of its counterparts, New Century profited during the real estate boom, when appreciation rates were high and equity protected most home buyers from defaulting on their loans. Most could simply refinance or sell homes at a big enough profit to pay off mortgages and move on. Investments banks also became eager and jumped in to buy loans from subprime lenders and then separate them into bond products to sell on Wall Street. This helped New Century hit a record high on $65.95 in December 2004. Its earnings one year later also reflected a company that was flying high, despite mounting concerns over a weakening housing market. New Century posted net earnings that year of $411.1 million, or $7.17 a share, up from $375.6 million, or $8.29 a share, in 2004. Its loan production in 2005 hit a record $56.1 billion as it enjoyed four consecutive dividend increases. By 2006, the housing market took a downward turn which led to weaker price growth and declines in some high priced markets. On Feb. 7, the outlook for New Century changed and it informed the Securities and Exchange Commission that it would have to restate financial results for the first three quarters of 2006 since it had failed to accurately tally loses from loan repurchases. New Century stopped accepting new applications and revealed that its lenders had cut off funding and it also said it did not have enough funds to pay outstanding loan repurchase obligations. At this juncture the most likely outcome for the company will be to file for bankruptcy and be sold in a bankruptcy type auction.

Investaid Corp. Takes an Exit

Ivestaid joined the several other subprime lenders to exit the market this week. The company ceased acceptance of applications on March 15 due to the instability in the subprime market; however, President Bob Rubin is hopeful and he believes that the exit is only temporary. In an email sent to its employees, Rubin wrote "the conditions in the market continue to collapse and the pressure placed upon our affiliated bank from regulatory agencies with regards to subprime is impossible to bear." He also noted that the temporary shut down of the company is due to the massive meltdown and perception of loans in the subprime sector. The temporary closure if the origination arm of the company, which funded $37 million per month and offered 100 percent financing to subprime borrowers, has resulted in approximately 40 layoffs of which half were in origination and the other half were in support staff. Twelve employees have been retained to service and sell loans. Investaid is currently licensed in the states of Indiana, Florida, Kentucky, Wisconsin, Missouri, Arizona, Colorado, Nevada and Utah. Rubin stated that these states are economically more stable and they are able to impose stricter prepay penalties. Before announcing the temporary closing, the lender has plans to branch out into Kansas. The company reportedly had a base of approximately 2,500 brokers, though number it did business with was smaller. Investaid focused mostly on combined loan-to-value loans and among its plans were to look for opportunities in the CLTV arena and in foreclosure bailouts which it offered at 65 percent LTV.

Sunday, March 11, 2007

Fremont General Corp. Exits the Subprime Market

A proposed cease and desist order was received by the Santa Monica, Calif. company, Fremont General Corp. from the Federal Deposit Insurance Corp. or FDIC on February 27. The order asked the company to "make a variety of changes designed to restrict the level of lending in its subprime residential mortgage business. However, Fremont indicated that it would continue to seek deposits and originate commercial mortgages. In a press release from the company, the president and Chief Executive Officer for Fremont said, "Thanks in part to its substantial equity and $8 billion retail deposit franchise, Fremont Investment & Loan has significant balance sheet strength and funding capacity that we believe will enable us to exit the subprime lending business in an orderly and disciplined way." Last month, Fremont informed its brokers that it would no longer make piggy-back seconds and all other second lien loans. On Jan. 8, Fremont had eliminated 95 percent loan-to-value mortgages that are purchase money and stated income. In a statement posted on their website, the company said that they will no longer accept new applications and are trying to reach a decision on what to do about the loans that are in process.