By Bonddad
bonddad@prodigy.net
Mortgage Lenders Network USA Inc. became the third company in a month to stop issuing some loans as U.S. housing sales slowed and defaults by borrowers rose.
The company, known as MLN, said today in a statement it will ``temporarily discontinue'' wholesale lending operations. The Middletown, Connecticut-based company is ``involved in strategic negotiations with several Wall Street firms'' about the wholesale unit, which consists of a network of independent mortgage brokers that bring in loan requests.
MLN was the 15th largest issuer of sub-prime mortgages.
``The economics of the wholesale mortgage market have deteriorated dramatically over the past two months industrywide,'' MLN Chief Executive Officer Mitchell Heffernan said in the statement, which added that retail operations and the mortgage-servicing unit remain open. ``Until we see credit quality and margins return to acceptable levels, we have determined that MLN needs to pause from wholesale broker originations.''
This is the third sub-prime mortgage lender to either stop taking applications or close its doors in the last month.
The first was Sebring Capital:
Sebring Capital Partners LP has shut down, according to the company's Web site, which said the Carrollton-based wholesale mortgage lender employed 325 people.
"Sebring Capital will cease operations and no longer accept new submissions," according to a statement on the site's front page. "We apologize for any inconvenience this may cause you or your borrowers. It has truly been a pleasure doing business with you."
...
Sebring posted strong growth after it was launched in 1996. It was named several times as a winner of the Dallas 100 Awards, a list of the fastest-growing private companies in North Texas presented by Southern Methodist University's Cox School of Business and the CEO Institute.
The second also occurred in early December:
Ownit Mortgage Solutions Inc., a California-based home lender part-owned by Merrill Lynch & Co., closed this week and told more than 800 workers not to return, a former employee said.
The company informed its staff of the closure on Tuesday, Kevin Panet, who was a training manager for the Agoura Hills- based lender, said in a telephone interview today. Chief Executive Officer William Dallas didn't return messages left on his voicemail and with an assistant.
...
Nonprime News, an industry newsletter, ranked Ownit as the 11th-largest U.S. issuer of so-called subprime mortgages, or home loans made to borrowers with low incomes, untested credit or a track record of default or delinquency. The company issued $5.46 billion of loans during the first half of the year, 44 percent more than a year earlier, according to the newsletter.
Ownit has filed for bankruptcy.
Other, larger sub-prime lenders have started to have problems as well:
Atlanta-based NetBank last month closed its subprime lending unit and transferred most of its employees to another company. H&R Block is seeking a buyer for its Option One Mortgage Corp., a subprime lender. Key Corp. is selling its subprime Champion Mortgage business.
The basic problem is the sub-prime mortgage market isn't doing very well:
In a conference call titled "How Bad is Subprime Collateral?" Tom Zimmerman, head of ABS research for UBS, and David Liu, head of mortgage credit, discussed how much higher loan delinquencies and foreclosures are for 2006 subprime loans compared with similar subprime loans from earlier years -- the result of deteriorating underwriting quality from lenders combined with a slower housing market.
Still, despite the adverse conditions, "I guess we are a bit surprised at how fast this has unraveled," said Zimmerman. While it's "not a secret that subprime collateral has performed pretty disastrously so far," he said, "I must say we were a bit surprised by the magnitude with which" the loans "deteriorated this year."
The rate of subprime loan delinquencies of 60 days or more -- meaning borrowers are that far behind in their payments -- has climbed to about 8 percent, up from about 4.5 percent a year ago.
These 60-day plus delinquencies jumped up fairly sharply in the past few months, to 3.63 percent for the 2006 loans in October, up from 2.95 percent in September and 1.62 percent in July, according to UBS research.
Comparing loans of similar age, 2006 loans are performing worse than 2005, which are worse than 2004. In fact, given where delinquencies are now, loans from 2006 are on track to be among the worst-performing ever, along with the 2000 to 2001 years, according to UBS research.
And not only have delinquencies risen faster in 2006 than in earlier years, Liu noted in the presentation, but 2006 loans have entered the foreclosure process faster. In October 2006, the foreclosure rate was about 2 percent, while a year earlier it was 1 percent.
So, we have the following problems.
1.) Large, sub-prime lenders are closing their doors, not taking any more mortgage applications.
2.) The larger issuers have already gotten out of the market.
3.) More recent sub-prime loans (2006 vintage) are performing poorly right out of the gate. Performance has continually worsened over the last three years.
4.) 60-day sub-prime delinquencies have doubled since July.
More importantly, this is the third sub-prime lender to stop doing business in a month. That's a terrible sign for the coming year.
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