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Sub Prime Lending in for Big Changes

March 10th, 2007 by John Thomas

First let’s start by defining a Sub Prime Loan. What is a sub-prime mortgage? Simply put, it is a loan offered to folks who don’t have the traditional credit history, down payment, or income levels that would normally be required to be approved for a typical conventional mortgage.

Here is a list of Sub Prime Lenders that have closed their doors recently;Ownit Mortgage Solutions, one of the nation’s largest sub-prime lenders of which 15-20 percent was owned by Merrill Lynch, closed its doors on December 5th, 2006. It appears that Ownit ran out of cash when it was required to buy back the loans it originated that ultimately went into default.

Sebring Capital, a Texas based sub-prime lender with 325 employees, abruptly closed its doors on December 1st.

Atlanta based NetBank closed its sub-prime lending branch, Meritage Mortgage, in November.

Fremont Investment & Loan closed its doors without warning on March 5, 2007.  Leaving Borrowers and mortgage brokers looking for lenders to take their loans.

Mortgage Lenders Network, originator of $3.3 billion in loans in Q3, shut its doors Tuesday, stating that “the economics of this market are not good”.  Either way, MLN is going out in a blaze of glory, taking everybody and everything with them.  According to Bloomberg, MLN refuses to fund loans that were already cleared-to-close. 

New Century has not closed their doors yet, but have put a freeze on new loan submissions and may be headed for bankruptcy.

Here is some other news affecting subprime loans;Tax advice company H&R Block, Inc., reported a $157 million dollar loss in the 2nd quarter, primarily due to losses from its subsidiary, Option One Mortgage, a large national sub-prime lender. H&R Block is now considering selling Option One.Ameriquest Mortgage, once the nation’s largest sub-prime lender, recently paid $325 million to settle predatory lending practices. It then proceeded to cut 3,800 jobs.

Accredited Home Lenders, another sub-prime giant, has seen its stock drop from over $50 a year ago to about $26 today.  Accredited has changed many of its guidelines and it is going to be tough to get 100% financing.

NovaStar is sticking around but has changed guidlines and pretty much won’t be offering 100% financing any more unless you would qualify for a conventional mortgage which means you wouldn’t use them anyway.

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