Tag Archives: subprime loans

Freddie Mac Back On Hook for Subprime Loan Claims

(CN) — An Ohio retirement fund can sue Freddie Mac for claims it concealed a $2 billion loss on risky mortgages from investors before a 2007 financial report sent its stocks reeling, the Sixth Circuit ruled Wednesday.
The Ohio Public Employees Retirement System, also known as OPERS, sued the Federal Home Loan Mortgage Corporation in January 2008, alleging that the government-sponsored mortgage broker lied about the number of subprime loans it purchased in 2006 and 2007.
Following the release of a financial statement revealing a $2 billion loss on Nov. 20, 2007, Freddie Mac’s stock dropped 29 percent in one day, resulting in shareholder losses of over $6.6 billion.
In its complaint, OPERS claimed “the drop in [stock] price ‘confirms empirically that the market was previously unaware of the full extent of Freddie Mac’s exposure to, and risk from, non-traditional mortgages.” Freddie Mac blamed the price drop on the financial crisis.
U.S. District Court Judge Benita Y. Pearson ruled for Freddie Mac, citing several of the mortgage giant’s annual reports in her opinion, pointing out how their disclosures run counter to OPERS’ argument.
“Before November 2007, Freddie Mac had already disclosed that it was increasing its purchase of non-traditional mortgages products that may default more often,” she said.
But the Sixth Circuit disagreed Wednesday, ruling that OPERS had adequately alleged Freddie Mac misled investors about the qualities of its loans and rigors of its underwriting process.

Read on.

Here is the court document. Click here.

Former Fannie Mae CEO to face SEC charges for subprime mortgages

A judge ruled that former Fannie Mae CEO Daniel Mudd must face a civil trial overSecurities and Exchange Commission charges that he misled investors about the government-sponsored enterprises’ exposure to subprime loans prior to the financial crisis, an article in Reuters said.

According to the article, U.S. District Judge Paul Crotty in Manhattan on Monday ruled the SEC could take Mudd to trial over claims he concealed $441 billion of risky loans before Fannie Mae’s September 2008 government seizure.

From Nate Raymond’s article in Reuters:

Crotty ruled that a jury could find that Fannie Mae’s disclosures about its exposure to subprime loans and Alt-A loans, a category between prime and subprime, misleadingly excluded billions of dollars worth of mortgages.

Crotty said the SEC had also put forward evidence from which a jury could conclude Mudd knew or should have known that public statements he made about Fannie Mae’s exposure to risky loans, as well as the company’s disclosures, were false or misleading.

“From these facts, a rational jury could infer that Mudd acted with intent or recklessness,” Crotty wrote.

Read on.

Bank of America to transfer Countrywide subprime loans to Select Portfolio Servicing

Bank of America (BAC) is set to break the logjam of legacy mortgage servicing rights transfers when it transfers the MSRs of 2,291 subprime loans that were originated by Countrywide Financial to Select Portfolio Servicing in November.

The legacy MSR market has been frozen by the New York Department of Financial Services, after the NYDFS, led by Superintendent Benjamin Lawsky, put a $2.7 billion MSR deal between Ocwen and Wells Fargo (WFC) on an indefinite hold.

Last week, at ABS East, a massive conference on the securitization and secondary market in Miami, one panelist said that the MSRs on the loans that make up the pre-crash residential mortgage-backed securitizations are “at a standstill,” without an end in sight.

“We’re at a standstill until we get Mr. Lawsky out of the way in New York,” Michael Lau, CEO of Pingora Asset Management, said during a panel titled “Legacy RMBS: Risk Mitigation and Servicing Update.”

Now, it looks as though Bank of America is ready to push past Lawsky’s supposed freeze with a transfer of legacy MSRs to Select Portfolio Servicing, according to a note from Moody’s Investors Service.

Moody’s note stated that it was asked by Bank of America to review the ratings of three RMBS transactions to see if the servicing transfer would result in the downgrade or withdrawal of the RMBS’ ratings by Moody’s.

Moody’s stated that the servicing transfer, which is scheduled for November 1, “will not, in and of itself and at this time, result in a reduction or withdrawal of the current ratings on the securities issued by these transactions.”

The affected RMBS transactions are: CWABS Asset-Backed Certificates Trust 2005-10, CWABS Asset-Backed Certificates Trust 2006-4, and CWABS Asset-Backed Certificates Trust 2006-1, which were originated to Countrywide and transferred to Bank of America when it acquired the now-defunct company.

Read on.


Lenders venturing back into subprime market

Lenders venturing back into subprime market

Michele and Russell Poland’s credit was shot, but they managed to buy their suburban dream home anyway.

After a business bankruptcy and a home foreclosure, they turned to a rare option in this era of tightfisted banking — a subprime loan.

The Polands paid nearly $10,000 in upfront fees for the privilege of securing a mortgage at 10.9% interest. And they had to raid their retirement account for a 35% down payment.

Most borrowers would balk at such stiff terms. But with prices rising, the Polands wanted to snag a four-bedroom home in Temecula near top-rated schools for their 5-year-old son. By later this year, they figure, they’ll be able to refinance into a standard loan.

“The mortgage is a bridge loan,” said Russ Poland, now working as an insurance investigator. “It was expensive, but we think it’s worth it.”

In the aftermath of the housing crash, there’s no shortage of Americans who, like the Polands, are eager to rebuild their shattered finances. In response, lenders are emerging to offer the classic subprime trade-off: high-priced loans for high-risk customers.


Is subprime lending back?

Is subprime lending back?

Mortgages resembling the kind of subprime loans that were blamed for the foreclosure crisis are creeping back into the market, leaving some experts and regulators alarmed. The loans give a relatively new twist to seller financing, putting homeownership within reach of borrowers who can’t qualify for a conventional mortgage.

Auto lenders go back to subprime borrowers

(Reuters) – U.S. lenders are giving as large a portion of new car loans to subprime borrowers as they did just before the start of the financial crisis, according to a new study.

Subprime, or less qualified, borrowers received 25.41 percent of all loans on new vehicles in the three months through the end of June, up from 22.29 percent in the same period a year ago and more than the 24.96 percent at the start of the financial crisis in 2007, Experian Plc’s <expn.l> auto finance research unit said in a report released Tuesday morning.

The report also found lenders more aggressively making loans to subprime borrowers of used cars. Subprime borrowers received 56.46 percent of loans on used cars in the quarter, up from 52.70 percent a year earlier.

Banks and other lenders are under pressure to make up for profits lost to shrunken loan portfolios and low interest rates that persist five years after the financial crisis began.

Read on.

Former Freddie execs use subprime definition to challenge SEC case

The definition of subprime is not clear and because of the word’s ambiguity, former Freddie Mac executives believe a Securities and Exchange Commission securities fraud case filed against them should be dismissed, according to the Washington Business Journal.

The case is capturing headlines, with the Wall Street Journal saying the dismissal battle is a fight over semantics.  And that big semantics fight played out in court Monday.

The question that U.S. District Judge Richard Sullivan must answer is whether his interpretation of the word subprime would summarily lead him to conclude that there’s a possibility three former Freddie Mac executives misled investors about the underwriting quality of loans backing mortgage securities.

In the original case, the SEC went after former Freddie executives saying they made false and misleading statements about mortgages packed into securities sold off to investors.

The definition of subprime is key in the case because the executives claim they never used the words subprime or prime to identify the quality of loans, the WSJ reported.

Click here to read more in the Washington Business Journal.