ResMae Mortgage Corp., a U.S. home lender to people with bad credit, filed for bankruptcy protection and said Switzerland's Credit Suisse Group agreed to buy most of its assets for $19.1 million.
``The subprime mortgage market has recently been crippled,'' ResMae said in its Chapter 11 filing yesterday. The company didn't have enough reserves to cope with an ``enormous'' surge in loan defaults, it said.
Closely held ResMae is at least the 20th mortgage company to be sold or closed as delinquencies rise and the market for home loans to risky borrowers contracts at the fastest pace ever, according to a Bloomberg tally of company announcements. Credit Suisse rivals Merrill Lynch & Co., Morgan Stanley and Barclays Plc are swooping in, buying home lenders to produce more revenue from packaging the loans into bonds.
WOW -- I had not realized the number of SPM lenders to either be sold or closed was at 20. I've followed the big stories of the last few months, but I have obviously missed a few.
I was listened to the Biz radio network today, and they mentioned the next domino to fall would be the mortgage insurers. That makes a lot of sense.
6 comments:
I don't understand. Explain to me the appeal of swooping in and buying bankrupt sub-primer lenders.
How do these companies benefit by buying these lenders that are loaded with defaulting mortgages?
Please explain. I actually don't understand.
My question is what happens if the lender isn't bought? Do the homeowners stop making payments? Who owns the house then?
The buyers are probably thinking long-term. They are probably trying to buy really cheap, thinking about the potential in say 3 years or so.
I guess. If you figure a 20% default rate, that means that 80% are good loans that they can pick up at a major discount.
Do they then take over responsibility for the defaulting borrowers and will they force quick action in the form of short sales, etc.?
I just don't quite get it...
I don't know. 20% default in a year doesn't necessarily mean the other 80% pay in full. Those 80% won't default this year, but the loans are a lot longer than a year. More likely, it means the other 80% continue to default in coming years at higher than typical rates. Present value on these loans would have to be steeply discounted to account for the expected long-term default rate.
Bottom line: oy!
I continue to believe the residential housing market is going to be hit with a major pricing "correction" this year and the after effects of this will linger into 2008.
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