The Standard-Examiner features a VERY interesting story this morning, regarding a Chapter 11 filing by U.S. Mortgage, a Las Vegas company servicing a small number of Emerald City's Homeownership Loan Program mortgage loans.
OGDEN — Twenty-six homeowners participating in a first-time loan program administered by the city are being required to temporarily make mortgage payments to the Ogden Business Information Center.A Zion's Bank official official, (who was apparently contacted by Ace Reporter Schwebke for a pithy quote) offers soothing reassurance to borrowers who may be affected by this development:
BIC is accepting mortgage payments because US Mortgage, a Las Vegas loan company that services the loans for Ogden, has filed for Chapter 11 bankruptcy, said Jeanne M. Harris, a senior project coordinator for the city.
After April 1, property owners enrolled in Ogden’s Homeownership Loan Program will submit mortgage payments to Amerinational Community Services, a Downey, Calif., company the city has contracted to service the loans.
Rob Brough, senior vice president of marketing for Zions Bank in Salt Lake City, said he doesn’t see any “red flags” in BIC temporarily accepting mortgage payments..Mr. Brough is no doubt right. When the smoke clears, individual borrowers have no reason for despair, so long as their own loan payments remain current.
As to the question of whether this situation is cause for the raising of "red flags," we wonder whether this development may not reflect much more serious and far-reaching problems, which Mr. Brough somehow failed to express to Mr. Schwebke.
Inadvertently or not, we believe Ace Reporter Schwebke has pulled out from bankruptcy court documents some telling information on this point:
US Mortgage President Earl Gross said in a court document that his company’s financial problems began in November 2002 after acquiring a large portfolio of loan-servicing rights from the Government National Mortgage Association, also known as Ginnie Mae.Reading between the lines, what seems to have happened here is that the hapless U.S. Mortgage has been left holding the bag, with a portfolio of flaky "sub-prime" loans, in a U.S. "bubble housing market," which is now "going bust."
The company discovered the loans had not been serviced according to GNMA guidelines and were in “bad condition” because documentation was incomplete or nonexistent, Gross said in the documents.
Subsequently, GNMA ordered an audit of its loans and, as a result, pulled all loan servicing from US Mortgage, he said.
For those readers who don't devote much time to reading the financial pages, we helpfully link this succinct explanatory article here.
Readers looking for a more thorough explanation of the percipient problem can check out this article.
The failure of significant numbers of U.S. mortgage lenders (or loan servicing companies in the secondary mortgage market) bodes ill for real estate investors across the country. The inevitable tightening of credit which will result from this financial crisis will also inevitably deflate housing prices.
We suspect this situation is also giving that guy with the 100 recent residential property acquisitions in Ogden more than a little heartburn.
We've already had a few comments on today's Std-Ex article in the lower thread. Perhaps we'll move those comments here, and use this article to set up our weekend-kickoff open thread -- just for fun.
Comments, anyone?
Update 3/25/07 4:28 p.m. MT: Read this excellent Associated Press article on the sub-prime mortgage crisis. We tried all afternoon to link it from the Std-Ex website, which is down (again).
