More on Ownit (cf. last night’s post), from a former student who knows this stuff far more intimately than I do (though not directly involved in the Ownit BK, I am advised):
These days, what happens is that the
lender makes a loan, packages with a lot of other loans and sells the
package to Wall Street. But, the sale has a put back for
"EPDs" (early payment defaults) and "FPDs" (first payment
defaults). All the sub prime lenders are getting squeezed
because what Wall Street will pay them for the loans isn’t enough over what
it cost them to book the loan (competition is fierce). Then
they get hit with their repurchase obligations and they are all losing
money big time. Sometimes its bad underwriting but often it is just
plain old garden variety fraud by brokers, sponsors, appraisers
and/or borrowers. Going to take some time before the industry
can right itself. As for the borrowers, when the mortgage company
sell the loans the servicing rights (which are worth a lot of money) are
transferred to a different, often unrelated, entity. I would
suspect that the Ownit borrowers will see no interruption in receipt of
that monthly payment statement.
My correspondent calls attention to a hobbyhorse of mine: who owns the assigned intangibles? While I admit it can get dicy in detail, I’ve always harped on the point that the "owner" is the one who bears the risk of decline in value. The point can be critical in a bankruptcy, on the issue of who owns the incoming payment stream–does the trustee get it for distribution pro rata, or do the individual components go to individual assignees? Cf. Bear v. CoBen, 829 F.2d 705 (9th Cir. 1986), All these "putbacks" seem to make a pretty clear case that the loss remains with the transferor Ownit (i.e., or his trustee) in this case. Congress may have mooted the point by all those special-interest rules for securitizations: perhaps I should hop on a plane and pop over to Washington, so I can listen to Douglas Baird’s presentation at the AALS tomorrow.