U.S. News

Subprime Lender Folds as Sector Comes Under Pressure


Ownit Mortgage Solutions, a California company that catered to homeowners with weak or no credit histories, has shut down.

The company, which claimed to be one of the top 15 lenders in the subprime market, closed its doors, saying it could no longer fund or process its loans, reported Steve Liesman on CNBC's "Street Signs."

The company's demise comes as subprime mortgage lenders are being squeezed by higher funding costs, lower demand for loans, and rising rates of delinquency.

On the company's Web site, which is no longer functioning, Ownit said it had built its book of new loans to $8.3 billion in 2005 from $1.1 billion in 2003.

Earlier this week, Michael Youngblood, an analyst at Friedman Billings Ramsey, warned of increasing trouble in the subprime sector.

"Market participants are concerned about the credit performance of adjustable-rate subprime residential mortgage-backed securities originated in 2005," Youngblood said. 

"We cannot accept the popular explanation that the higher default rate reflects the influence of rising short-term interest rates, to which adjustable-rate subprime loans generally are indexed," he said. "Nor can we explain the relatively higher default rates of adjustable-rate subprime loans originated in 2005 by reference to the erosion of underwriting criteria."

UBS has reported that 3.9% of subprime loans packaged as mortgage-backed securities are behind on their payments by 60 days or more. That's more than twice the delinquency rate of a year ago.

According to Dow Jones Newswires, Merrill Lynch is believed to own about 20% of Ownit.

Merrill Lynch declined to confirm this report, calling it "a small, passive minority stake," Liesman said.