Well, the next phase of the subprime mortgage meltdown is here. The Arizona Republic is reporting that dozens of mortgage sellers are being sued by the investment banks that purchased their loans for fraud. Brokers, appraisers, correspondent mortgage lenders, and title companies have all been served.
Many of the lawsuits focus on cash-back loans where brokers, working with the appraisal companies overstated the value of properties in order to get additional cash out from the property for the borrower. This lead to loans that are worth more than the houses that collateralize the mortgage. Not only is this practice highly illegal, but it leaves the bank over-exposed in terms of risk.
The article lists many examples of the lawsuits filed, but I would expect that we’ll see a great deal more of the following:
A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank misrepresented the values of properties, and the income, debt and employment of some of the borrowers. Lehman and Aurora bought the loans as investments and want the bank to buy them back.
These lawsuits will do more to shutter the cottage broker industry as smaller brokers will not be able to fight these lawsuits or repurchase the millions of dollars in bad loans.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
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