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MarketWatch.com reports that Credit Suisse, one of the largest providers of credit to mortgage lenders and purchasers of mortgage backed securities, is suing three lenders in federal court for violation of loan repurchase agreements. Credit Suisse is suing Infinity Home Mortgage, NetBank, and Sunset Direct Lending demanding the repurchase of approximately $30 million in loans due to issues such as early payment default.
In my opinion this is just the tip of the iceberg. The originators are going to get squeezed from all aspects; regulatory, law enforcement, investor law suits, consumer law suits, it will get ugly for the originators. My business partner has said repeatedly through out this meltdown "Someone is going to go broke, and someone is going to get very rich." It can’t be more true. Big lenders are calling due billions of loans, closing down companies, and then buying those companies and loans back for pennies on the dollar. They will sue smaller companies to take back bad loans forcing small companies to shell out millions of dollars trying to sell these loans on the scratch and dent market for 80 cents on the dollar back to these same investors.
Truly an example of the little guy taking it in the shorts. The big banks will survive and find a way to capitalize, the small lender is going to feel tremendous pain. I’m not saying that some of them don’t deserve it. I’m saying you will see a systematic push back from all angles on the small lenders because its easy for all parties (regulatory, law enforcement, investors) to do so - it’s much easier than going after well-funded, international conglomerates.
