From the Seattle Times:
In April, as he shut down the 300-employee mortgage business he’d built from scratch, Layne Sapp said he hoped to find a buyer who would resuscitate MILA.
Instead, the Mountlake Terrace firm Monday asked the federal bankruptcy court to protect it from its creditors, joining scores of other lenders felled by the subprime-mortgage implosion.
The Chapter 11 bankruptcy petition listed less than $8 million in assets and $174.7 million in liabilities. The company said it has more than 200 creditors and $98.7 million in secured debt.
Some $76 million in unsecured debt was claimed by some of the nation’s biggest lenders. Among them are Bear Stearns, with a $21 million claim; GMAC/RFC, $10.5 million; and Goldman Sachs Mortgage, $6.8 million.
Others with multimillion-dollar claims include Wachovia Mortgage, Deutsche Bank, Countrywide Home Loans and Indymac Bank.
All have asked Mortgage Investment Lending Associates (MILA) to buy back mortgages that presumably did not meet their standards.
…
Although no detail is known about MILA’s loan standards, other mortgage firms have run into trouble for failing to accurately report prospective homebuyers’ incomes and employment.This has led to a wave of foreclosures by homeowners who lacked the ability to meet their mortgage payments, and has taken other firms down. One of the biggest was New Century Financial, which filed for Chapter 11 reorganization in April.
“Wall Street has been saying for quite some time on all these subprime lenders that it wants to return the bad loans to the lenders who made them,” said Deborah Bortner, director of consumer services for the Washington State Department of Financial Institutions.
…
I can see how the mortgage company’s liabilities would far exceed its assets based upon contractually required buybacks, but:
How does a mortgage company end up with $99MM SECURED debt on $8MM assets?
Any insight appreciated!
Willyboy and I are having similar thoughts.
I’m not that concerned with how such a thing happens, I understand that “secured” debt does not mean there is an asset worth 100% of a loans value behind each loan.
What I’m wondering is, as each lender goes under and the “value” of their debts go to 0 on someone else’s asset ledger, how much of that will it take before the system collapses?
There seems to be an awful lot of people holding assets that aren’t worth anything near what they think they are.