Ownit Mortgage Corp. suddenly shut its doors last week, surprising both the industry and its own employees - who apparently were told only the night before. The self- proclaimed top-15 subprime mortgage lender was overwhelmed with delinquencies and buyback requests, sources said, even though the company's founder and chief executive Bill Dallas less than a year ago predicted the same fate for other subprime mortgage lenders.
Ownit grew quickly, originating $8.3 billion worth of loans last year compared to only $1.1 billion in 2003. The company has billions of dollars worth of outstanding securitizations, but by press time, none had come under watch for negative rating action.
The news came as ECC Capital Corp. announced the anticipated $26 million sale of its subprime mortgage unit to Bear Stearns had been put off until the fourth quarter, citing "administrative matters;" HSBC announced job cuts stemming in part from losses in its U.S. mortgage business; Washington Mutual began to draw attention for its exposure to subprime; the Carrollton, Texas-based wholesale subprime lender Sebring Capital shut down, citing "market forces." Late Thursday, reports surfaced that Ameriquest Mortgage was going to be sold to a still unidentified buyer.
Ownit's closure also reverberated through the ABS market, blowing up ABX.HE spreads and possibly playing a part in muffling CDO bid lists.
Dallas is the founder and former chief executive of subprime lender First Franklin Mortgage Corp., which he sold before starting up Ownit with two other First Franklin executives in 2003. Several tranches from 2006 securitizations backed by First Franklin collateral have been placed on watch for downgrade in recent weeks by the rating agencies due to excessive delinquency levels. Merrill Lynch is expected to complete the $1.3 billion acquisition of First Franklin, the subprime mortgage unit of National City Corp., in the coming weeks.
Dallas, speaking at the American Securitization Forum's (ASF) annual conference last year, said there were "way too many originators," and that only those with the lowest cost to produce - Ownit's bread and butter - would survive. Dallas criticized lenders that chose to offer loans with riskier characteristics, such as limited or no documentation. "I don't want to move up in FICO when I don't have documentation," Dallas said. "We are giving people too much capacity to borrow." At the same time, however, Ownit had rolled out the first 45-year mortgage product.
Dallas, along with a group of private investors including Merrill Lynch, teamed up with CIVC Partners, a venture capital firm, in 2003 to buy the Woodland Hills, Calif.-based Oakmont Mortgage, a lender then focused on Alt-A products. The idea was to take the company and transform it into what ultimately would have been a very low-cost, nearly entirely automated system - from origination to securitization.
The group had partnered with MindBox, an artificial intelligence provider that has provided various components of automated underwriting technology to a wide array of mortgage lenders, including Countrywide Financial Corp., in order to help trim costs amid what has been a declining profit margin for the sector. The origination system envisioned by Ownit years ago was expected to be capable of underwriting a loan submitted by a mortgage broker, adjusting for such specifications as interest rate and LTV, and instantaneously offering multiple products within seconds, including home equity lines of credit, auto loans and credit cards.
Representatives of Ownit could not be reached for comment. By Wednesday, the company had blocked access to its Web site and notified clients and business associates via a mass email and phone message of its decision to cease operations.
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