Securitized B&C Loans Deteriorate
Goldman Sachs & Co. is close to signing a deal to buy Litton Loan Servicing, Houston, the nation's ninth largest servicer of subprime mortgages, according to industry sources. At press time, Goldman was not commenting on the matter, nor was Litton's owners. The Wall Street firm has been talking to C-BASS, the parent of Litton, since the summer.
Reportedly, the two parties were close to announcing a deal this fall but nothing ever came of it.
At the end of September, Litton serviced $46 billion in mostly subprime mortgages, according to the Quarterly Data Report. It is a subservicer as well as a "scratch and dent" servicer. (See related story, page 3)
Litton's direct parent, C-BASS -- which is based in New York -- is in financial hot water.
Owned by two mortgage insurance companies, C-BASS got into trouble by investing in risky subprime bonds. It is now skirting with bankruptcy, according to a public filing by one of those owners, MGIC Investment Group.
In September, MGIC took a $466 million impairment charge because of C-BASS. (Radian Group, the other owner, took a similar writedown.)
In a filing with the Securities and Exchange Commission, MGIC says it has worked out a plan with the secured and unsecured creditors of C-BASS in regard to a payout.
However, MGIC notes, "There are certain agreements and covenants contained in the override agreement and to the extent C-BASS were to breach one of those agreements or covenants, C-BASS may have to seek bankruptcy protection."
This summer, while C-BASS struggled, its lenders granted it leniency on its borrowings (the override agreement). The company was hit with margin calls and had to stop investing in mortgages, MBS and securitizing loans.
Up until last year Goldman had explored buying a subprime production company but never closed on a purchase, a move that, in retrospect, saved it from huge writedowns and layoffs now being experienced by Wall Street firms engaged in table funding, warehouse lending and subprime securitizations.
MBS Subprime Default Rate
Month Subprime Alt-A
August '07 16.13% 3.96%
Sept. '07 17.73% 4.61%
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