Loan Think

Merrill Lynch's actions in regard to margin calls on its mortgage banking clients had many executivestalking this past week. Merrill's latest victim of buyback requests is California wholesaler ResMAE, a companyfounded six years ago by former Long Beach Mortgage chief Jack Mayesh. Does Merrill have the rightto ask mortgage bankers to repurchase loans if they go bad in the first 90 days? Of course it does. But in itsbankruptcy filing ResMAE claims that $308 million in buybacks that Merrill forced upon the company were not evendelinquent! That's what the document says. ResMAE charges the loans "were current despite" being whatit calls "technical" early payment defaults. ResMAE also says that Merrill thinks it has the right toput loans back to the company for an "unlimited" period of time. Merrill would not comment. For the fullstory read Monday's National Mortgage News. Don't subscribe? Call: (800) 221-1809...

In some quarters it's being called a liquidity crisis, the likes that haven't been seen in the subprime sectorsince 1998. On Friday, National Mortgage News Online reported that Merrill Lynch was makingmargin calls on certain warehouse customers, asking these non-depositories for more capital. Meanwhile, we're toldthat higher-ups at Merrill are questioning why it bought First Franklin -- and why it paid so much moneyfor it. Will heads roll at Merrill? A spokesman there told us that yes, margin calls are occurring, but the companyis more than happy with First Franklin. We're also told that some Wall Street firms are getting ready totrim back their warehouse lending operations. Which Wall Street firm will be the first to run screaming from theindustry, shouting, "What have I done? What have I done?" Stay tuned…

Should loan brokers be held accountable for all the early payment defaults that are hammering the nonprime sector?One due diligence expert told us "bad" brokers should be run out of the industry on a rail. Several wholesalersare scouring their broker-clients for bad actors with the intention of throwing them overboard…

Could it be that the mortgage industry would get through a whole week without another firm of note failing?By Wednesday, it looked as though it might happen, but then rumors began to sprout up that Mandalay Mortgagewas closings its doors. The news was first reported by National Mortgage News Online(MortgageWire). One subprime executive we know described the current state of affairs (forsubprime non-depositories) as "horrendous," saying it's tantamount to a "liquidity crunch."He said many Wall Street warehouse providers are looking at the cash positions of their clients "hard andheavy"…

Just when you thought the strange tale of Mortgage Lenders Network couldn't get any stranger, well, itjust did. Late this past week Connecticut slapped it with a cease-and-desist order plus a $7 million fine. Meanwhile,according to the National Mortgage News "Grapevine" website, it appears that many formerMLN account executives who lost their jobs in late December are now trolling for work. MLN CEO Mitch Heffernan-- through a spokesman and occasional press statements -- believes he can still pull the fat out of the fire. Skepticismis running high, though. One investment banker told us the C&D order could drive likely suitors away…

THIS JUST IN: At least two more midsized subprime firms -- both non-depositories, hurt by buybacks --are considering selling their shops. (One, we're told, is owned by a large publicly traded company.) We're stillchecking out the particulars and hope to have confirmation next week. As one SoCal mortgage executive told us latelast week: "If you don't have liquidity, you're gone"...

When Ownit Mortgage went bust in early December, all eyes looked to its warehouse lender: MerrillLynch. Last week, Mortgage Lenders Network signaled a near-collapse by closing its wholesale division,which accounts for 90% of its production. And just who was warehousing to MLN? We're told that Merrill was there,too (among others). Of course, the collapse of two midsize nonprime players will only help First Franklin FinancialCorp., Merrill's newly acquired subprime unit. By eliminating two competitors, there will be, well, less competition.Now, I'm not a conspiracy theorist by any means, but folks in the industry are talking. And it's a good thing forMerrill that new Financial Services Committee chairman Barney Frank is too busy with GSE legislationto notice that Wall Street (Merrill, Bear Stearns, Lehman Brothers, among others) now controls asignificant portion of the nation's subprime industry. Now, there's nothing wrong with that, but Wall Street willbe dictating the terms of foreclosures for thousands upon thousands of subprime borrowers who are predicted togo delinquent in the coming 24 months. And some subprime borrowers vote, but they don't donate the kind of moneyto Congress that the Street does…

Is Citigroup bidding on the mortgage operations of ABN Amro? It's hard to say, but rumors havebeen circulating for weeks. Over the past few months ABN has been a buyer of servicing rights in the secondarymarket -- at least that's what one servicing advisor told us. According to the Quarterly Data Report, ABNAmro Mortgage services $224 billion in residential loans, ranking eighth nationwide. Meanwhile, late this pastweek Citigroup bought a 7.5% "nonvoting limited liability company membership interest" in Opteum'sfinancial services unit. Opteum is a REIT. Its "financial services unit" is a mortgage banking firm managedby Peter Norden. Now, if the company could explain, in English, what exactly is a "nonvoting limitedliability company membership interest" that would make my Christmas...

There's an interesting little story concerning buybacks making the rounds (that I can't confirm) and it goeslike this: midsized lender has been getting stung by buyback requests. The primary owner has staved off the problem,somehow, for months but the day of reckoning is approaching. His firm has a decent net worth but the buybacks itfaces would put him out of business. So what does he do? He plans on bankrupting his current mortgage firm, shiftingall the assets over to a new one. Sound crazy? One banker I ran it by had this to say: "Not crazy at all.Makes perfect sense to me. Why let the greedy Wall Street bankers making billions of dollars a year take you down?"Stay tuned...

This just in: Mortgage Lenders Network of Connecticut issued a short statement early Friday afternoonsaying it is still actively funding and servicing loans. The question, of course, begs: why did it issue such astatement? Rumors were circulating about the company in regard to -- shall we say -- its future. One Californiamortgage executive told us he recently tried to recruit a "team" from MLN. At press time, MLN was notelaborating about the release...