SAN FRANCISCO (MarketWatch) — Units of Cerberus Capital Management LP and National City Corp. stopped taking home loan applications on Monday, becoming the latest to be hit by turmoil in the mortgage market.
Aegis Mortgage Corp., a mortgage lender that’s part-owned by private-equity firm Cerberus, suspended all loan originations on Monday. Aegis also is unable to fund home loans that are already in its pipeline, spokeswoman Pat Wente said.
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Private companies that lend their own money are generally very careful with their loan underwriting, and they know how to collect the money they lend. Most reputable finance companies use simple accounting procedures and have adequate loan reserves, and conservative financial leverage. These firms generally understand derivatives and don’t rely on them to manufacture profits. They’re not sharks.
This article is not about the private companies that use sound lending practices. It’s about the many big financial players, the giant hedge funds, major money center banks, and Watt Street Investment banks. These are the "Big Boy Sharks" who created $2 trillion in subprime mortgages, using hubris and Gordon Gekko-style greed, and have recklessly used leverage and risk with other peoples’ money to book corporate profits. A typical example of this is the over-levered Bear Stearns hedge funds investing in crappy mortgage securities that have now left many investors scratching their heads while they search for answers as to why their equity vanished overnight.
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Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale.
Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.
The result was a happy ending for Estruch, but the growing practice is sending shivers through the mortgage industry. Federal regulators are also reviewing the practice. And after being contacted by The Associated Press for this story, Fair Isaac Corp., the developer of the widely used FICO score, said it will change its credit scoring system beginning later this year in a way it contends will end this little-known but potentially high-impact mortgage loan loophole.
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LOS ANGELES (Reuters) - On September 15, 2004, the clock was ticking on Lelon DeWitt’s life and his subprime loan.
When the transmission repairman underwent open-heart surgery, he told his mortgage broker he didn’t want a housing loan that was in the works.
"I didn’t know if I was going to be dead or alive," DeWitt later recounted.
But the mortgage broker, Troy Musick of Wholesale Mortgage Co., was so eager to clinch the deal, he followed the couple into the hospital, said DeWitt’s wife, Ruth DeWitt.
As a surgeon cracked Mr. DeWitt’s chest open for a quadruple heart bypass, the broker approached her in the waiting room of Elkhart General Hospital in Elkhart, Indiana.
"It’s now or never," she remembers him saying.
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