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Followup on Ownit

posted by Buce

More on Ownit (cf. last night's post), from a former student who knows this stuff far more intimately than I do (though not directly involved in the Ownit BK, I am advised):

These days, what happens is that the   lender makes a loan, packages with a lot of other loans and sells the  package  to Wall Street.   But, the sale has a put back for   "EPDs" (early payment defaults) and "FPDs" (first payment   defaults).   All the sub prime lenders are getting squeezed   because what Wall Street will pay them for the loans isn't enough over what   it cost them to book the loan (competition is fierce).   Then   they get hit with their repurchase obligations and they are all losing   money big time.  Sometimes its bad underwriting but often it is just   plain old garden variety fraud by brokers, sponsors, appraisers   and/or  borrowers.  Going to take some time before the industry   can right itself.  As for the borrowers, when the mortgage company   sell the loans the servicing rights (which are worth a lot of money) are   transferred to a different, often unrelated, entity.   I would   suspect that the Ownit borrowers will see no interruption in receipt of   that monthly payment statement.

My correspondent calls attention to a hobbyhorse of mine: who owns the assigned intangibles?  While I admit it can get dicy in detail, I've always harped on the point that the "owner" is the one who bears the risk of decline in value.   The point can be critical in a bankruptcy, on the issue of who owns the incoming payment stream--does the trustee get it for distribution pro rata, or do the individual components go to individual assignees? Cf. Bear v. CoBen, 829 F.2d 705 (9th Cir. 1986), All these "putbacks" seem to make a pretty clear case that the loss remains with the transferor Ownit (i.e., or his trustee) in this case.  Congress may have mooted the point by all those special-interest rules for securitizations: perhaps I should hop on a plane and pop over to Washington, so I can listen to Douglas Baird's presentation at the AALS tomorrow.   

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