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Special Reports
Nonprime Lending
Buybacks, Defaults Cause ECC Losses
Subprime lender ECC Capital Corp. here posted a $54 million loss in the third
quarter, citing loan buybacks and early payment defaults.
Through the first nine months of the year the publicly traded non-depository lost almost $80 million.
In October, investment banker Bear Stearns agreed to purchase the money-losing subprime production arm of ECC Capital.
A Bear Stearns spokeswoman denied there were any buyback issues between the Wall Street firm and Encore Credit
Corp., the mortgage unit of ECC.
Bear had been warehousing and purchasing loans from Encore.
In its earnings statement, ECC said it is continuing to "experience higher levels of repurchase claims generally
relating to early payment defaults."
In the third quarter, ECC/Encore took at $23.2 million hit because of buybacks.
In a statement, the company notes that even though it is selling its production arm to Bear, the remaining piece
of the publicly traded company will be responsible for buybacks trigged by early payment defaults.
In other words, Bear will not be on the hook for any reps and warranties made by ECC, the parent.
ECC has warned that "the amount of future claims and losses is largely dependent on market conditions and
the performance of the company's loans."
As of Sept. 30, almost 6% of Encore's loans ($168 million) were in foreclosure or bankruptcy. The company also
has a 30-day-plus delinquency rate of 3.3%.
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