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Special Reports
Jumbo and Nonconforming Lending
Firm Trims B&C Menu
Subprime, but to GSE standards
By Paul Muolo
The Wall Street-owned Saxon Mortgage has trimmed its subprime menu and is focusing
mostly on loans that can be sold to Fannie and Freddie Mac, according to sources familiar with the matter.
One mortgage executive close to the Virginia-based company said Saxon's parent,
Morgan Stanley, is now actively talking to Fannie Mae and Freddie Mac about selling loans to them.
The loans, in theory, would be "subprime" in nature but would be underwritten
to standards the GSEs would be comfortable with.
A Morgan spokesman stressed, "We are not exiting subprime but we are being
smart about it." At press time Saxon - a wholesale funder - had suspended originations of two popular subprime
products, ScorePlus and ScorePlus2.
Saxon, like many remaining subprime players, has seen its origination volume hammered
in the wake of the credit crunch and a lack of "take out" in the securitization market.
The secondary market for subprime is so bad that lenders are only funding GSE
"subprime loans" or exiting the sector entirely.
In mid-November, Nationstar Mortgage of Texas - which is owned by hedge fund giant
Fortress Investment Group - said it is no longer funding A- to D loans. "Due to the recent market disruption
we now only originate conforming Fannie Mae loans," EVP Steve Hess told Origination
News.
In March of 2006, a unit of Fortress Investment Group agreed to purchase Centex
Home Equity Co., Dallas, in a deal valued at about $575 million. After the sale, Fortress changed CHEC's name to
Nationstar.
At the time of the deal CHEC was the nation's 28th largest subprime lender.
At press time, another ailing subprime firm, Fieldstone Mortgage, Columbia, Md.,
had closed its doors and said it was no longer taking any applications.
Fieldstone is owned by C-BASS, New York. A nonprime lender, Fieldstone ranked
26th among subprime funders last year, according to the Mortgage Industry Directory.
C-BASS, which is owned by two publicly traded mortgage insurers, has troubles
of its own. In July it was hit by what its parent companies called an "unprecedented amount" of margin
calls.
In the wake of the margin calls, MGIC and Radian wrote down their interest in
C-BASS by $1 billion. The two MIs tried to sell some of the C-BASS assets, including its Litton Loan Servicing
unit, but a deal with Goldman Sachs fell apart.
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