OT: When the lienholder folds, where does your lien go?
- Thread starter Darin_IHB
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graphrix_IHB
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<p>Oh boy I warn you this could get lengthy. This is great question and I hope my answer isn't too long winded and that I can translate from mortgage speak to English. </p>
<p>I will use New Century as an example since they actually have gone BK and the Goldman Sachs' GSAMP Trust 2006-NC1 because it is a New Century mortgage backed security pool. Most of NC's loans were bought and underwritten as a mortgage backed security by a company like Goldman Sachs. Not to be confused with underwriting the individual loan but a company like GS comes in and underwrites the package or pool of mortgages. Then they sell the different tranches off to investors. </p>
<p>A separate company will service the loan and in this example it is Litton Loan Servicing. They are the company that collects the payments and are the first one to call when you are late. The servicing is the one area in the business which isn't losing money at least not yet. NC had their own servicing company and it was the only thing that was worth money. But there are various reasons that they didn't always use their own servicing company such as too many loans or in the contract with GS it stated a different servicing company must be used. Most big lenders like Wells Fargo and Countrywide service their own loans but as much as I don't trust Mozillo I don't think these two would go BK. Even if they did the servicing companies make money so they will keep going or be quickly bought by someone.</p>
<p>There will be another company that will be the trustee and in this example it is U.S. Bank. In the case of a foreclosed home U.S. Bank would be the new owner. However GS would be responsible for any losses since they can't make New Century buy it back. If NC still existed and there was a first payment default which would be a violation of the covenants of NC's contract with GS then GS would make NC buy the loan back. If for whatever reason the default wasn't a violation of the contract between GS and NC then U.S. Bank would be the one named on the trustee sale and take the home back. It depends on their contract with GS on who will take the losses but most likely it would be GS.</p>
<p>If a loan was bought back by NC when they still existed and now it is today and they no longer exist Litton would still service it. Of course if someone isn't making payments it really doesn't matter. If in the case of NC a hedge fund buys the loans at a deep discount then they would become the trustee and Litton would most likely continue the servicing rights. The reason why loan buybacks can kill a lender is if a loan of $500k first payment defaults then NC would have buy it back for $500k and pay GS hefty fees. Now they are stuck with a non-performing loan that ties up their cash that might sell at the foreclosure auction for $400k or not sell and they still have their cash tied up with a home they hope to sell for $500k to only lose the fees. The other choice for NC would have is to sell the loan to a scratch and dent lender for pennies on the dollar. The scratch and dent lender would be the trustee and servicer. Their goal is to get the loan current and sell it for a profit later or because they bought the loan at a deep discount and as long as the fraud wasn't too crazy they would have equity and still profit. </p>
<p>Ok that was probably more than what you wanted but I hope I answered your questions. If you still have more or I didn't explain something clearly ask away. I may or may not know the answer but I will do my best.</p>
<p> </p>
<p>I will use New Century as an example since they actually have gone BK and the Goldman Sachs' GSAMP Trust 2006-NC1 because it is a New Century mortgage backed security pool. Most of NC's loans were bought and underwritten as a mortgage backed security by a company like Goldman Sachs. Not to be confused with underwriting the individual loan but a company like GS comes in and underwrites the package or pool of mortgages. Then they sell the different tranches off to investors. </p>
<p>A separate company will service the loan and in this example it is Litton Loan Servicing. They are the company that collects the payments and are the first one to call when you are late. The servicing is the one area in the business which isn't losing money at least not yet. NC had their own servicing company and it was the only thing that was worth money. But there are various reasons that they didn't always use their own servicing company such as too many loans or in the contract with GS it stated a different servicing company must be used. Most big lenders like Wells Fargo and Countrywide service their own loans but as much as I don't trust Mozillo I don't think these two would go BK. Even if they did the servicing companies make money so they will keep going or be quickly bought by someone.</p>
<p>There will be another company that will be the trustee and in this example it is U.S. Bank. In the case of a foreclosed home U.S. Bank would be the new owner. However GS would be responsible for any losses since they can't make New Century buy it back. If NC still existed and there was a first payment default which would be a violation of the covenants of NC's contract with GS then GS would make NC buy the loan back. If for whatever reason the default wasn't a violation of the contract between GS and NC then U.S. Bank would be the one named on the trustee sale and take the home back. It depends on their contract with GS on who will take the losses but most likely it would be GS.</p>
<p>If a loan was bought back by NC when they still existed and now it is today and they no longer exist Litton would still service it. Of course if someone isn't making payments it really doesn't matter. If in the case of NC a hedge fund buys the loans at a deep discount then they would become the trustee and Litton would most likely continue the servicing rights. The reason why loan buybacks can kill a lender is if a loan of $500k first payment defaults then NC would have buy it back for $500k and pay GS hefty fees. Now they are stuck with a non-performing loan that ties up their cash that might sell at the foreclosure auction for $400k or not sell and they still have their cash tied up with a home they hope to sell for $500k to only lose the fees. The other choice for NC would have is to sell the loan to a scratch and dent lender for pennies on the dollar. The scratch and dent lender would be the trustee and servicer. Their goal is to get the loan current and sell it for a profit later or because they bought the loan at a deep discount and as long as the fraud wasn't too crazy they would have equity and still profit. </p>
<p>Ok that was probably more than what you wanted but I hope I answered your questions. If you still have more or I didn't explain something clearly ask away. I may or may not know the answer but I will do my best.</p>
<p> </p>
effenheimer_IHB
New member
Thanks <strike>Tanta</strike>Graphrix!
I'd say you did a fine job answering my question. Thanks.
You say that "The other choice for NC would have is to sell the loan to a scratch and dent lender for pennies on the dollar." Are these bundled loans or individual? Could I potentially buy my own loan from NC (if I did have a mortgage with them or any lender that goes bankrupt)?
You say that "The other choice for NC would have is to sell the loan to a scratch and dent lender for pennies on the dollar." Are these bundled loans or individual? Could I potentially buy my own loan from NC (if I did have a mortgage with them or any lender that goes bankrupt)?
EvaLSeraphim_IHB
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graphrix_IHB
New member
<p>Tantalite is back aka graphrix.</p>
<p>ELS - Speaking of Tanta and what I know of mortgage insurance is from her is that the insurer protects a portion of the losses and not the entire loan. It's been a while since I read the posts but here is <a href="http://calculatedrisk.blogspot.com/2007/03/private-mortgage-insurance-for.html">Part 1</a> and <a href="http://calculatedrisk.blogspot.com/2007/03/private-mortgage-insurance-for_22.html">Part 2</a>. I don't have much experience with M.I. so I could be wrong. I am still learning about the ABX and I have great pdf file from Nomura but at the time I read it I didn't have the knowledge I do now. I should re-read it because at the time it was blah floating payment blah blah interest shortfall blah blah . Do you know if it is possible for an ABX insurer to become the owner or are you speaking of something entirely different? I can email you the Nomura pdf file if you would like to read it too because I can't find it on the web.</p>
<p>Darin - Scratch and dent loans are either a single loan or a group of loans. It wouldn't be a pool of loans because they are rather large pool of loans in the billions for some and the likelihood of an entire pool getting to that point is remote. Think of scratch and dent as a car body shop that can fix the loan to be just like new/current and if it is totaled they won't touch it. I don't think you can buy your own loan because you can be the trustor and the trustee of your own loan. You might have some fun reading Tanta's <a href="http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html">ubernerd</a> posts. Just be prepared for a lenghty read that may or may not make sense.</p>
<p>ELS - Speaking of Tanta and what I know of mortgage insurance is from her is that the insurer protects a portion of the losses and not the entire loan. It's been a while since I read the posts but here is <a href="http://calculatedrisk.blogspot.com/2007/03/private-mortgage-insurance-for.html">Part 1</a> and <a href="http://calculatedrisk.blogspot.com/2007/03/private-mortgage-insurance-for_22.html">Part 2</a>. I don't have much experience with M.I. so I could be wrong. I am still learning about the ABX and I have great pdf file from Nomura but at the time I read it I didn't have the knowledge I do now. I should re-read it because at the time it was blah floating payment blah blah interest shortfall blah blah . Do you know if it is possible for an ABX insurer to become the owner or are you speaking of something entirely different? I can email you the Nomura pdf file if you would like to read it too because I can't find it on the web.</p>
<p>Darin - Scratch and dent loans are either a single loan or a group of loans. It wouldn't be a pool of loans because they are rather large pool of loans in the billions for some and the likelihood of an entire pool getting to that point is remote. Think of scratch and dent as a car body shop that can fix the loan to be just like new/current and if it is totaled they won't touch it. I don't think you can buy your own loan because you can be the trustor and the trustee of your own loan. You might have some fun reading Tanta's <a href="http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html">ubernerd</a> posts. Just be prepared for a lenghty read that may or may not make sense.</p>
EvaLSeraphim_IHB
New member
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