Mortgage-Servicing Debacle

Yes another example of why you, the individual investor, should be cautious about following the ultra-rich into investments. Their investment goals are different than yours.Bruce Sherman’s newspaper investments, Sam Zell’s real estate bottom call, Warren Buffett’s GE/GS buys, Michael Dell’s Dell stock purchase — were all terribly timed. But they have plenty of time to sit and wait. Being a year or 3 early will not impact their lifestyle.

The latest case in point: Billionaire Wilbur Ross’s way early purchase of mortgage-servicing business via his 2007 purchase of American Home Mortgage Investment. If you followed his lead in this sector, you are suffering mightily.

The WSJ provides the details:

Billionaire Wilbur Ross, who plunged into the mortgage-servicing business with a slew of acquisitions in the past year, is running into problems in a new sign of increasing stress in the business that is on the front line of the U.S. housing crisis…

Until the downturn in the U.S. housing market, mortgage-servicing firms had inhabited a relatively obscure pocket of the lending industry, handling back-office duties such as collecting mortgage-loan payments, assessing late fees and working with struggling borrowers.

Now, as delinquencies force widespread modifications to loan terms, mortgage servicers are finding themselves increasingly in the spotlight. The industry also includes big banks such as Bank of America Corp. and Wells Fargo & Co. as well as a business owned by Goldman Sachs Group Inc.

At the American Securitization Conference in Las Vegas Tuesday, panelists discussed the growing number of foreclosures. Mary Coffin, a Wells Fargo executive vice president, said that servicing arms had been inundated with borrower requests to change the terms of their loans. “We have a tsunami upon us,” Ms. Coffin told attendees of a servicing panel.

Foreclosures tied to subprime loans — or those mortgages made to borrowers with sketchy credit histories — are expected to increase sharply. More than 1.5 million homes have been foreclosed on and two million families are at risk of losing their homes, according to a report by the Center for Responsible Lending report last month.”

As always, investors need to recognize that Billionaires have little worry about retirement and future cash flow. Those people who are concerned with these financial concerns should be cautious about imitating the ultra-rich . . .

Source: Foreclosure ‘Tsunami’ Hits Mortgage-Servicing Firms CARRICK MOLLENKAMP WSJ, FEBRUARY 11, 2009

Originally published at The Big Picture blog and reproduced here with the author’s permission.

4 Responses to "Mortgage-Servicing Debacle"

  1. Guest   February 12, 2009 at 1:51 pm

    Insightful commentary as usual. Copying these investment gurus is usually just a way of going over an investment cliff.

  2. Anonymous   February 12, 2009 at 2:06 pm

    where is the evidence that Ross is suffering from his servicing investments? He just bought Citi’s servicing for nothing

  3. MutantCapitalism   February 12, 2009 at 11:03 pm

    Yes there is a tsunami upon us. It is epidemic Mortgage Servicing Fraud / predatory servicing designed to inflict bogus defaults upon homeowners. Mr. Friedman calls allegations that American Home Mortgage increased or accelerated foreclosures “ludicrous”. Well, Mr. Friedman, the FTC didn’t exactly see it that way in these settlements with servicers who for years have been perpetrating such fraud upon hundreds of thousand homeowners. – FTC v. EMC Mortgage Corp. & Bear Stearns – US/FTC v. Select Portfolio Servicing, Fairbanks Capital – Note: this case alone involved 281,000 servicing fraud victims.

  4. oil trader   February 14, 2009 at 11:52 am

    This New York Post journalist seems to have gotten inside the mind of Ross and it looks like the type of loans he’s buying to service are going to pay off well for him. Subprime and option arm are not likely to get refinancing but will get help form the govt to stay in the loan. Doesn’t that mean that Ross’s income stream from servicing will continue to pay? Given he buys the servicing platform and not the whole loans for so cheap… his margins should be pretty good. I thought this story was an insightful read and more then I’ve seen bloomberg or the WSJ report on what Ross is really planing to do to turn his investment into gold again.