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California's warning – Are we headed to another Savings & Loan Crisis?

March 12th, 2007 · 1 Comment · California Mortgage Fraud - Appraiser Liability, Foreclosures, Trust Deeds

A week ago, Californian papers reported that  Folsom-based Central Pacific Mortgage was shutting down.  Apparently, Central Pacific’s 17-year president and chief executive officer, John Courson, was the 2002 and 2003 chairman of the Mortgage Bankers Association, the national trade group for mortgage bankers.  Additionally, he had been appointed by Governor Schwarzenegger to chair the board of the California Housing Finance Agency, the state’s affordable housing bank. The post is unpaid and expires in 2009.

This news was distressing, but limited to the California news stations and did not make much of a ripple nationwide.  However, Central Pacific did originate loans in some 20 states, so its business was not limited to California loans alone.  The company is keeping mum but the rumor mill has it that repurchase obligations crippled the company.

However, today, news that New Century Financial Corp is underwater has been flooding the media.  New Century is (was?) a big player in the subprime lending industry, with a nationwide network.  However, it’s recent SEC report was troubling, stating it would need about $8.4 billion should it be forced to repurchase all outstanding mortgage loans and that it doesn’t have sufficient liquidity to meet its obligations for repurchasing mortgages.

Could it be that Central Pacific Mortgage’s meltdown was the indicator for a larger trend?  What is going with repurchase obligations?  Well, in Februarly Freddie Mac, the nation’s 2nd largest financer of home mortgages tightened up its policies.  Freddie Mac announced that it would stop buying subprime adjustable-rate mortgages and will require more borrowers to prove they earn the income they write down on their loan applications.   

I believe that more shutdowns will be announced.  However, I do not believe there is any reason to panic yet.  While this trend may remind some of the Savings and Loan crisis of the 80’s, the reasons for the S&L crisis were rooted in a more complex FDIC policy and other goverment policies left over from post Depression legislation.

There is one thing in common with today’s present subprime shutdown trend and the S&L and Thrift problems–appraiser fraud.

Under George H.W. Bush’s cleanup of the S&L crisis (remember the Keating 5?), legislation was passed to address a multitude of issues.  One of those issues was the lack of standards in appraiser reporting.  For those who need a refresher, here is a helpful chronology of the S&L crisis.

Well, the post has gotten a bit longwinded and I haven’t even arrived at the fun part – USPAPSee Part II to come – for a discussion on Uniform Appraisal standards and FIRREA civil and criminal penalties.



One Comment so far ↓

  • John

    Late payments can and do affect your credit, but nothing hurts your credit worse than “mortgage lates”. If you possibly can you want to pay your mortgage payments on time and in full. If this becomes impossible for you to do it’s time to do something serious in order to preserve your credit. At some point saving your home may not be the primary concern. Remember, it’s just a house and you can always get another house, but if you damage your credit you may not be able to do that. So make sure you have your priorities in order.

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