Isn’t a beautiful irony that we are rewarding our favorite sub-prime lenders with bailout money? This list of bailouts was reported by the Center for Public Integrity on August 25, 2009. The full article can be accessed here.
Subprime Memory Lane
The list of the top 10 recipients is like a walk down subprime memory lane. Here are the leading HAMP participants, with the amount of taxpayer-funded incentives they are slated to receive:
1. Countrywide Home Loans Servicing LP, Simi Valley, California — $5.2 billion
No. 1 by a wide margin, Countrywide also led the Center’s list of the top 25 subprime lenders. Now known as BAC Home Loans Servicing, LP, Countrywide is now owned by Bank of America, which will receive any incentive payments due the company. Bank of America, thanks to its purchase of Merrill Lynch, also owns program participants Wilshire Credit Corp. and Home Loan Services Inc. Maximum funds for Bank of America total nearly $6.9 billion.
2. J.P. Morgan Chase Bank NA, Lewisville, Texas — $2.7 billion
JPMorgan Chase & Co. was No. 12 on the Center’s subprime lender list. It owns EMC Mortgage Corp., another program participant. EMC was a former subsidiary of Bear Stearns, the first major U.S. investment bank to falter last year. JPMorgan picked up EMC when it bought Bear Stearns (with government help) last year. Including the EMC total, JPMorgan could collect around $3.4 billion.
3. Wells Fargo Bank NA, Des Moines, Iowa — $2.4 billion
Wells Fargo & Co. is ranked No. 8 on the Center’s subprime list. Wells owns Wachovia Bank, which qualified for the program under two different names, and ranked No. 19 on the Center subprime list. Total funds potentially going to Wells are about $3.1 billion.
4. American Home Mortgage Servicing Inc., Coppell, Texas — $1.3 billion
American was formerly a unit of American Home Mortgage Investment Corp., No. 22 on the Center’s subprime list, before the company filed for bankruptcy. The loan servicing business was bought by billionaire Wilbur Ross Jr.
5. CitiMortgage Inc., O’Fallon, Missouri — $1.1 billion
CitiMortgage is part of Citigroup Inc. The banking giant, Citigroup, owes its survival to billions of dollars in cash infusions from the U.S. government. Citigroup ranked No. 15 on the Center subprime 25 list. It was also a major player in the mortgage-backed securities market.
6. GMAC Mortgage Inc., Ft. Washington, Pennsylvania — $1 billion
GMAC Mortgage Inc. is part of GMAC LLC, which received $5 billion in federal bailout money in late December 2008, and another $7.5 billion this past May. GMAC at one time was controlled by hedge fund Cerberus Capital Management, but Cerberus reduced its stake when the government made its huge investment in the lender. GMAC originated billions in subprime loans under several names, including Residential Funding Co. and Homecomings Financial. It ranked No. 20 on the Center subprime list.
7. Bank of America, NA, Charlotte, North Carolina — $804.4 million
Bank of America, another major bailout recipient, bought No. 1 subprime lender Countrywide in July 2008 for $4 billion after lending the mortgage company $11.5 billion the previous year. It also bought Merrill Lynch, and with it, two subprime servicing subsidiaries. Maximum funds going to the bank, lenders and borrowers total nearly $6.9 billion.
8. Litton Loan Servicing LP, Houston, Texas — $774.9 million
Litton was a major subprime loan servicer owned by a company known as C-BASS — Credit-Based Asset Servicing and Securitization LLC. C-BASS was a subprime mortgage investor that fell on hard financial times and sold its Litton subsidiary to Goldman Sachs & Co. in November 2007 for $1.34 billion.
9. EMC Mortgage Corp., Lewisville, Texas — $707.4 million
EMC was part of Bear Stearns, which J.P. Morgan bought with assistance from the Federal Reserve Bank of New York last year. Prior to the purchase in 2008, Bear Stearns agreed to pay $28 million to settle Federal Trade Commission charges of unlawful mortgage servicing and debt collection practices.
10. HomEq Servicing, North Highlands, California — $674 million
HomEq was created “by subprime lenders for subprime lenders,” according to the company’s Web site. The servicer was bought by British banking giant Barclays Bank PLC for a reported $469 million from Wachovia Corp. in 2006.
Seven other participants in the foreclosure relief program are also worth noting because of their associations with subprime mortgage servicing or lending:
Select Portfolio Servicing, Salt Lake City, Utah — $660.6 million
Select Portfolio was formerly known as Fairbanks Capital Inc. In November 2003, Fairbanks agreed to pay $40 million to the Department of Housing and Urban Development and the Federal Trade Commission for “unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans.” The company was purchased by Credit Suisse First Boston in late 2005. Credit Suisse spokesman Duncan King told the Center the “entire management team” has been turned over since the settlement.
Saxon Mortgage Services Inc., Irving, Texas — $632 million
Saxon Mortgage Services Inc. is a subsidiary of Morgan Stanley that specializes in servicing subprime loans. Morgan announced in August 2006 – the tail end of the subprime boom – that it would buy Saxon for $706 million. Saxon at the time both serviced and originated subprime loans. Morgan was also a major underwriter of securities backed by subprime loans.
Ocwen Financial Corp. Inc., West Palm Beach, Florida — $553.4 million
In April 2004, Ocwen Federal Savings Bank’s chairman and CEO William C. Erbey signed a “supervisory agreement” with the federal Office of Thrift Supervision promising to improve the organization’s loan servicing practices, which had included “force placed” hazard insurance and objectionable fees. Barely a year later, Ocwen gave up its bank charter, thus terminating the agreement. Erbey earned $2.3 million in total compensation in 2008. Ocwen is also the subject of approximately 64 lawsuits accusing the servicer of abusive collection practices, according to the firm’s filings with the Securities and Exchange Commission. Ocwen Executive Vice President and General Counsel Paul Koches said the surrender of its bank charter had nothing to do with the supervisory agreement and the company has nevertheless continued to follow all of the servicing practices set forth in the agreement, and has improved on many of them.
Aurora Loan Services LLC, Littleton, Colorado — $459.6 million
Aurora was part of Lehman Brothers, the investment bank whose failure started the panic of 2008, and serviced the investment bank’s considerable subprime lending portfolio. Lehman and its subsidiaries rank No. 11 on the Center’s subprime list. The bank was also among the largest underwriters of subprime mortgage-backed securities on Wall Street. Aurora was not part of the bankruptcy.
Wilshire Credit Corp. Beaverton, Oregon — $453.1 million
Wilshire was bought by Merrill Lynch for $52 million in 2004. Merrill, another symbol of last year’s banking meltdown, was staggered by subprime lending losses and bought by Bank of America in a controversial transaction that resulted in congressional hearings. Another Merrill servicing subsidiary, Home Loan Services Inc., qualified for $447,300,000, ranking it 16th.
Carrington Mortgage Services LLC, Santa Ana, California — $131 million
When No. 3 subprime lender New Century Financial Corp. of Orange County, Calif., filed for bankruptcy protection in April 2007, the firm’s mortgage billing and collections unit was sold to Carrington for $188 million in August.
MorEquity Inc., Evansville, Indiana — $23.5 million
MorEquity is a subprime lending subsidiary of American International Group Inc., the top recipient of government bailout funds. AIG was best known for contributing to the crisis through the sale of “credit default swaps,” a form of unregulated insurance that investment banks purchased in the hope they would be protected from losses.