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from a poster at bill fleckenstein's site:
An investment banking friend of mine told me that his firm is representing a subprime mortgage originator in trouble. I didn't want to know the name, nor would he have given it to me if I did, but it's a top 50 (but not top 20) originator with over $XX million in equity and a few billion dollars in originations per year in recent years. This week Merrill exercised their option to put over 4 times $XX >million of loans back to the company that met the criteria for the put (probably early defaults) and did not renew the company's warehouse line. If Merrill's putting loans back to the company, there are almost certainly others that will follow suit. Merrill's puts alone would probably wipe out most of the company's equity (assuming these loans would have to be firesold at a hefty discount); a few more and the company's BK. Also, I'd imagine that Merrill's doing the same thing(s) to their other originators.
This market's about to freeze up - it's going to get ugly very quickly.
An investment banking friend of mine told me that his firm is representing a subprime mortgage originator in trouble. I didn't want to know the name, nor would he have given it to me if I did, but it's a top 50 (but not top 20) originator with over $XX million in equity and a few billion dollars in originations per year in recent years. This week Merrill exercised their option to put over 4 times $XX >million of loans back to the company that met the criteria for the put (probably early defaults) and did not renew the company's warehouse line. If Merrill's putting loans back to the company, there are almost certainly others that will follow suit. Merrill's puts alone would probably wipe out most of the company's equity (assuming these loans would have to be firesold at a hefty discount); a few more and the company's BK. Also, I'd imagine that Merrill's doing the same thing(s) to their other originators.
This market's about to freeze up - it's going to get ugly very quickly.
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