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Banks Try to Force Struggling Smaller Players To Buy Back Their Loans Carrick Mollenkamp, WSJ 3-13 Amid mounting defaults in the market for subprime mortgages, some big banks and mortgage companies are striking out in their efforts to wrest compensation from originators of those high-risk, high-return loans. Led by HSBC Holdings PLC, banks and others are trying to force small mortgage lenders to buy back some of the same loans the banks eagerly bought in 2005 and 2006, by enforcing what the industry calls repurchase agreements. Squeezed by the onslaught of defaults, many originators are saying they can't afford to buy back their loans or are pursuing bankruptcy protection. Yesterday, New Century Financial Corp., one of the nation's biggest subprime-mortgage lenders, said its bank lenders were pulling their funding and that it didn't expect to meet the repayment demands of its creditors. The bank funding allowed New Century to finance loans while waiting to sell them to investors. Last week, under pressure from creditors, the company ceased making new loans. The largest debt listed by New Century, owed to Morgan Stanley, was $2.5 billion. New Century said that after Citigroup demanded additional collateral of $80.3 million to cover a "margin deficit" on some of the company's debt last Tuesday, Goldman Sachs Group Inc. filed a default notice on Wednesday, seeking repayment of roughly $100 million. In a filing yesterday, New Century also listed outstanding debts of about $900 million to Credit Suisse Group, $800 million to IXIS Real Estate Capital Inc. and $600 million to Bank of America. Sub-prime's Double Whammy Grace Wong, CNNMoney 3-12 The banks stand to take a double hit. First, they lose if subprime lenders can't pay back the money they've borrowed from Wall Street to bankroll their mortgage business, said Gary Gordon, managing director of research at independent research firm Portales Partners. Second, with the growing problems roiling subprime, there will be fewer of these mortgages issued for the banks to repackage and sell as securities to investors - an area that has become extremely lucrative for Wall Street. How big a hit they take remains to be seen since they are so deeply involved in different parts of the subprime mortgage business, analysts said. Lehman (Charts) and Bear Stearns (Charts) have been among the most aggressive in the business of buying subprime loans and repackaging them for sale to investors. Morgan Stanley and Merrill Lynch (Charts) have jumped even further into the business, by purchasing subprime mortgage lenders outright. "The biggest risk lies not so much in the losses that they're going to absorb [from defaulted loans] but in the fact that mortgage bankers aren't going to originate as many loans," said Punk Ziegel analyst Dick Bove. Overall, lenders in the subprime sector made some $640 billion in mortgage loans last year, about a fifth of the total mortgage market and nearly double the amount from 2003. Ratings Changes On 2-14 Standard & Poor's has upgraded six of the largest U.S. banks, including Bank of America and Wachovia. According to Reuters, the ratings agency says the banks have shown good performance and built franchises strong enough to withstand short-term hits. Charlotte-based BofA was upgraded one notch to AA, while Charlotte-based Wachovia's rating rose one notch to AA-. The outlook on all of the ratings is stable, S&P says. They had been on CreditWatch positive at the end of last year. Wells Fargo became the only U.S. bank to have the highest possible credit rating from both S&P and Moody's -- with Standard & Poor's Ratings Services upgrading Wells Fargo Bank, N.A. to "AAA," its highest possible credit rating. On 2-14 SunTrust announced a 20% increase in the dividend on SunTrust common stock. A quarterly cash dividend of $0.73 per common share was declared payable on March 15, 2007 to shareholders of record on March 1, 2007. Home Page Factoids Previous Update |