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 . . .

Foreclosure ‘Tsunami’ Hits Mortgage-Servicing Firms
WSJ, FEBRUARY 11, 2009

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