Foreclosure Climate Puts California Lender In A Tight Spot
September 26th, 2008
It is not always the borrower who suffers. This is the story of how sub-prime loans as a spin off from the foreclosure climate, puts a lender in California in a tight spot.
Maurice McAlister founded Downey Financial Corporation that dealt with loans and savings. Today it has been humbled and wrecked by the foreclosure crisis. The federal regulators have come down harshly on it. Thrift Supervision has asked Downey to give an accurate plan about reducing assets and improving management. This brouhaha caused 83-year-old Maurice McAlister to exit from the board from July this year. He had been at the helm for 50 years but could not stand up to the menace of the raging foreclosure crisis. However he continues to hold the largest share of Downey’s stock.
This year the investors including McAlister have lost a fortune as the shares took a tumble. Even after a modest surge this Friday, Downey is still 90% under water.
The roots of Downey’s problems are the ARM mortgages. It is not just Downey – these sub-prime mortgages are held primarily responsible for the foreclosure catastrophe. Downey offered these tempting ARM’s with absurdly low interest rates. The borrowers were allowed to decide how much they would pay each month!
The sharp fall of real estate has suddenly changed the picture. With the rates increasing, so many owners are defaulting that money is not coming in. The foreclosed houses have become worthless and liabilities. Downey at Newport Beach, California is now buckling under bad loans. The foreclosure crisis is going from bad to worse dragging down the economy with it. More house owners are defaulting on their ARM’s.
Downey and his family have been controlling Downey’s for decades. They lost touch with the reality of foreclosure crisis knocking everywhere. Even the critics of McAlister say that he is a decent and dedicated but he failed to build up a strong management circle. Five years ago some of the board members and representatives of Thrift Supervision had put pressure on McAlister to put a check on ARM loans. But their words of warning went unheeded. When 2007 was drawing to a close 69% of the residential loans held by Downey were ARM’s. Few other lending firms had tipped the scale absurdly in favour of such risky loans as Downey had done. Little wonder then that it collapsing.
- Bouncing Cheques Issued by Title Companies Lead to Foreclosures
- Increase in Foreclosures Prompting Class Action Legal Suits
- Avoiding Foreclosures by Walking Away From Loans are not Without Problems
- Foreclosure Assistance Being Taken on Tour by Housing Advocate
- Washington Mutual, the Symbol of the Foreclosure Crisis, Continues to be in Trouble
- The Consequences of not Paying Mortgages Can be Grim
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