Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Nye Lavalle
Accredited Home Shares Sink
On Worry About Lender's Health
August 2, 2007 10:31 a.m.
Shares of Accredited Home Lenders Holding Co. were sharply lower in early trading as the company warned in its delayed 2006 annual report that market turmoil could force it out of business.

The San Diego subprime lender noted it has been operating under waivers to covenants in its lending packages and that future waivers or modifications aren't certain. Not getting waivers and having to abide by the covenants "may impact our ability to fund mortgage loans, grow our business and increase revenues."

In its annual report, Accredited noted the changes in the non-prime mortgage market the past year, saying more than 50 firms in the subprime industry have went out of business.

To help sustain its prospects, Accredited reached a deal in June to be acquired by private-equity firm Lone Star Funds for $400 million, or $15.10 a share. But the stock is now at $5.60, down 30%, showing investor doubt that the deal will be consumated or that the agreed-to terms will have be substantially reduced.

Accredited, viewed by analysts as one of the stronger independent lenders because of its relatively prudent underwriting policies, saw its shares fall as low as $3.77 in March after disclosing its funding challenges amid the broader struggles of an industry plagued by rising delinquencies on loans made to high-risk borrowers.

Accredited said in its annual report that increased competition for customers that started in the industry in the third quarter of 2006 cut into profit margins on loans and caused lenders "to be more aggressive in making loans to relatively less qualified customers." The pricing competition and riskier loans "reduced the appetite for loans among whole loan buyers, who offered increasingly lower prices for loans, thereby shrinking profit margins for non-prime lenders."

Coupled with rising subprime delinquencies, demand for such loans dried up or sale prices were lowered to the point that lenders were forced out of business amid increased margin calls as the amount of distressed loans for sale soared. Accredited said the cycle of lowered prices causing margin calls causing prices to fall even further has continued to recycle.

Accredited said it paid $190 million in margin calls the first 2 1/2 months of the year and noted it sold $2.7 billion in loans for sale "at a substantial discount" to increase liquidity and minimize future calls.

The company told its investors "we cannot assure you that we will continue to have any purchasers for our mortgage loans on terms and conditions that will be profitable to us. Also, even though our mortgage loans are generally marketable to multiple purchasers, certain mortgage loans may be marketable to only one or a few purchasers, thereby increasing the risk that we may be unable to sell such mortgage loans at a profit."

During the turmoil, Accredited also had to boost its repurchasing of mortgages that it already sold. Through May 31, the company bought back nearly $152 million in loans and paid $39.2 million to eliminate the requirement to repurchase loans in the future from investors. Repurchases for all of 2006 totaled $205.2 million.

If the subprime troubles weren't enough, Accredited admitted that executives have been distracted by the Oct. 1 acquisition of Aames Investment Corp., a real estate investment trust that managed a portfolio of subprime mortgages and made mortgages.

"There is a significant degree of difficulty and management distraction inherent in the process of integrating the Accredited and Aames businesses," said Accredited. "The process of integrating operations has caused and continues to cause an interruption of, or loss of momentum in, the activities of our business."

In addition, Accredited admitted the challenges facing the company and the industry "has had a very negative effect on our employee morale."
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