Ownit Mortgage Solutions, a wholesale mortgage lender, closed its doors Monday amid unfavorable market conditions.
While this seems like just another story of a fairly large home lender shutting down during the so-called housing bubble bust, it’s why it shut down that’s important.
Ownit Mortgage was well-known in the industry for providing 100% financing on new purchases, hence the name of the company. Unfortunately that niche product would also be the demise of the company.
After a few years of debate, it was decided that 100% financing is considered a subprime loan, thus harder to sell to investors. So hard in fact that Ownit was selling their loans as “dent and scratch” quality, effectively losing money on large deals.
This isn’t another sign of a crashing housing market. It’s a sign that the mortgage industry needs to wise up and tighten guidelines to avoid a crash.