Ownit Mortgage Solutions' recent announcement that it was closing its doors will not have an immediate substantial impact on associated securitizations involving the now-defunct originator, although Fitch Ratings cited today representation and warranty loan repurchases as potential longer term concerns.
On Wednesday Dec. 6, Agoura, California-based Ownit announced it was ceasing operation immediately citing unfavorable market conditions. Since 2003, Ownit originated approximately $17.6 billion in mortgage loans to borrowers with blemished credit histories through a network of brokers.
Ownit relied on warehouse lines from various banks for short-term financing, and managed its long-term funding through a combination of whole-loan sale and securitization. Ownit had 16 branches with approximately 700 employees and operated in 45 states.
Four majority Ownit collateral RMBS transactions are rated by Fitch.
While securitization structures utilizing third-party servicing are largely protected from originator risk, a primary concern is the issue of representation and warranty loan repurchases,Â in whichÂ the originating lender is forced to repurchase loans it made due to fraud or other factors.
To the degree that a securitization depends on the originator to make such repurchases, failure of the originator to do so can result in a higher level of default and loss.
In two of the four majority Ownit transactions, Fitch said representations and warranties are provided by the issuer, Merrill Lynch Mortgage Investors, Inc., and not by Ownit.
Ownit is, however, the primary representation and warranty provider on the remaining two transactions. Fitch said that exposure to Ownit as represenation & warranty provider for these transactions was taken into account during Fitch's initial rating of the affected transactions and subsequently reflected in credit enhancement levels.