Do you remember all the advertisements we used to see about mortgages, re-mortgages, and home equity loans? Do you remember all the e-mail spam we used to receive, begging us to consider company X for refinancing our mortgages?
In particular, I remember the television airwaves seemed to have been flooded by Ditech ads, in which a loan officer at a conventional lender consistently lost prospective clients to Ditech.
I have not seen any of these types of advertisements or e-mail spam for the past year or so, at least not that I remember. They seemed to slow and then stop, within a few months after it was apparent the housing bubble had burst and the sub-prime crisis was emerging...go figure.
Most of the mortgage loans made by these companies were packaged, sold, and re-sold as collateralized debt obligations -- the very financial instrument that was at the heart of the sub-prime crisis. That market has dried up for two reasons:
- Private insurance companies that insured these bundles of mortgages had done a poor job of assessing the risk attached to them; several have gone bust, and others are so gun-shy they don't write much or any insurance for these types of mortgage bundles.
- It is really hard to assess the riskiness of a bundle of mortgages if you don't know and cannot have recourse to suing the people who bundle them. Given this second risk (the risk associated with the original bundlers), buyers are quite reluctant to take on the bundles at any reasonable price.
If they cannot easily resell these mortgage packages, there is little reason for such mortgagors to spend much money on advertising.