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Study: 169 mortgage firms closed in '07

Bloomberg News / December 30, 2008
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WASHINGTON - Federal Reserve researchers found that 169 independent mortgage companies ceased operations in 2007, crimping credit.

The data signal the waning of lightly regulated mortgage lenders that thrived with funding from Wall Street firms and investors hungry for yield. Nonbank lenders' share of the high-priced loan market, which includes subprime loans, fell to 20.5 percent in 2007 from 50.6 percent in 2004, the study said.

Most of the nonbank lenders sold their loans to investment banks, which repackaged them into bonds. As the mortgages deteriorated in quality last year, buyers disappeared, leaving the finance companies holding souring loans.

"It underscores the whole vulnerability of a system that doesn't have checks and balances in place at the beginning of loan origination," said Kevin Petrasic, an attorney in Washington and a former special counsel at the Office of Thrift Supervision.

Most of the financial institutions weren't considered banks or banking subsidiaries so they were regulated by state banking supervisors rather than by federal agencies.

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