If other loan packagers follow UBS's tightened standards, a home loan market already constrained by rising interest rates and a housing glut will

UBS restricts its purchases of home mortgage loans



Last Update: 11:55 AM ET Aug 7, 2007


By Jed Horowitz Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--UBS AG (UBS : UBS Ag
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8:21pm 08/07/2007

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UBS55.74, +0.51, +0.9%) is telling mortgage brokers that it will no longer buy loans lacking documentation about borrowers' ability to repay, another sign that the supbrime mortgage virus has spread to the broader loan markets.
UBS Home Finance was one of the lenders to American Home Mortgage Investment Corp. (AHM : AHM
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AHM0.00, 0.00, 0.0%) , which filed for bankruptcy on Monday. Like many banks, UBS has found itself stuck with purchased residential loans it can no longer funnel to investors in the form of mortgage-backed securities.
Mortgage-backed securities have plunged in value because of a wave of delinquencies and defaults from borrowers with weak credit histories whose payments backed the securities. Until default rates began soaring at the end of 2006, many mortgage brokers were shoveling big loans with low teaser rates to borrowers without asking for proof of employment and other signs of their ability to pay.
UBS Home Finance focuses on a higher end of the market than the subprime sector of loans to borrowers with weak credit profiles. It buys prime loans made to borrowers with good credit histories and Alt A loans with little documentation that are made to borrowers ranking between prime and subprime. If other loan packagers follow UBS's tightened standards, a home loan market already constrained by rising interest rates and a housing glut will be further chilled, mortgage brokers said.
Many big mortgage lenders such as Washington Mutual Inc. (WM : Washington Mutual Inc
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8:22pm 08/07/2007

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WM36.19, +0.45, +1.3%) earlier this summer curbed loans to subprime borrowers and demanded stronger documentation. Washington Mutual, Barclays Bank, Countrywide Financial Corp. (CFC : Countrywide Financial Corp
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8:06pm 08/07/2007

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CFC27.35, +0.60, +2.2%) and Merrill Lynch & Co.'s (MER : Merrill Lynch & Co., Inc
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8:15pm 08/07/2007

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MER75.19, +0.64, +0.9%) First Franklin unit, among others, also have stopped issuing mortgages with rates that are fixed for two, and in some cases three, years before resetting.
On Monday, two more lenders closed some of their operations. Cleveland-based National City Corp. (NCC : National City Corporation
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8:16pm 08/07/2007

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NCC28.44, -0.20, -0.7%) told MarketWatch it will no longer approve home equity lines of credit through its National City Home Equity unit "to help ensure that originations are in line with existing and anticipated market conditions."
Aegis Mortgage Corp., which is owned by private-equity firm Cerberus Capital Management, stopped all loan originations amid the deteriorating housing and credit markets.
Since late spring, more than three dozen mortgage firms have closed their doors or suspended operations.
UBS had been expanding its mortgage-backed securities business. In the first half of 2007 it ranked as the 19th largest issuer of non-agency mortgage-backed securities, up from 25th in all of 2006, according to the Inside Mortgage Finance newsletter. It issued $8.25 billion in the first six months, compared with $12.85 billion in all of 2006.
UBS's new policies on "no-doc" loans went into effect last Friday. The company reiterated the policy in an email sent to clients Monday morning, a spokesman confirmed.
"UBS will only accept full documentation, alt documentation, express documentation and stated income/verified asset documentation loans," the email said.
Though it continues to accept stated income loans that do not require full proof from borrowers, UBS will no longer buy loans in high-risk categories that have locked-in rates, the email said.
American Home Mortgage, the 10th largest direct home mortgage lender last year, said in its bankruptcy filing that it had a $2 billion prepurchase facility with UBS