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Aurora Loan contributed to downfall of Lehman

By James Paton, Rocky Mountain News (Contact)

Published September 18, 2008 at 12:05 a.m.

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An analysis of what contributed to the downfall of Lehman Brothers leads to Colorado.

Aurora Loan Services, a subsidiary of the Wall Street firm, became one of the largest players in "Alternative A" mortgages, which include loans approved without proof of a borrower's income.

Exposure to that troubled sector was a factor that drove the 158-year-old investment bank into bankruptcy this week.

"It was clear this eroded the stability of the company," said Byron Koste, director of the University of Colorado Real Estate Center.

Homeowners with subprime loans - made to borrowers with poor credit histories - and those with Alt-A loans have defaulted in record numbers, creating a crisis for businesses that specialize in those mortgages.

That kind of lending allowed many people to buy houses they couldn't afford.

The loans are pooled and packaged into bonds called mortgage-backed securities. But Aurora Loan Services was forced to stop originating those loans several months ago because "the investor base stopped buying" as the market dried up, said Peter Lansing, head of Denver-based mortgage banker Universal Lending.

Aurora Loan significantly scaled back its business earlier this year, cutting roughly 1,300 jobs, or half its work force. Lehman said it would consolidate those Colorado operations in Littleton and close centers in California, Florida and New Jersey.

Company officials have declined to comment, and it remains unclear what will happen to the Littleton office or the remaining employees.

Lansing said he receives at least one resume a week from former Aurora Loan Services employees in search of a job.

"They were a huge employer in the Colorado mortgage industry and were doing business across the whole country," he said.

Aurora Loan Services has filed several lawsuits in U.S. District Court in Denver over the past year and a half, claiming that companies from which it purchased mortgage loans breached the terms of their contracts.

After the bankruptcy filing, British bank Barclays agreed to a $1.75 billion deal to purchase Lehman Brothers' core U.S. business.

patonj@RockyMountainNews.com or 303-954-2544

Comments

  • September 18, 2008

    3:36 p.m.

    Suggest removal

    4gColoNative writes:

    Re: "Alternative A" mortgages, which include loans approved without proof of a borrower's income.

    -- Nothing more needs to be explained. Capital-F Fools and money.

  • September 18, 2008

    9:45 p.m.

    Suggest removal

    prk166 writes:

    And the fannies made it possible to move all those pooled Alt-As

  • September 19, 2008

    7:45 a.m.

    Suggest removal

    FCZ writes:

    loans approved without proof of a borrower's income.

    Another stupid idea.

    No wonder the banks go broke and the mortgage industry has to be resuced by the taxpayers.

    Who will rescue the taxpayers ?

  • September 19, 2008

    5:58 p.m.

    Suggest removal

    Barb writes:

    I understand Lehman Brothers and other similar organizations were giving 23% of their profits from loans went to pay employees bonuses and commission -- seems like a lot of $ in a high risky speculation market.

    Kick the bums out!