Found this over on the housingbubbleblog today. Of interest is this: MBS investors can demand that the lender repurchases the loan under certain conditions. Apparently, one of these conditions is the borrower failing to make the first payment. There has been an increase in people who can’t even make their first mortgage payment.

Why is this happening now? Have lending standards been reduced so much this summer? It appears so.

Here’s the quote from the blog, from the LA Times story:

“Option One caters to riskier borrowers who must pay higher interest rates and fees because their credit is flawed or their income and equity levels aren’t high enough. The company and other so-called sub-prime lenders transfer the risks by selling loans or mortgage-backed securities to other firms and investors. But if the loans quickly fall into default, or if they have been misrepresented to borrowers or investors, the originators can be forced to repurchase them.”

“Several sub-prime lenders in addition to Option One have reported having to repurchase higher quantities of loans, Friedman, Billings, Ramsey Group Inc. analyst Scott Valentin noted in a recent report.”

“H&R’s statement indicated problems of another kind: borrowers failing to make even the first few payments. In addition to ‘an increase in early-payment delinquencies,’ it said loan buyers were becoming less tolerant of problems and quicker to demand repayment when something goes amiss, noted analyst Kelly Flynn at financial services firm UBS.”