MarketWatch is reporting Subprime lender Ownit Mortgage shuts down.

Ownit Mortgage Solutions, a California company that described itself as one of the top 15 lenders to homeowners with weak or no credit histories, has shut down, citing “the current unfavorable conditions of the mortgage industry.”
Merrill Lynch & Co. (MER) and private equity firm CIVC Partners hold stakes in Ownit, which built its book of new loans to $8.3 billion in 2005 from $1.1 billion in 2003, in part by introducing products like 45-year mortgages, according to its Web site. Ownit’s demise comes as subprime mortgage lenders are being squeezed by higher funding costs, weakening loan demand and rising delinquencies.

“Effective Dec. 5, Ownit closed its doors, and we are no longer able to fund or process your loans,” the company said on a recorded telephone message. “We apologize for any inconvenience.”

Ownit ran out of cash needed to meet its obligations to repurchase loans from investment banks and others who bought them in the secondary market, people in the industry said. The banks, which convert the loan payments into mortgage-backed securities for sale to investors, can force the original lenders to repurchase loans if the mortgage borrowers default.

The end came quickly for Ownit.

“We were all working yesterday, assuming we were fine,” Dave Hanthorn, a New Jersey-based employee who sells the firm’s loans to mortgage brokers, said Wednesday evening. “At 5:15 last night we got the call that we were ceasing operations.” He said the company gave no explanation for its funding problems.

The LA Times is reporting Ownit a victim of sub-prime shakeout.

One employee, among 300 to lose their jobs in California, said he learned of the company’s demise Tuesday while manning the Ownit booth at a mortgage conference in Las Vegas.

“Suddenly, people were all rushing over and practically throwing their BlackBerries at me,” said Kevin Panet, a marketing and training manager. “The messages they were getting from people at the company said things like, ‘Thanks for the memories’.”

In its statement, Ownit blamed Merrill Lynch & Co. for the closure, saying the company was one of its primary lenders and had cut off its funding Tuesday. Merrill Lynch holds about 20% of Ownit. Merrill Lynch spokesman Bill Halldin said Ownit’s statement was misleading, but he declined to comment further.

Two people with knowledge of the funding arrangement said JPMorgan Chase & Co. cut off Ownit’s funding Monday, leaving the lender unable to issue loans. JPMorgan couldn’t be reached for comment.

According to trade publication Origination News, Ownit ranked 11th among sub-prime wholesale lenders in the first half of 2006 with $5.5 billion in loans.

Panet said he didn’t know how much pay would be coming to employees. “I’ve been told not to expect anything as far as severance goes,” he said. “It’s not sure we will be getting a last paycheck on the 15th.”

Ownit executives wouldn’t discuss the shutdown beyond the company’s brief statement. It was also unclear what would happen to loans that were in process. On Wednesday, the company’s website was taken down.

This should be a huge wake up call to individuals playing the “Greater Fool” game and even more so to hedge funds leveraged up 15 times in derivative plays thinking there will be time for an orderly exit. Well there won’t. One day out of the blue we are going to go from record low volatilities to lock limit down three days in a row. The carnage is going to stun even bears like myself.

Mike Shedlock / Mish/