Eighth Edition - Covering 2006 Through 2008
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Eighth Edition - Covering 2006 Through 2008 |
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This is the demo version of the eMID. Information contained here is only a sampling of the full array of data available in the paid version. The profiles shown here are samples, showing data of randomly selected companies. Some features, such as file download, have been disabled. What does the paid version offer? Valuable contact information, profiles, and program details of individual companies are only accessible on the paid eMID. To take advantage of the full range of powerful data and features, order the eMID today! If you have further questions or would like to order the product, please call (888) 501-8850. You can also order the eMID online. |
Before we get to the state of the servicing sector and where the industry is headed, let's first talk about the 600-pound gorilla in the room. That would be Bank of America/Countrywide. When BoA agreed to buy CFC for $7 a share in early 2008 (the lender's all-time high was $45) the deal created a mortgage behemoth with a residential production market share of 21% and servicing share of just about the same. The merger was officially completed in July but the combination of business units and technology platforms will stretch on for 12 additional months. After all, when you take one company that services 8.9 million units (Countrywide) and mush it into one that services 5.7 million loans there will be some "technical difficulties" to work out.
Together BoA/CFC services $2 trillion in home mortgages (both first and second liens) and 14.6 million loans. The entire market for housing receivables (the dollar amount consumers owe on their first and second liens) is $9.522 trillion, according to figures compiled for this book. A decade ago the idea that one firm could service $1 trillion worth of home mortgages seemed inconceivable. Now, eight years into the new century, we have a $2 trillion servicer. BoA/CFC competes directly against other top servicers such as Wells Fargo & Co. ($1.482 trillion in servicing rights), CitiMortgage ($798.7 billion), Chase Home Finance ($794.7 billion), and Washington Mutual ($615 billion). (These are first quarter 2008 figures.)
There were several large question marks surrounding the deal. With the sale consummated, CFC co-founder and chairman Angelo Mozilo retired from the lender/servicer, as did his top lieutenant, David Sambol. But will BoA chief Ken Lewis be able to hold CFC's parts together? Besides lending and servicing, the company was involved in all facets of mortgage banking including loan trading, securitization, servicing brokerage, and insurance to name just a few.
In regard to the mortgage and housing crisis, the company's name has been dragged through the media mud. Not only was Countrywide the nation's largest overall servicer but it was also the nation's largest subprime servicer with $112 billion in A- to D receivables at year-end. At press time, it was the subject of state investigations concerning its lending and foreclosure practices. Mr. Mozilo has been vilified in both newspaper columns and blogs for the fact that he sold millions of dollars in CFC stock while the lender's fortunes crumbled. Perhaps, when the smoke clears, he might be remembered on more friendly terms. He created a once hugely profitable company from scratch, building it into an industry giant that, at its peak, had a market cap (share price multiplied by outstanding shares) of $25 billion. Mr. Mozilo's two biggest mistakes: entering the subprime and payment option ARM sectors. Both have cratered.
Analysts that followed CFC wonder how well BoA will manage CFC's $1.476 trillion in housing receivables. That's a lot of firewood to protect. The overall delinquency rate on the portfolio (including prime and subprime) is north of 8% which means $118 billion worth of loans are delinquent. How many of these mortgages will be BoA cure and bring current? How many will result in foreclosure and huge losses? And what if a refinancing boom hits the industry over the next two years? CFC, under Mr. Mozilo, was always adept at capturing the refinancing business but how will it do under BoA? Many key CFC production executives could leave the company (or already have left). Yes, many questions remain regarding Countrywide. The only thing we know for certain is that BoA is throwing the Countrywide name overboard. Come 2009 the name will be extinct.
According to exclusive survey figures, compiled for this book, the nation's top five servicers control 54.32% of all housing receivables in the U.S. (The figure represents servicing rights on both first and second liens, including prime and non-prime alike.) At year-end 2004 the top five controlled 42.73% of the servicing market. From 2004 to 1Q 2008 the top five saw their lock on the market spike by 27%. That's a stunning increase. (See table.)
The top five control $5.173 trillion in home mortgages out of a total pie of $9.522 trillion. Any outsider looking at these numbers might think that this group (or at the very least, the top ten) have a "lock" on the servicing sector. Indeed, servicing is an economies-of-scale business where companies with the best computer systems, software, and management teams rule the roost. Then again, what I just wrote might sound like an over-simplification of the servicing business. State of the art servicing technology systems matter. Yes, they do. But even good software cannot make up for vicissitudes of the housing finance business. Two factors can screw up the best laid plans of mortgage servicing managers everywhere: an unexpected surge in refinancings, and a spike in delinquencies.
It is entirely possible that given the delinquency crisis in America and the number of ailing mortgage companies, the servicing side of the business could "de-consolidate" in the years ahead. Existing servicing giants may be loathe to take on more risk, which means new entrants may view the crisis as an opportunity to acquire a state-of-the-art servicing platform at a bargain basement price. We've already seen steel magnate Wilbur Ross buy two large servicing platforms (American Home and Option One). Will we see other bottom fishers take the plunge into servicing?
As we all know, residential delinquencies are on the rise - for both 'A' paper loans and subprime. In the subprime space late payments and defaults are at a crisis level. According to figures compiled by National Mortgage News for the Mortgage Industry Directory, subprime late payments soared to 28.6% in the first quarter of 2008 which means $294 billion in A- to D loans are 30 days or more late. Lenders - with the help of the Treasury Department and federal banking regulators - have created forbearance programs for certain delinquent borrowers who want to keep their homes but are having trouble making their payments. It appears that consumers with adjustable rate payment option ARMs (POAs) are suffering the most.
In the first quarter of 2008 the delinquency picture worsened even more. Then again, given the fact that home prices have dropped by as much as 25% to 40% in some once hot markets, this was expected. The bad news is that in the summer of 2008 there was little evidence of a bottom in the mortgage credit cycle. Industry economists, including those at the Mortgage Bankers Association, believe we have yet to hit bottom.
Jay Brinkmann, the MBA's vice president for research, attributed the continuing credit woes to areas hard hit by the downturn in home values, particularly California and Florida. The problems in these two states are "extraordinary," he told reporters in June. "Clearly, the foreclosure conditions in California and Florida will get worse before they get better." Overall, 8.82% of home loans were more than 30 days past due or in foreclosure nationally during the first quarter. Excluding the foreclosure inventory, 6.35% of loans were past due on a seasonally adjusted basis, up 151 basis points from one year earlier.
The percentage of loans in the foreclosure process rose to 2.47%, an increase of 119 basis points from one year earlier. That means the foreclosure inventory is almost double its level of just one year ago. Foreclosure starts also moved into record territory, with 0.99% of loans entering the foreclosure process during the first quarter, an increase of 43 basis points from the pace of foreclosure starts one year earlier.
Mr. Brinkmann said that while foreclosures are up for all loan products, subprime ARMs are responsible for most of the damage. While subprime ARMs account for just 6% of loans outstanding, they account for 39% of the foreclosures started during the first quarter. In a troubling sign that troubles are creeping into the prime sector, foreclosure starts on prime ARM loans accounted for 23% of starts. Prime ARMs account for 15% of loans outstanding. The overall delinquency rate, which went up on a seasonally adjusted basis because first-quarter delinquencies did not fall as much as they normally do from the fourth quarter, suffered as more delinquent loans rolled into more serious categories of delinquency, particularly in states hard hit be falling home values.
Adding to the problem is that ARMs and hybrid loans, as well as other specialized products that stretched the borrowing capacity of borrowers, were popular in places like California and Florida during the housing boom. Arizona and Nevada, which also have seen falling home values and once accounted for a large number of investor home purchases, also are contributing to the rising default and foreclosure numbers. According to MBA, about 20 states had drops in their number of foreclosures started, including Michigan, Ohio and Indiana, where problems have been the most severe for the last several years. Note: All three of these states have been hurt by the downturn in the U.S. auto industry.
It continues to be gut-check time for all mortgage bankers. Residential finance professionals that work in servicing-related jobs have a much brighter future than those employed in production. Residential originations fell 33% in 2008, compared to $2.65 trillion in 2007. Thanks to sky high oil prices ($136 a barrel at press time) the U.S. economy is in the doldrums. High oil prices make consumers feel bad and for good reason: the more they pay at the pump, the less they have to spend on everything: clothing, food, entertainment, going out to eat, utilities, savings, take your pick. The less consumers save, the less money that will be available for a down payment. Some first-time home buyers might look around, thinking the market has bottomed, but when gasoline hits $4.50 a gallon they might reason: "Might as well wait. Home prices could drop even further and I might not have a job."
If oil were at $80 a barrel, the housing market might be finding a 'floor' after 18 months of declining home prices. Consumers might be willing to take a chance on housing. Instead, oil is reaching for a new ceiling - weekly, which means the housing floor keeps sinking. When oil prices rise as rapidly as they have something has to give. Consumers need gasoline to drive to work. When they cut back it will be on unessentials. But cut back, they will. And when consumers stop spending businesses start hurting and when businesses start hurting they begin laying off workers and when workers get laid off they stop paying their mortgages. And that hurts the servicing business.
If the oil crisis can be solved, it will help the housing and mortgage industries (and every business tied to them) recover. We keep hearing that oil is so expensive because India and China keep gobbling it up as though they were Americans (how dare they!) Oil is also going sky high because the dollar is weak and speculators are buying up future contracts because it's the only investment game in town.
Some economists keep telling us oil could be a bubble waiting to happen - just like Internet stocks and housing. Maybe so, but in the interim consumers worldwide are paying more, creating huge amounts of wealth for oil producers, especially those in the Middle East who seem none-too-willing to increase production. But they have done us at least one favor: some have bailed out our financial institutions by investing in preferred stock and taking a piece of the action. In the year ahead servicers will live and die by the quality of their loan portfolios. Firms that carefully underwrote their receivables will be the winners. Those who did not, will be the losers. It's as simple as that.
In this chapter we provide profiles on the nation's top 300 servicers and one-line rankings on different servicing-related data points such as number of loans serviced, ARMs serviced and the like. (If you desire more servicing-related information you may want to purchase the eMID, Servicer module. If so, contact Deartra Todd at 202 434-0320.) The results were culled from exclusive surveys sent out in January and February by the Washington-based research group of National Mortgage News.
Survey forms were sent to more than 1,500 active residential lenders/servicers in a database built by NMN. Mortgage firms of all charters (mortgage bankers, banks, thrifts, credit unions and others) were asked to fill out a three-page survey and return it to us within 30 days. The survey was also emailed, upon request, to any servicing firm that asked for it. At least two follow-up telephone calls or faxes were sent as well. In some instances, companies declined to provide their results. In certain cases we estimated a firm's servicing volume based on previously reported numbers or from information provided by the Government National Mortgage Association or Office of Thrift Supervision. If you work for a firm that is missing from these rankings and you would like to provide us with numbers please call (202) 434-0322. Our goal, as always, is to provide results on as many servicers as possible.
-Paul.Muolo@SourceMedia.com
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With comments or questions about the data contact Paul Muolo, paul.muolo@sourcemedia.com For technical support, e-mail Andras Malatinszky, andras.malatinszky@sourcemedia.com For customer service, call (800) 221-1809 © 2008 SourceMedia, Inc. and National Mortgage News. All rights reserved. |
