Loan Think

Those poor Brits. Not only did they lose the Colonies to that rabble-rouser George Washington, but one of their biggest banks, HSBC, made a $14 billion mistake back in 2003 by purchasing then subprime giant Household Finance.

It’s probably no surprise that Freddie Mac made money in the first quarter while Fannie Mae continued to bleed red ink out of its financial oil pan. Consider this: Fannie reported a 72% spike in loan repurchase requests in the first quarter, a sign that its legacy portfolio (read: all those crappy loans it bought from Countrywide) is continuing to deteriorate in quality.

Among the headlines from the recent Mortgage Bankers Association National Secondary Market Conference in New York is that economists from the trade group have declared that the refinance boom is dead.

The debate over overhauling servicing compensation continues. Should the GSEs trim the 25 basis point minimum or not? One industry veteran wrote to us recently, noting this: “In regard to reduced fees, the servicing industry has recently proven that they cannot manage mortgage portfolios and staff appropriately and make a profit given the current fee levels.

The U.S. District Court for the Eastern District of Virginia held that the Home Owner's Loan Act preempts state tort law claims alleging that Flagstar Bank FSB improperly represented itself as as a lender to collect brokerage fees on a home mortgage (Down v. Flagstar Bank F.S.B., E.D. Va., No. 3:10-cv-847, 4/4/11).

“I fear that with Fannie and Freddie reporting earnings again the whole debate on reforming them will fall apart,” one senior mortgage insurance official told me this past week. That was on Thursday, the day after Freddie Mac reported its first true net profit in almost two years, earning $676 million in the first quarter.

The debate over how (and if) servicing compensation should be changed continues to rage on – quietly, that is. Our sources tell us that Fannie Mae appears to be the one driving this truck with Freddie Mac and Ginnie Mae sitting in the back seat, shouting, “Slow down.”

At the Mortgage Bankers Association’s annual technology conference in Fort Lauderdale, Fla., we gathered a panel of industry participants to discuss the latest trends and issues facing the sector and the role of technology in the business.

Early this morning the yield on the benchmark 10-year Treasury fell to 3.17% and oil tumbled $4 a barrel. If these two economic ‘events’ don’t spur home buying (and maybe more refinancings) then nothing will. Of course, many consumers still think that values haven’t bottomed and there’s more room to fall.

When it comes to mortgage lending, the nation’s megabanks are in an interesting position. When applications boom they (in theory) have more financial wherewithal than the little guy to capture market share. And of course, because they have so much market share, they are also in a position to suffer the most.