Loan Think

Jay Sidhu, the former head of Sovereign Bancorp, is a busy man these days.

Before we get to the main event, I should point out that the coming week is the beginning of "earnings season" which means all the big boys—Bank of America, Wells Fargo and Citigroup—will be reporting. The second quarter was decent in terms of residential loan production thanks to the expiring federal tax credit for first-time and move-up buyers. But it will be especially interesting to see what type of "new" mortgage hits these megabanks take and how their overall profits were hurt by a horrible quarter for the stock market. All three (and many other "investment banking" related firms) have enjoyed strong trading profits (stocks, bonds) during the stock market boom but the bloom (as we all well know by looking at our 401k statements) is off the rose. Stocks stink, this past week being an exception. Also, all three of these banks hold or service billions of delinquent mortgages thanks to "legacy" acquisitions. And yet, we hear little about the big boys unloading their problem loans in the secondary market...

Who says the commercial real estate market is in the tank? All the doomsayers were saying CRE would be the next shoe to drop in the economy.

Wells Fargo & Co. officially pulled the plug on its consumer finance unit yesterday, saying it would no longer originate "nonprime" residential loans through its Wells Fargo Financial unit. Truth be told, WFF wasn't exactly doing much true real estate-related subprime lending anyway, which makes the story a bust of sorts in mortgageland. The unit's core residential product was the FHA loan. Meanwhile, in other matters, we understand the 'Octomom' may be needing a loan workout. The woman who gave birth to octuplets in January 2009 is about to go into foreclosure on her house, a source close to the situation told us. "The holder of the mortgage is a private lender," said the source. He noted that the Octomom bought a (roughly) $600,000 home in California with the proceeds of her reality TV show…

A few months back CitiMortgage stopped funding jumbo mortgages through loan brokers, a story broken by National Mortgage News on its website. It now appears that Citi is beginning to get a bit more aggressive on jumbo lending through its retail branches. But one former Citi jumbo broker told us that the bank's jumbo prices "are not competitive," adding that "they can keep the broker out and charge what they want." Meanwhile, we continue to hear reports from factions of the mortgage industry that certain servicers are refusing to modify loans unless a borrower is already delinquent. Perhaps, that's not big news, but we can only wonder that if a "current" loan is not modified whether it might eventually lead to a strategic default…

So far we have covered having people discover their sales strengths, assisting real estate agents with tax planning and teaching people self defense. This idea takes a little more time-but it's worth the effort.

Now more than ever, with the limited amount of product selection available, mortgage origination is a commodity business. Therefore, one must compete on service more so than price.

Thanks to all who wrote in last week and liked the idea of using nostalgia or the "back in the day" type of story to illustrate the benefits of the reverse mortgage. Often a story can make a point that is much more poignant than all the facts and figures we like to collect.

At the recent Mortgage Bankers Association's Secondary Market Conference in New York City, I got to moderate a panel that discussed both originations and servicing issues.

First the good news: it appears that mortgage profits should stay healthy for some time. How do I know that? The answer is simple: the cost of funds for mortgage lenders (depositories, that is) continues to be quite low and the yield on the 10-year Treasury is at just under 3%. Mortgage rates are at 4.5%. Do the math. Of course, with the jobs picture looking (to put it nicely) not-so-good, applicants that want to purchase new and existing homes will continue to fence sit until they see a clear sign the economy is improving and their jobs are secure. Cash is king, and based on what's been going on in the stock market the past 60 days it appears that investors are content to sit on huge wads of money. They are not putting it in stocks or real estate. It's just sitting there, a trend that may continue for two, three, four years. Of course, market conditions can change on a dime but the stock market has a significant effect on consumer confidence and most people believe the market is a leading indicator for the overall economy...