Loan Think

Do we have an international sovereign debt crisis or what? Bear with me. There are a few mortgage angles here. As I write this, the Dow Jones Industrial Averageis down 225 and all looks ugly. Greece is hemorrhaging with Portugal, Spain, Italy, and Ireland suspect as well. Investors will avoid buying the debt of these firms (in theory) unless they receive certain assurances from the European Union -- which means investors will continue to scarf up U.S. debt because (comparably speaking) it's "safe." The more U.S. bonds they buy, the lower interest rates will go, including mortgage rates. This should only spell good news for lenders. And if employment is really picking up -- we'll know for sure on Friday when the Department of Labor releases the new jobs number -- perhaps so will home buying. Of course, stock market losses suffered by U.S. investors might cause them to be gun shy when buying a new home. Or just maybe they'll figure that, finally, real estate is a better bet than stocks?...

Many in the mortgage industry are blaming the bad economy for why their business is now tanking, but that might not be the only reason. These business owners, said one consultant, need to look in the mirror to help assess where the blame might truly lie.

Stop the presses: Not only did GMAC Financial Services earn a (small) profit in the first quarter, but its residential mortgage unit did as well. But wait: the chief reason, Residential Capital Corp. made money was because it extinguished debt. Don't forget that ResCap is on the auction block -- and there's all sorts of speculation that buyers aren't exactly lining up around the block to make a bid on the thing. (Its investment banker is the trustworthy Goldman Sachs.) Also, its loan production fell 26% in the first quarter compared to the fourth. Compared to 1Q 09, production was relatively flat. And, of course, there's been plenty of job cuts at ResCap as well. Who says you can't cut your way to profitability? As for Uncle Sam getting its $15 billion back, stay tuned. And what about Cerberus' $15 billion?...

Recently I got the chance to chair SourceMedia's fourth annual servicing conference (six if you count a couple we did in the 1990s) in Dallas and it was our biggest show ever. Here are the remarks I prepared to start the show.

The jumbo business is back! Okay, maybe it's not back with a capital 'B' but here's an interesting tidbit about the recent Redwood Trust jumbo securitization that came to market his week: The face amount of the offering was $238 million -- but the company had orders from investors totaling $1.2 billion. We understand that Redwood is already working on a second jumbo deal. Meanwhile, next week publicly traded vulture fund PennyMac releases its earnings. The company has been working on launching a conduit but has been tightlipped on details. Perhaps, when its results are released PennyMac will provide more color on the conduit. There has been some speculation that it too is eyeing jumbos. Penny Mac's residential servicing affiliate recently hired Steve Bailey to oversee all facets of servicing. Bailey joins the company from Bank of America, the nation's largest servicer of first and second liens. The ranking figures are courtesy of the Quarterly Data Report...

Continuous process improvement; are you familiar with this term? If not you need to be.

THIS JUST IN: It's called "funded indemnification." And certain nonbanks aren't too happy with it. Apparently, some large correspondent buyers (investors) are telling their nonbank lenders that they will purchase their new originations but the nonbank must set aside money in a reserve account to cover possible future losses. I'm not sure if this is a growing trend, but it sure is interesting. If you have any information about this type of behavior by investors, drop me a line at: Paul.Muolo@SourceMedia.com...

This is strictly in the realm of "talk" and "rumor" but there appears to be increasing interest by some seasoned mortgage professionals in hard money lending again -- as in subprime. But don't for a minute think this is subprime lending of 2000 to 2008. This is old styled 'home equity lending' from the 1960s and 1970s where there is equity in the house and the interest rate being charged is five points or more above the going GSE rate. The paper is held by wealthy private individuals or investment funds. Oh, and I heard that one of Angelo Mozilo's sons is now working in the space...

Your friend calls you and says, "Hey, did you know that somebody said something bad about you online?" And just as you thought you were the best thing since sliced bread!

If you're searching for a clear sign that mortgage rates will indeed stay low the rest of the year look across the ocean to Greece and maybe Portugal. Greece's debt has been downgraded to "junk" status and Portugal is getting wobbly. In these troubled times, institutional investors want security and that means they'll keep gobbling up U.S. Treasuries -- and if that happens rates will remain low. (Of course, the U.S. has its own debt problems but compared to Greece, we look good. I guess.) Meanwhile, I keep hearing anecdotal stories that residential loan volumes were decent in March and most of April, but some firms expect declining applications throughout the rest of the year. Despite a decline in production, profit margins remain strong. In an effort to lower costs, some firms are letting their "temp workers" go as opposed to cutting "permanent" staff...