Loan Think

A few days have passed since the Dodd regulatory overhaul bill hit Gucci Gulch and analysts are still reading the fine print on this 1,300-page (plus) monster. Will it shepherd in the continued rise of mega banks at the expense of small- to medium-sized mortgage bankers? Will it put an end to any possibility that nonagency securitization will happen again? Who knows for sure. There's still plenty of horse trading that needs to be done within the halls of Congress (not to mention educating our thick-skulled elected officials.) Meanwhile, Federal Financial Analytics, a Washington-based consulting firm believes the bill will result in Fannie Mae and Freddie Mac being placed under a "new systemic-risk regulator" which ultimately will be the Federal Reserve Board. "All of the capital and other requirements that would then be imposed on Fannie Mae and Freddie Mac will play a major role in how they come out of conservatorship, making it still more difficult for the GSEs to emerge without dramatic restructuring and still more billions of taxpayer support," FFA says...

THERE IS NO RESPA VIOLATION WHEN A PROVIDER OVERCHARGES THE BORROWER

A few grizzled mortgage banking veterans I know believe that if the risk retention language on MBS in the new bill from Sen. Chris Dodd sticks, you can kiss the nonbank mortgage industry goodbye. You can also say goodbye to plenty of depositories that like mortgage banking. The problem is this: a 5% risk retention requirement for even 'A' paper loans (Fannie Mae/Freddie Mac) will force many originators/servicers/master servicers to the sidelines because 5% will render as worthless the economics of lending and keeping servicing rights on one's books. It also will prevent smaller players from being able to issue 'A' paper MBS. "This will cause a huge rollup of mortgage bankers," one former MBS trader told me. "At a time when the government wants to prevent 'too-big-to-fail' they will be creating more of it. The big banks will be in charge"...

In the past, I have said I am a fan of reality television shows and one of my favorites is the Celebrity Apprentice. Author's note here - I met Donald Trump and spoke with him regarding the formation of one of what turned out to be a failed business venture, Trump Mortgage. One of the selling points of the mortgage company was the name Trump as a brand.

Is the yield curve flattening? Not really but there's a risk that it could, according to a new report from Deutsche Bank. The investment banker issued a note today, saying, "Curve flattening risks are rising. The yield curve has priced in a low probability of Fed rate hikes, even as the risks of tightening are growing. The trade-off between carry versus risk protection is shifting toward the latter. We would not favor trades based solely on their carry. Ahead of the FOMC meeting, we move to a tactical flattening position on the curve slope. We also expect a bounce in swap spreads as receiving pressure eases." If the yield curve flattens it would spell an end to fat mortgage banking profits...

The first quarter of 2010 still has a few weeks left in it but we're hearing scattered reports that while some lenders are experiencing decent application volumes during the first three months of the year, others are not. How all this will play out remains to be seen. No one is predicting a banner year for 2010 but volumes could be off by 30% or more in some parts of the nation. Some lenders are hoping a strong spring home buying season will give them a boost. But if the employment picture doesn't start improving fast, it could get dicey. Meanwhile, a handful of new foreclosure stats and predictions are out based on figures compiled by RealtyTrac and FirstAmerican CoreLogic. Here's a few bullet points: 5 million to 7 million homes are potentially eligible for foreclosure but have not yet entered the pipeline. Depending on how loan modification efforts turn out, this number could be significantly reduced -- or not. Also, roughly 11 million mortgage customers are in some form of default, including the 30-day late category. Distressed properties (as in the consumer is in deep trouble) accounted for 38% of sales in January, compared to a peak of 49% in March 2009. As for the housing market in Orange County (once the epicenter of the subprime industry), mortgage professionals I've talked to out there say housing values are still in the tank and show little signs of improvement...

It's obvious but you still do it.Do what? Waste time and mental energy by asking yourself this question: What the heck is wrong with (you fill in the blank)? What are they thinking?

THIS JUST IN: A few weeks back we printed a story about certain due diligence firms paying their underwriting contractors via a 1099 Form instead of a W-2. I received a bit of e-mail on it, and plan on doing a follow-up shortly. One contractor I know told me this: "People are going crazy. This article spread through the contractor community like wild fire." I don't know if this is just a reader's hyperbole or if there's more to it. I did hear that the Department of Labor has an interest in the matter. We shall see. If you have any insight drop me a line at Paul.Muolo@SourceMedia.com...THE MAIN EVENT: I'm not certain where to start but I'll begin with the numbers. Every quarter National Mortgage News collects origination and servicing figures from the industry. We publish our findings in the Quarterly Data Report. (For a sample QDR drop a line to Deartra.Todd@SourceMedia.com.) We all understand that 2010 is going to be a down year in terms of loan production. But what we need to know is this: Just how bad is it going to be and who will suffer the most? First the good news: profit margins on new originations remain strong. And yes, there's less competition around, leaving more customers for the industry's survivors. Here's six firms (among the industry's top 20 producers) that were in business in 2008 and that are now dead or the property of someone else: Countrywide (annual production of $182 billion), Wachovia ($51 billion), Washington Mutual ($40 billion), Taylor Bean & Whitaker ($31 billion), AmTrust ($24 billion) and IndyMac ($14 billion). Add it all up and that comes out to $342 billion, which is about how much production will fall this year. Yes, I understand that not all of these firms are truly dead. Countrywide, of course, is now the property of Bank of America. But let's face it, when there's a change of control, oftentimes top executives and strong performers leave for greener pastures. It hasn't happen en masse because the housing industry is in the tank. But it could happen. If employment improves, more homebuyers will come out of the weeds. Maybe I'm being too optimistic here. A number of storm clouds are on the horizon, chief among them higher net worth requirements for GNMA, Fannie Mae and Freddie Mac seller/servicers, which affects 99% of the entire industry. And interest rates. In a few weeks April 1 will be here. On that day Uncle Sam is supposed to stop buying MBS, which could force rates back up. It should be interesting...GMAC is finally taken the big step and decided to sell the struggling Residential Capital Corp. Actually it hasn't or maybe it has. Who knows any more? The New York Post had a story out late this week saying Goldman Sachs has been hired by the government-controlled GMAC to sell ResCap. As you know by reading the NMN website the past two weeks, ResCap has been throwing experienced managers overboard. It's obviously a salary dump to make their costs look better. But one trade group official familiar with ResCap told me recently that ResCap's subservicing business is suffering and letting go 24-year veteran Tony Renzi didn't help. But selling ResCap will be problematic. Uncle Sam can "fire sale" the lender, but the big issue is "reps and warranties." What exactly will Uncle Sam make good on if a new owner suddenly gets whacked upside the head by loan buyback requests from Fannie Mae and Freddie Mac - or GNMA even? And what about ResCap's source of funds for originations? Is all of that coming from the "hot money" held at AllyBank? Commercial bankers are none too happy that AllyBank is throwing money around like a drunken sailor on shore leave in a Tom Waits song, advertising about their terrific CD rates on TV and radio. I know a few bankers that would love to walk into an AllyBank branch and punch the manager in the nose. Wait, AllyBank doesn't have any branches. You get the picture...Fortress of California is in the market, offering a few different packages of nonperforming and subperforming loans, or so we are told...Presidents First, a multistate, full-service mortgage banking firm, is expanding its presence in wholesale lending. Also expanding into wholesale is New American Funding of Irvine...Apparently, sometimes lenders foreclose on the wrong house. There have been a handful of news reports in the last week about this subject but this one from the New York Daily News caught my interest. It reads like this: "Bank of America is apologizing for taking a woman's home - and her pet bird - after wrongly targeting her for foreclosure. For Angela Iannelli, 46, that's not enough. She filed suit this week over what she considers the kidnapping of her beloved parrot Luke in a mortgage mix-up last October. The Gibsonia, Pa., woman came home to find her house ransacked and the bird missing." But let me editorialize a bit here. Parrots can talk, can't they? Why didn't the bird speak up?...WASHINGTON NEWS: The Federal Deposit Insurance Corp. has extended its "safe harbor" policy for six months while its board continues to work toward the adoption of new securitization standards. The safe harbor, which was due to expire March 31, assures investors that the FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. The blanket policy applies to all securitized assets. But Brian Collins of NMN reports that going forward, FDIC chairman Sheila Bair wants to condition this protection. Stay tuned.MORTGAGE PEOPLE: Bill Petersohn, director of bulk acquisitions and capital market sales for ResCap, has resigned from the mortgage banker to take a job with analytics firm MCT Capital Trading.SURVEY NOTICE: It's survey time once again. In a week or so NMN will send out its annual lending and servicing survey but currently we're asking loan officers (retail and brokers) to fill out a special questionnaire tailor-fitted to them. We are giving away complimentary subscriptions to Origination News to those who provide their 2009 origination volume. Please visit http://brokeruniverse.com/losurvey.I'm on Twitter. For what it's worth...Also, the paperback version of "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis" is out. It has new information and details on Countrywide, the mortgage cartel and TBTF, among other matters. This is the last time I am promoting the book in this column. That's a promise. I'm moving on, starting work on a new book about being a soccer coach. If you think mortgage bankers are unruly, check out the parents at a youth soccer game.DATA NOTICE: National Mortgage News has all different data sets available for purchase including rankings and contact lists on the nation's top lenders and servicers. Send your requests for information to Deartra.Todd@SourceMedia.com. Dee can also tell you about our Web-friendly MortgageStats.com product.THE LAST WORD: If the government doesn't get the deficit under control we are all doomed. Rain this weekend in the D.C. area.

Remember Richard Wilkes, the former mortgage banker who ran the IMX Exchange and other mortgage businesses during his long career in residential finance? Well, he's not back in mortgages (by any means) but is working on a side project with Google. I recently asked him about the state of the mortgage industry today and this is what he said (in part): "If I were in the business these days I would have gone berserk by now and might have gotten hurt. Sam, our Uncle, has made a trash heap of our mortgage finance system and the tenets upon which it has evolved into the best in the world. We made mistakes; we failed. That’s what happens with capitalism. Where we’re headed, however, is into a system that prevents failure…but it also will prevent success. Unchecked, what we now are creating will be the end of entrepreneurism and the unrestrained, stifling sloth of bureaucracy.” Richard, of course, is a Texan...

What do real estate agents love more than anything in the world? Lunch!