Loan Think

DO NOT FILE YOUR FHA/HUD AUDIT TOO SOON OR IT MAY BE WRONG

For the last few weeks, it seems that here in Baltimore where we've had a lollapalooza of a winter, everyone's in a funk. Yes it's been tough to get outside and the snow is finally almost gone. I've taken this time to look at a few projects I've been considering and also trying to figure out how to make the best of this time of the year. By the way, spring is only a couple of weeks away.

Here's a little piece of research I heard this morning -- and I don't know if it's true -- but it is interesting: there are more nonbank mortgages lenders out there with net worth positions above $10 million than there are firms in the $5 million to $10 million category. Of course, these nonbanks live and die on warehouse credit. Late last year the Federal Housing Administration issued a proposal requiring its lenders to have a minimum net worth requirement of $2.5 million within three years. In other matters, Bloomberg reported that GMAC CEO Michael Carpenter earned $1.2 million for the 45 days he worked for the company in late 2009. Mr. Carpenter, of course, is still on board, trying to assess GMAC's future. Based on the 2009 run-rate, Carpenter's annual salary would have been $9.5 million, putting him in the same compensation category as Lloyd Blankfein, CEO of Goldman Sachs...

Remember, your mortgage shop is still a business and it needs to be operating on the same principles other businesses do. And there are many resources that will provide ideas for surviving and thriving that come from those in a similar situation in all sorts of business operations, not just mortgages.

PHH Corp. unveiled its 4Q earnings this morning, revealing that it had to reduce the asset value of its mortgage servicing rights by $57 million during the period "due to prepayments and recurring cash flows and $10 million of credit-related charges, which was comprised of foreclosure-related charges of $11 million partially offset by a reduction of reinsurance-related charges of $1 million." The writedown isn't all that surprising given the nature of interest rates these days, but as we pointed out a month ago, many of the 'mega banks' are writing up the value of their MSRs. Under new CEO Jerry Selitto, PHH is in the midst of reengineering how it conducts business in an effort to save up to $120 million annually...

With limited loan options and similar pricing among competitors, service is how an originator stands out.

So, what kind of 'rich folk' would commit money to a private equity fund to buy into the mortgage industry? The type of investment I'm talking about involves purchasing an existing nonbank residential lender ('A' paper only) or a top flight loan brokerage firm. (Yes, there's still some of those left.) One hedge fund officer told me: "I have two types of conversations, one where I get the phone hung up in my face and another where the guy says, 'Tell me more.'" This manager, who did not want his name publicized -- at least not yet -- said some of the investors are former mortgage bankers and even mortgage backed securities traders. He is working on a deal and hopes to have an announcement within the next two months...

Editor's note: Today we are rerunning one of favorite Joel Pate columns. We hope you enjoy it.What were you doing in 1999? Do you remember?

THIS JUST IN: That New York hedge fund that's looking to buy a well regarded mortgage brokerage shop in the greater NYC metro area is getting closer to a deal. But the signing of the documents and money changing hands could be two months off. One key to the deal: making sure this lender (which will become a banker) has strong warehouse relationships...

Those wild and whacky Republicans! They want Uncle Sam to make (legally) explicit its guarantee of Fannie Mae and Freddie Mac's debt obligations and put in the budget. If they're successful that would add $5 trillion to the current debt load of $12 trillion, giving our great nation a total "bill" of $17 trillion. Does it really matter if it's on or off balance sheet? Well, you can argue this: a home owner calls up his mortgage company and says, "I know I owe you $300,000 on my loan but I just want you to know I owe another guy $150,000 but it's okay because the debt is backed by a house that's worth at least the same amount. Trust me." Maybe if I had more time I could come up with a better analogy. Sorry about that. And as most you know by now: the White House won't be unveiling its master plan for Fannie and Freddie until next year. I've written in past columns that it wasn't going to happen and now I've been proved right. But I'm not boasting. I don't know of anyone in the Washington (or the industry) who thought that Obama would have a plan this year...