Loan Think

Too many businesses, too many loan originators are trying to move a lot of dirt these days with a spoon instead of investing in a bulldozer.

Irony: Stan Kurland's vulture fund Penny Mac is trying to make a tidy little profit by purchasing all those toxic mortgages that are dragging down our nation's financial institutions. Of course, $100 billion of those crummy loans were created by Mr. Kurland's old employer Countrywide Financial. Penny Mac, which went public this summer, just posted its first earnings report - a loss of less than $1 million. Its biggest problem? Answer: It appears that all those damn banks, Wall Street firms and thrifts aren't willing to sell their toxic subprime, alt-A loans, ABS and so on at a price where Mr. Kurland's firm can make a killing. Instead of buying assets at what Penny Mac believes are inflated prices, the firm is just saying no. But he isn't the only one who is displeased by the "bid/ask" out there. There are plenty of others. For the full story on why toxic loans sales haven't taken off - and likely won't - see the Monday paper edition of National Mortgage News. We're also publishing a selected list of lenders and their nonperforming assets most of which includes residential and commercial mortgages. Don't subscribe? Call 800-221-1809. If you have any thoughts about the state of the toxic asset market drop me an e-mail at Paul.Muolo@SourceMedia.com or post a comment at the end of this column...

So, is the new management group and "controlling" owners at PHH happy? Time will tell. The company just reported a $52 million loss for 3Q but says there's plenty of positive news out there: it has "uncommitted" warehouse facilities of $4.3 billion and it just secured what it calls a "major" new private label deal that could bring in $1.5 billion in new originations. (PHH is the nation's largest private label funder.) Its new president is Jerry Selitto, former CEO of DeepGreen Financial, a former player in the second lien market -- as in 80-10-10 loan structures. DeepGreen crashed and burned in early 2007. It was owned by Lightyear Capital -- an investment fund managed by Don Marron, a former Fannie Mae director who made his name at PaineWebber. (He was a director at the GSE from 2001 to 2006, during the height of its financial shenanigans.) It's amazing how few media reports on Messrs. Selitto and Marron have not mentioned the DeepGreen connection and what happened to the firm...

During the downturn, one of the first things I have noticed most originators ending is their marketing campaign. Yes, business has slowed down and even dried up totally for some. But there is still business to be had. While most originators are now chasing those new "shiny objects" like social media and the like, there is still one effective way to generate new business and that is using targeted direct mail.

The big loser in Tuesday's off-season election was Sen. Chris Dodd, Democrat of Connecticut. The Senator was not up for re-election last night. That's next year. But the results in Virginia and New Jersey strongly suggest that voters are very angry with the economy and Washington's response to it. In 2010 incumbents will be targets at the voter shooting range, regardless of what party they belong to. For Mr. Dodd, chairman of Senate Banking Committee, rest assured whoever his opponent might be, that person will hang the 'Friends of Angelo' scandal sticker around his neck like a burning rubber tire. Here's a prediction: it will not be pretty for the senator and he will lose as long as the GOP puts up a moderate Republican who stays off the Appalachian Trail. Meanwhile, HUD had egg on its face Wednesday morning after delaying the release of its much anticipated audit of the FHA reserve fund. After canceling a press conference at the National Press Club in Washington, the cabinet level agency released a statement saying it had "questions" about the accuracy of its auditor's "modeling." See the full update on the National Mortgage News website shortly...

In less than 24 hours the nation will know how far below the 2% minimum capital threshold the Federal Housing Administration's single family insurance fund has fallen. To date, FHA commissioner David Stevens has maintained that the agency will not need a government bailout a la Fannie Mae and Freddie Mac. The insurer is tightening its loan guidelines and cracking down on what it feels are sleazebag lenders using the government eagle. One thing can be said in FHA's defense -- at least it hasn't been backing high balance 'liar loans' like the private sector did during the 2003 to 2007 boom. And unlike Wall Street, FHA actually requires lenders to underwrite the loans they fund. Of course, with home prices falling between 20% and 50% in some once hot markets the past two years, it stands to reason that FHA's book-of-business will indeed suffer. Meanwhile, by now you've seen the reports that Goldman Sachs is talking to Fannie about buying $1 billion worth of low-income housing tax credits from the government-controlled GSE. Fannie cannot use the credits because, well, you need to actually earn money to use such an off-set. Goldman, on the other hand, is making money hand-over-fist. For the nation's tax collectors the issue might boil down to this: if we let Goldman buy the tax credits (at a discount) that means a Wall Street firm that received TARP money will be able to pay Uncle Sam less money in taxes at a time when Uncle could really use the money...

If there is any one thing that has come out of this financial crisis, it is that it has driven the majority of Americans to seek to increase their financial knowledge. A study conducted for Mintel Comperemedia, a service that provides direct marketing competitive intelligence here finds that three in four adults (75%) are trying to increase their financial know-how because of the current economic crisis. A third (32%) say they've already done so, while 43% say they plan to learn more about financial topics in the future.

FORECLOSURES ARE STILL CLIMBING AND LAS VEGAS IS TOPS

I want to share a story with you. We recently moved and my elder son, who is now in second grade, has to read 20 minutes a night. We fill out a sheet informing the teacher about the title of the book he read and how many minutes it took him to read it. What does this have to do with mortgage technology? A lot.

A 10% risk retention requirement for mortgage securitizations? Congress is toying with such language but it's a long way from passage. Scott Stern, who heads a new mortgage trade group called Community Mortgage Lenders of America, believes that if such a bill ever becomes law it "would end the mortgage industry as we know it." For a full update see the National Mortgage News website later today: http://www.nationalmortgagenews.com/