Loan Think

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/

The mortgage business may be entering a prolonged stagnant period - bad news for those eager to see a corner turned on the disastrous era of the past three years.At the Mortgage Bankers Association's annual convention I attended in San Diego, MBA released its current volume projections, and the trend line is very flat.In fact, each of the years 2010, 2011 and 2012 is projected to come in at about $1.5 trillion in originations.That may not be enough to sustain a robust recovery, although it certainly isn't a terrible amount either.This year, the refi boomlet caused by rate drops should bring originations to somewhere near $2 trillion, so we're talking about a 25% drop from a year of struggle.The implication from this is that the mortgage business is still quite fragile, and likely to remain so for the next several years.The MBA meeting is a good place to learn new things, and I always keep my eye out for numbers.There was a lot of good (or bad, depending on how you look at it) data at an LPS breakfast I attended at MBA annual.Ted Jadlos, senior managing director at LPS Applied Analytics, Jacksonville, Fla., told attendees that LPS data for August showed the second-largest gap between loans improving and loans becoming more delinquent in the last twenty years.That's surely an ominous sign that a lot more bad loans must work their way through the pipeline in the months and years to come. And that doesn't even count loans that have been artificially held up from going through the system due to forbearance and foreclosure moratoria.Mr. Jadlos said the number of loans 180 days past due (or well beyond the point they would usually be foreclosed on) has widened from 40 basis points to 2% just in the course of the first eight months of 2009. That indicates a lot of overhang in the market.And loans that were current at the beginning of the year have been seriously souring as well. Mr. Jadlos said 2.5% of all loans current as of Jan. 1 were now 60 days or more past due. And, severely delinquent roll rates have increased by up to two times normal.In all, Mr. Jadlos said a scary two million loans could fall apart this year.What could prevent this impending avalanche of defaults, with their accompanying deadening effects on home prices and home sales? Not the jobless recovery we've seen to date."Unemployment has to get better before delinquencies do," Mr. Jadlos told the briefing.Mr. Jadlos was optimistic that the new government mods would perform better than the previous industry ones. Those misguided efforts re-defaulted at a 60% clip; Mr. Jadlos thinks the government mods will redefault at half that rate.It's an indicator of just how bad things are in the mortgage market that a 30% redefault rate can be seen as progress!While I was at MBA I also found out that First American CREDCO has expanded its credit reporting with the ENCORE report it announced at the MBA.The new report adds collateral information from First American databases and character information such as ID to its existing tri-merged credit score from the three credit bureaus.John Bauer, executive vice president of business development at Poway, Calif. First American CREDCO, told me the ENCORE package adds up to loan forensics put into one package, merged, and then analyzed by business intelligence.The report will use First American's proprietary nd Merge technology.Bauer said the package has been in development for the past 18 months, and that its genesis came from an idea to tap First American's existing databases to make its credit report more powerful. The firm also wanted to expand its architecture at the same time it expanded the data.The company said ENCORE covers 99% of the nation's population, more than 100 million mortgages and more than 600 million consumer data records.Each report will deliver a summary of consumer and loan factors and also provide a caution alert for anything that may represent risk.Its property module features property characteristics and historical data, including comps and estimated value.The credit component continues to provide information from all three credit bureaus along with other public record information.The identity effort displays key identity information and red flag alerts. ENCORE also verifies income and employment history.Bauer said recent market changes have created a big need for expanded data collection such as this at large banks and GSEs.

Many a firm has entered the "nonperforming loan" (NPL) space in the past 18 months, hoping to make a buck during one of the most serious downturns this industry has ever seen. Some have turned to investing in NPLs (though it doesn't appear many large deals are getting done) while others have morphed into subservicing specialists whose mission in life is to work out delinquent and severely delinquent loans for others. One subservicing firm recently was kind enough to provide me with some figures on the quality of the loans it's dealing with. This firm, which did not want to be identified, said its portfolio (almost $2 billion worth) has a 73% delinquency rate. No, that's not a type-o. Its goal is not to foreclose on consumers, but to help them bring the loans current or modify them. Meanwhile, it's the end of earnings season which means mortgage vulture fund PennyMac should be coming out with earnings sometime. The company's PR man didn't return a recent phone call about the date...

How was your week? Last week's article focused on helping you help your customers qualify for a loan by referring you to a qualified credit repair company that I know and trust to assist you in your business.

THIS JUST IN: On Monday morning the Mortgage Bankers Association will release its new study on second-quarter profitability. As you might recall, 1Q profit margins were quite strong and sources tell us that 2Q was even better. As for 3Q, it's safe to assume that not a whole lot changed in terms of business conditions...

Okay readers, it looks like the recession is over but that hasn't stopped the Obama White House from finally backing an extension of the first time home buyer tax credit. After dodging the issue for weeks by saying nothing specific, the administration Thursday morning finally gave its thumbs up. The president apparently favors a "limited extension" of the FTHB. See the National Mortgage News website later today for a full update. Meanwhile, the GDP number came in at 3.5% (better than expected) but don't pop the champagne quite yet. Feeding that number (rest assured) is the FTHB and the auto "Cash for Clunkers" program. The real key to growth in 4Q 2009 and 1Q 2010 will be the employment situation. The new employment numbers will be released next Friday. And then there's concerns about what will happen when the federal stimulus money runs out. Stay tuned...