Loan Think

Over the weekend I got a chance to closely review the Congressional Research Service's recent round-up of the options for the future of Fannie Mae and Freddie Mac. The report estimates that the government could reap $8 billion to $9 billion in annual stock dividends from these two. Of course, if Fannie and Freddie continually need cash infusions to maintain a positive net worth, that money is just going out the back door any way. From reading the report one thought sticks in my head: no matter what option Congress (and the White House) chooses, no one is going to be happy. There are so many 'pros and cons' to weigh that it seems doubtful that anything will get done next year as well. Meanwhile, we're still waiting on the Federal Reserve to release its annual Home Mortgage Disclosure Act findings. What seems to be the hold up, guys? Meanwhile, the top 400 lenders are ranked in the new MortgagStats.com product. For more information, send a note to: Delores.Stokes@SourceMedia.com...

It's going to be a busy October and November in Gucci Gulch. (For all you outside-the-Beltway types 'Gucci Gulch' is a sarcastic term used to describe the halls of Congress where well paid lobbyists sport designer shoes as they glad-hand Congressmen into doing their bidding while handing over bags of cash.) Rest assured, lobbyists from the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Home Builders, will be trying to save the $8,000 first-time home buyer (FTHB) tax credit which expires at midnight November 30. Can they pull it off? Whatever happens, it will be interesting to see what the FTHB credit winds up costing the government. A tax credit results in less revenue flowing into the U.S. Treasury. The last time I checked (thanks to the 'don't tax and spend' Bush White House) we had a $1 trillion deficit last year and we're looking at another one this year -- thanks to the Obama stimulus package, TARP and a sinking U.S. economy, the latter of which results in less tax revenue flowing to Uncle. TARP, of course, was a Bush/Henry Paulson creation, one that's been fully embraced by the Obama Administration. Of the $700 billion allocated, $128 billion or so remains uncommitted...

What were you doing in 1999? Do you remember?

THIS JUST IN: A certain GSE is about to hike the minimum net-worth requirement for its mortgage seller/servicers. The change likely won't be effective until Jan. 1. For the full story and details see the Monday, Sept. 28 edition of National Mortgage News. Don't subscribe? Call 800-221-1809. A subscription gets you both the weekly (which we're trying to make more analytical and feature-based) but also the premium content on our daily website...

The Federal Reserve has pulled the switch and decided to end its $1.25 trillion Fannie Mae/Freddie Mac MBS purchase program. The deadline is March 31, 2010. The two most obvious questions: who will fill the MBS purchase void, and will mortgage rates rise? Let's put it this way: if few buyers pick up the Fed's slack, mortgage rates indeed will rise. After all, one way to attract investors to a bond is to hike the yield. Correct? If you hike the yield that means someone somewhere (the U.S. taxpayer) is going to pay more. Of course, the U.S. taxpayer will get hurt when the Treasury has to start hiking interest rates to pay for all that government spending that's being financed through Treasury bonds and notes. It stands to reason that with all this government borrowing going on the Fed will be in no hurry to hike short-term rates. (Hopefully Messrs. Bernanke and Geithner see eye to eye on this.) What does this mean for mortgage lenders? Answer: in theory, the spread between their costs of funds (deposits) and what they lend it out at (the rate charged to consumers) should continue to be wide for quite some time. And that means strong mortgage profits on newly funded loans. As for warehouse credit, we keep hearing anecdotal stories about more regional banks gingerly stepping into this business...

Most loan officers view this industry as their career and a job. That is very dangerous thinking. Once you get a job your mind works on it as a job. Even the best, most successful and organized loan officer is rarely able to get it "all" done. You know what I mean. Originate, follow up, market. Well it is a daunting task and worst of all our income depends on being able to do each part successfully.

Even though Grandma no longer has to worry about the Obama Administration 'death panels,' non-bank financial institutions do. At least, that's what you might gather if you heard Rep. Barney Frank's opening remarks this morning during a House Financial Services Committee hearing. He said -- and I do quote -- that there will be "death panels for non-bank financial institutions." Barney was going off on a tangent (somewhat) and later clarified that he was talking about large 'too big too fail' institutions such as AIG and Lehman. Supposedly, in a memo that's floating around Washington, Rep. Frank (when it comes to the Consumer Financial Protection Agency) says he wants depositories and non-banks to be treated equally -- and that this supposedly applies to mortgage lenders. Meanwhile, AIG's stock, once again, is on the rise. It's at $47 compared to a 52-week low of $6.60 and a high of $114. Since I (and my fellow Americans) own most of AIG, my recommendation is this: sell it, baby!...

There were so many good questions that resulted from last week's article (see just a few of them at the end of last week's post) that I decided to follow up and continue the discussion.

As the mortgage industry looks to rebound from the mortgage meltdown and current economic conditions, transparency in the lending process can help lead the way. Transparency is the full, accurate, and timely disclosure of information. Transparency can help restore investor and consumer confidence in the mortgage market as we work to rise from the ashes.

Details are still being worked out regarding the upcoming sale of $12 billion in jumbo servicing rights belonging to the bankrupt Thornburg Mortgage of Santa Fe. (The bankruptcy court, of course, has a say in the matter.) A source close to the deal expects that bidder turnout should be strong for a few reasons: the quality on the underlying loans is very strong and "there's no agency counter-party risk" which means Fannie Mae and Freddie Mac cannot seize the receivables and transfer them to a third-party servicer, which (given rising delinquencies and the shaky condition of some firms) is becoming somewhat of a trend. And in case you forgot: at yearend Fannie is raising its minimum net worth requirement for seller/servicers to $2.5 million...