Loan Think

If you want to bid on a Federal Deposit Insurance Corp. non-performing loan pool (or any private auctions) it's going to cost you money. To bid on government packages the 'pay to play' cost can range from $20,000 to $250,000, according to various investors and brokers. The good news is that the money is refundable but it keeps out the novices who aren't serious. Meanwhile, we heard an unconfirmed report that Bank of America was recently offering (for bid) $100 million in collateral tied to a warehouse line. The collateral came from a bankrupt non-depository...

One of the most under-reported stories of the past few months is the amount of bottom fishing that hedge funds have been doing in the residential mortgage-backed securities market -- in senior tranches, that is. Back in the spring when the value of senior tranches fell off a cliff certain 'quants' (working for hedge funds, of course) saw a golden opportunity and pounced. Marathon Asset was a buyer, according to one official there. Among the banks, we know that JPMorgan Chase was an active purchaser as well. Flash forward to the present. The secret is now out and more buyers are appearing. Does that mean prices are getting frothy? Keep in mind this one thought: the Federal Reserve has been actively buying MBS -- billions worth. Does this mean that Uncle Sam is sitting on a boatload of profits -- money that belongs to the taxpayer? Think about it...

As discussed last week, Assets produce income. Everything else is a liability. What about your house? Does it produce income daily? No, and therefore it cannot be listed as an asset for the purpose of this discussion.

Loan brokers were popping champagne on Friday when the Federal Housing Administration declared that "direct endorsement" lenders (those with "table funding" money) should be fully liable for the mortgages they originate through third-party salesmen (brokers). FHA also said brokers no longer need to register or meet the agency's net worth requirements. (Full coverage of FHA's new declarations were on the National Mortgage News website early Friday: http://www.nationalmortgagenews.com.) If you're a loan broker and not familiar with all these latest developments - what I'm telling you is not a cruel practical joke. The FHA insurance fund - once dubbed "the government's subprime program" by some - is hurting and needs to raise cash. It appears FHA is putting the onus of policing of brokers onto depository (and non-depository) wholesale funders. New FHA commish David Stevens also is increasing the minimum net worth requirement to $1 million. However, the latter is sort of a joke, really. The biggest players in FHA are Wells Fargo and Bank of America (by far). Maybe I'm being over optimistic here but I think those two mega-banks can meet that requirement. Now for the dark side of all this: brokers might be getting a break from FHA, sure. But what if the mega-wholesalers say to themselves: "Police brokers? Forget that. I'll just do all this volume through my retail network." Have an opinion on all this? Comment at the end of this column or drop me a line at Paul.Muolo@Sourcemedia.com...

To use leverage on your "legacy asset" bid or not to use leverage -- that is the question. The winning bidder on the FDIC's $1.3 billion whole loan auction was levered 6 to 1. In total, 12 consortiums bid on the pool of mostly first lien whole loans (there were 83 second liens in there) but some bidders had all cash and weren't levered. "The un-levered bids were lower but they [the FDIC] took the highest [overall] bid," said one investment banker familiar with the auction. Several hedge funds were part of the consortiums that bid. Meanwhile, at press time, the yield on the 10-year Treasury was at 3.4%. It's assumed that one of these days (when?) the Federal Reserve will stop buying MBS, a strategy that has kept rates low. If the Fed does stop buying (or reduces its MBS purchases) mortgage rates should rise. Or will they? A new report by Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs, thinks there's a risk that the yield on the 10-year could fall to 3% amid low inflation...

Last week, I answered part of the following question from one of my One On One Closed Door Coaching members.

It's an undisputable fact that the mortgage banking industry is going through the throes of a transformation not seen since the savings and loan crisis of the late 1980s/early 1990s (when S&Ls controlled the business along with a few non-bank giants like Countrywide, Lomas & Nettleton, and Prudential Home Mortgage). The smart money is betting on depositories controlling the business -- or will they eventually stumble too? The following sentiment -- edited in part by me --comes from independent LO Anne James of Reliance Funding of Whittier, Calif.: "It's self-employed brokers and mortgage bankers who have been put out of business by the economy, scared out of business and gone to work for the 'Big Four.' Obama and his banks spurred on by our socialization, have a blank check to put us out of business like the appraisers whom the banks now own. I have plenty of business now but if my non-bank sources are put out of business, the lending will come to a screeching halt. Banks can't even wire funds without messing them up. (ie; look up Chase Auto Finance on Google, no contacts just 100s of complaints)." As we reported in National Mortgage News earlier this week there is now a lending/servicing cartel of two: Bank of America and Wells Fargo which together have a market share north of 42% when it comes to loan originations. "When we saw that number it really stunned us," said Glen Corso, who with two partners has just launched a new advocacy group to lobby on behalf of independent mortgage bankers. See the NMN website early this afternoon for an update...

Now that we have several months of Reverse for Purchase under our belts, it's a good time to step back and look at where we are. This valuable addition to our menu of programs has certainly made a difference in the lives of seniors and I predict it will continue to increase in popularity.

SOME CRITICAL PARTS OF THE "HELPING HOMEOWNERS SAVE THEIR HOME ACT"

We've picked up another detail on the story about Wilbur Ross looking to buy mortgage insurer United Guaranty Inc. Apparently, Mr. Ross' W.L. Ross & Co. would buy (with a partner, perhaps) the MI as a going concern including all of the new business written this year. He also would get the employees, the licenses, and so on. The "old," pre-2009 book of business would be allowed to run off which means he'd be getting a "clean" company. Ross has yet to comment on reports that he's looking at UGI, which is owned by American International Group. Who owns AIG? Answer: mostly me, and you, and the rest of our fellow taxpaying Americans. AIG, which underwent a reverse stock split a few months back, is trading at $41 compared to a 52-week low of $6.60 and a high of $159...