Loan Think

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...

Recently I saw a trailer and some scenes from a movie about used car sales people called "The Goods: Live Hard, Sell Hard." And while I haven't seen the entire movie, the parts I saw exploit the worst stereotypes about sales people.

Even though financial firms have lost billions of dollars on their mortgage holdings the past two years that doesn't mean the industry's elite shouldn't party. (Of course, there’s been a changing of the guard in regard to ‘the elite.’ More on that in another column.) The annual Midwinter Conference will be held once again in Park City, Utah, on February 24 to 27. According to conference organizer Brian Hershkowitz, the ski meet-and-greet will be held at the brand new St. Regis hotel. He writes: "No doubt this will be one of the best conferences to date." I remember the good old days when one Countrywide executive, during the Q&A, declared "contain, contain, contain" when asked about the all-encompassing power of Fannie Mae and Freddie Mac. (It wasn't Angelo Mozilo.) Last year former Ameriquest executive Adam Bass was in attendance and dined with our own Lew Sichelman. Who knows: maybe Bill Dallas will show up again this year...

There's plenty of chatter out there about non-performing loan (NPL) auctions but it doesn't seem like a whole lot of deals are getting done -- or so it seems. One NPL broker told us that "there's still a wide gap between the bid and ask price." Requesting anonymity, he said FASB's decision to allow financial firms to 're-mark' their portfolios to more friendly values is having a major impact on the NPL auction business. He believes there's at least a 15 point difference between bid/ask (on some portfolios) and that sellers have unreasonable expectations. "Some sellers that had marked sub-performing loans down to 60 cents [on the dollar] have marked it back up to 90 cents," he said. Meanwhile, later this afternoon National Mortgage News will publish on its website a story about a fairly large M&A deal...