Loan Think

I received an overwhelming number of questions and comments in response to last week's article on websites and social networking for reverse mortgages. It stands to reason to address these right now and offer some further explanation about why I consider this so important and what I found that made all the difference, since I am decidedly not the guru in this area.

Just how hot is the loan modification business? Apparently, Hollywood is now making movies out of it. Okay, not exactly, but last week a new flick about a mortgage loan officer opened and finished fourth in tickets sales from Thursday to Sunday. The movie is called "Drag Me to Hell" and tells the tale of a loan officer named Christine who denies a loan extension on a home owned by a gypsy. Once denied, the gypsy puts a curse on the LO who fights off getting dragged to hell -- permanently. I didn't see the movie but perhaps the Hope Now Alliance might want to run a trailer on its website warning servicers that this is what might happen if they don't start being a bit more generous with loan mods. Meanwhile, the new unemployment figures come out on Friday. Unemployment drives delinquencies. Over in Europe the jobless rate is already at 9.2% with Spain suffering the most at 18%…

I have never made any secret of my love for the game of baseball. When I am traveling during the summer months, I always see if there is a game within driving distance.

I was pleased recently to chair SourceMedia's annual Mortgage Servicing Conference in Dallas. It was a lively and well-attended show, and watch out for a related conference to follow in July! (July 20 and 21, to be exact, a Loss Mit Conference at the Sheraton Dallas.)Here's what I told attendees to start off the show.Could there be a more exciting time for the servicing industry? Delinquencies, defaults and foreclosures are soaring, and there's never been a time when skills in loss mit, REO and special servicing have ever been as valuable.Also, there's never been a time when the deck floors are shifting so much under the industry. There's an entire new financial landscape, where Freddie Mac and Fannie Mae have been taken over by the federal government, Wall Street as we have known it has imploded, and servicing has continued to consolidate to the point where the top five residential servicers control two-thirds of a $10 trillion market.And, as if all that's not enough, there are constant new challenges and new ways of doing things. To their credit, servicers embraced the concept of loan modification as vast numbers of borrowers became stressed, but then found that more than half of those borrowers were defaulting again. Now, the Administration has proposed a plan to modify up to four million mortgages, and to encourage another five million refis through Freddie and Fannie. That's an enormous amount of business for an industry that has lost 40% of its workers over the past two years. This is an unprecedented challenge for the entire mortgage industry. And another big one is the concept of judicial cramdowns of mortgages in bankruptcy proceedings, which has been proposed by both the Administration and Congress.Anything I'm leaving out? Oh yes, the Federal Reserve has agreed to buy, and has started to buy, $1.25 trillion in mortgage-backed securities to get the stalled secondary market out of its deep freeze, causing interest rates to fall to their lowest ever. So now, if what many have predicted as a refi boom comes to fruition, servicers will be facing the risk of massive runoffs of their valuable servicing. Oh well, at least that's one variable servicers are already familiar with!Of course, the flip side to all these challenges is opportunity. A refi boom can give an efficient servicer the opportunity to siphon off business from his competitor. A successful modification plan, which might involve any or all of a reduction in rate, an addition to loan duration, or a reduction in principal, can turn loans headed for default into performing loans, helping to stem losses and the capital required to be held in reserve to resolve them. Successful mods can also help put a floor under tanking home values, as the flood of foreclosures has driven home prices down in market after market around the country.Servicing has always been a countercyclical play to mortgage originations, and that's never been clearer than now, when servicing has become of paramount importance and has also spurred countless new vendor applications in the hot button areas of REO, loss mit, and loan modification. Specialties in these areas and in default servicing are now invaluable to your holding companies.That's why we're delighted to see so many of you here at the Mortgage Servicing Conference. Over the next couple of days, we're going to bring you trend and policy discussion, but also hands-on how-to information on how to cope with this brave new world. We have lenders and vendors, state and federal officials, and specialty specialists ready and willing to talk about strategies on how to survive and thrift in this current environment. We'll see what the economic outlook is, as well as the prospects for more mergers and acquisition activity.

We continue to hear reports that few large non-performing loan portfolios are selling these days. Case in point is a recent $240 million auction of NPLs by H&R Block. The mortgages belonged to its now defunct subprime division, Option One Mortgage. One observer noted that there was strong interest in the portfolio but "the bid price was a little low." Also, professionals who play in the NPL space increasingly believe that the Treasury Department's PPIP (Public-Private Investment Program) auction program may never get off the ground. And changes in market-to-market accounting rules (courtesy of FASB) concerning writedowns on non-performing loans are dampening the appetite of banks to get ailing loans off their books…

There are many interesting revelations in the new PennyMac IPO filing, including its warnings that it has no repurchase agreements or bank credit facilities in place "and there can be no assurance that we will be able to obtain one." Actually, to some it may read like the usual standard warnings stuff for a young company but Stanford Kurland's company notes that the Federal Deposit Insurance Corporation is holding about $3 billion in residential loans from failed banks. For the full editorial analysis of the PennyMac IPO see the "Inside Take" column in Monday's National Mortgage News…

No one is a born success. Everyone has his or her ups and downs. I know that I have and have accepted the fact that I will continue to have ups and downs until I die.

THIS JUST IN: So, who are the other investors that Taylor, Bean & Whitaker lined up to invest $300 million in warehouse giant Colonial Banc? According to a new SEC filing here's just a few of the names of the companies and individuals: Allied Mortgage Group, Atlantic Bay Mortgage Group, Envoy Mortgage, Franklin American Mortgage, LendX Financial, WR Starkey Mortgage, Henry Fan, Paul R. Allen, Ray Bowman and Hungarian-American Florida developer Tibor Hollo. For an update see the Monday issue of National Mortgage News. To subscribe call 800-221-1809...

A few weeks back I filed a story about how prices for Government National Mortgage Association servicing rights are firming up. Let me clarify: the "asking price" for government servicing has increased but it's hard to tell what the final settlement prices are. One observer of the market told me recently: "GNMA servicing is in huge demand? There's a huge demand to sell it in a traditional co-issue structure, although I think that means there's a huge supply -- not a huge demand. The reports that Ocwen would be out there buying servicing are true (I've checked), if overdone in their implication that there would be a high-paying buyer entering the market. Strong and good to deal with, yes. Highly-priced? Uhhhh, not so much." He added that "vultures are out there," bidding and "are fine to deal with, but don't expect them to be white knights to bail you out on price"…

A few weeks ago I was sitting in a Denny's and what I saw caused me to choke on my coffee. Three rows down in the corner was a loan officer with her laptop taking a loan application. Right there in the Denny's.