Loan Think

I was told to read Lee Iacocca’s most recent book “Where Have All The Leaders Gone?” by a friend in the mortgage industry. He said I wouldn’t regret the time spent and he was right. The book is provocative and thought-provoking. It’s a must read with several implications that can be drawn to the state of the mortgage industry. How you might ask?

WHERE DO WE GO FROM HERE: Welcome to the new, socialized mortgage banking system of the United States of America. If you're left leaning, you're probably thinking, finally, the government controls everything! Let's take a tally: Uncle now owns most of Fannie Mae and Freddie Mac and their $5.2 trillion in guarantees/portfolios. Uncle owns 80% of American International Group's $70 billion or so in "credit default swap" contracts on subprime bonds. (This is not a good thing to own.) Uncle also owns 80% of AIG outright (a $1 trillion company) including a once-top-ranked mortgage insurer, United Guaranty. Uncle owns AIG's two mortgage banking subs, which were shrinking anyway, so this isn't a big deal, in the scheme of things. Uncle owns $30 billion in Bear Stearns' risky bonds. According to reporting done by National Mortgage News' Brian Collins, Treasury soon will buy $10 billion in MBS to add liquidity to the market - plus Fannie and Freddie are actively buying. Meanwhile, Congress, Treasury and the Fed's Ben Bernanke are going to write legislation to create a "Mortgage RTC." This strain of the RTC will buy (you got it) mortgages and bonds no one else wants. Now that Uncle owns Fannie and Freddie, they can call the shots on foreclosures. You might say Uncle Sam is "the buyer of last resort" for all things mortgage. Sounds crazy doesn't it? Well, it's here. What does the stock market think of all this? They love it! On Thursday and Friday the Dow Jones shot up almost 800 points! Of course, the ban on short selling probably helped a bit. Where do we go from here? It's the Wild (socialized) West. Strap yourselves in and continue reading National Mortgage News and our daily website (http://www.nationalmortgagenews.com/) as well as our sister publication, American Banker. Don't subscribe? Call (800) 221-1809...

To say we live in uncharted times is embracing a cliché. As we desperately grasp at innovative business, process, and technical solutions hoping for relief, the once commonplace world and domestic markets are continually being altered – permanently altered. Our housing value chains and corporations linger at toxic levels of dysfunctionalities. The MBS securitization world has been blown up, the GSE’s have simply become taxpayer sponsored government enterprises, and we’re sick and tired of the continual headlines screaming layoffs, closings, and failures. So what can be done? Is technology the only answer as some suggest? Are we prepared for the medicine and the cures – can we aggressively act? Will we know “the answer” if it stared us right in the face?

THIS JUST IN: It could be a busy Sunday again at the Treasury Department in Washington. Lehman Brothers (and Aurora Loan Services) may be sold in a deal brokered by the government. The rumor mill was working overtime dishing out speculation on Merrill Lynch, whose share price was sinking to a new 52-week low. There was also talk the Federal Deposit Insurance Corp. was contemplating the takeover of two depositories. Stay tuned...

You’d have to be living under a rock to not have heard that this past weekend was very significant for the mortgage industry. Fannie Mae and Freddie Mac faced failure and were seized by the government. Who’d have thunk it? In talking to some noted mortgage technologists, the reaction was positive.

Taking a break from the GSE “conservatorship” discussion, let’s have our heads up and eyes forward. The signs are all around us that more than the weekend’s action will have an impact on our operations — if we just look for them. Last week it was revealed that Dell Computer’s once superior and efficient competitive distinction – their consumer-motivated JIT assembly lines and factories — were being sold off driven by new market realities. This once seemingly unrivaled, “advanced,” collaborative supply chain and product integration approach has succumbed to a greater and evolving global market force — orchestration. “So what?” you may ask, “Why should I care?” How can I leverage that today for profit?

THIS JUST IN: Now that the Federal Housing Finance Agency (with Treasury's blessing) has placed Fannie Mae and Freddie Mac into a conservatorship, one huge question needs to be settled: is Uncle Sam ultimately responsible for their $5.2 trillion in guarantees and loans? If that's the case the U.S. government's obligations (debt) now stand at $14.2 trillion compared to 'pre-GSE' obligations (all those Treasury bonds) of $9 trillion. What does it all mean? Someone call an accountant. Is Bert Ely in the house?

The National Association of Mortgage Brokers has met for the last time. At least as far as annual meetings go.

I know it seems like I’m reporting a lot on this blog about technology acquisitions. If you’re not interested in M&As, I suggest you skip this week’s contribution. In recent news LenderLive Network Inc. has acquired doc prep vendor Guardian Mortgage Documents. It’s an end-to-end business process outsourcing play that will certainly turn a few heads.

In a departure from what I usually write, I’d like to say, “My dearest American friend, how are you?” I understand your markets are dying, your customers have vanished, and you are in need of work. Your housing indices have fallen by over 35% in three years, your consumer is dealing with triple digit percentage increases in commodities, and your foreclosures and delinquencies are the largest in well over a generation. Many of your leaders are under investigation, facing litigation, or have simply vanished. This great “awakening” has yielded extensive casualties.