Loan Think

In my last blog, I wrote about my experiences at the Midland User Conference. Leading up to the MBA Annual last week I was invited to speak at two other user conferences, Data-Vision and Fiserv. What did they have in common? Lenders were engaged and all the talk was about e-lending.

THIS JUST IN: If you thought the TARP program is just for banks, thrifts and Wall Street firms sick with subprime ABS, think again. The $700 billion bailout bill contains such vague and general language that Treasury can buy all sorts of different assets from all sorts of different institutions. Late on Friday, rumors were floating around that Treasury might use some of the money to provide relief to certain insurance companies, and not just American International Group. What did insurers have to do with the mortgage crisis? Answer: some wrote credit default swaps (insurance contracts) that covered losses on subprime ABS. And since these securities are now going south that means the policies must pay out. If the insurer writing them cannot cover its "bets" that means BK could be around the corner. And if these insurers also have life insurance and property/casualty customers (like AIG) that means certain policyholders are going to get zilch. Stay tuned...Meanwhile, the "Friends of Angelo" loan program at Countrywide was in the news this past week when 28 House GOP members asked the Department of Justice to add the program (where the high and mighty who were tight with Mozilo and other CFC executives got price breaks on mortgages) to its "to do" list. One source who worked in the program told us that he's already been interviewed by criminal investigators. For more info on Mozilo, Countrywide, and the FOA program read "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis" or visit www.chainofblame.com...If there's one regulator whose star could be on the rise it's Sheila Bair of the Federal Deposit Insurance Corp. (You're probably wondering, "Well, if her star is on the rise what does that mean?" Answer: I don't know but it sounds good.) Ms. Bair has received some glowing press coverage but most importantly she seems to have kept a cool head (like in the Wachovia-Citigroup-Wells battle) and stressed that the folks suffering the most are homeowners, asking this one essential question: What are we doing for them? More than anyone in Washington, the FDIC chief is pushing for loan programs - whether it's credit enhancements or government insurance - to help the struggling consumer. Her leadership on the issue is commendable (and is something loan servicers should keep an eye on. Watch for our stories in Mortgage Servicing News and National Mortgage News.) Look for a Senate run down the road, or not...If you're trying to find out which firms are still standing among the nation's top 100 lenders and servicers you may want to check out the new Midyear Data Report from National Mortgage News. It provides half-year rankings on lenders and servicers. To request a copy send an e-mail to Deartra.Todd@SourceMedia.com...Poor Herb Sandler. Thanks to Wachovia's $24 billion 3Q loss, he's in the news once again. Two years back, Herb and his wife sold Golden West/World Savings and all its payment-option ARMs to Wachovia. But were Herb's POAs OK compared to some of the garbage funded by Countrywide and Washington Mutual? Here's what one West Coast thrift source told us: "I wonder why Herb can't act like a grown up and accept a goodly portion (but not all) the blame for what happened with Wachovia's portfolio? I saw first hand anecdotal evidence that their credit standards had slipped considerably. I have heard secondhand accounts from people who have had conversations with former senior managers at World that they lowered their credit standards to meet the crazy competition because they feared originations would dry up if they didn't"...Follow this story, if you will: a bunch of the boys who used to trade mortgages for Bear Stearns moved over to Greenwich Capital earlier this year after Bear essentially went bust and was sold to JPMorgan Chase. Greenwich, of course, made its name in subprime by banking, early on, Roland Arnall's various subprime mortgage empires. Greenwich is owned by the Royal Bank of Scotland which recently was taken over by the Bank of England, a k a the government. So that means all those Bear traders are now working for Her Majesty...From our sister paper, American Banker: The Federal Reserve Board on Thursday said the value of the assets it took from Bear Stearns in March lost more than $2 billion during the third quarter, lending weight to critics who claim the central bank's rescue may end up costing taxpayers. The Fed said the Bear Stearns assets - originally worth $29 billion - were valued at $26.8 billion on Sept. 30...Believe it or not, the demand for warehouse lines of credit is soaring but not necessarily because originations are booming but because many major warehouse providers - Washington Mutual and GMAC/RFC among them - have either left the market or whittled down their departments to next to nothing. One advisor told us that some of the remaining players in warehouse - Colonial Bank, Comerica, National City and ViewPoint Bank - are desperately seeing participation partners... MORTGAGE PEOPLE: Alfred Camner, a founder of the struggling Bank United of Florida (once a big POA lender) retired Monday as its chairman and CEO. Ramiro Ortiz, president and chief operating officer of thrift, was named CEO. SUPER DATA NOTICE: Need to know the loan volumes on more than 7,000 mortgage lenders including what they sold to Fannie Mae and Freddie Mac? An Excel workbook containing the most frequently requested rankings based on the 2007 Home Mortgage Disclosure Act data is now available. If you are interested in having these data please send an e-mail to Deartra.Todd@SourceMedia.com. MUST ATTEND CONFERENCES: Don't become another fraud statistic. National Mortgage News, Mortgage Technology and American Banker invite you to attend the 3rd Annual Mortgage Fraud Conference on Nov. 13 and 14 in Las Vegas. For more info call Tiffany Patrick at (212) 803-8699. DATA NOTICE #2: With the mortgage industry in the throes of a historical correction you need up-to-date data on which firms are left standing. You need hard numbers on their servicing and production volumes, including executive names and telephone numbers. All of is this contained in the brand-new Mortgage Industry Directory and the Web version of the production, the eMID. The book and e-book provide 1Q 2008 information plus full-year 2007 stats. For more information e-mail Rebecca.Keen@SourceMedia or Delores.Stokes@SourceMedia.com.

In a few weeks our tired, our hungry, our poor mortgage finance firms yearning to be free of their "troubled" assets will saddle up to the Treasury 'TARP Window' and lay down their burdens. I've read the entire bill, all 451 pages. The law says that two days after a bank sells something to Uncle Sam the government has to disclose the price. The bill also has an "anti-flipping" clause where companies cannot sell assets to the Treasury at a price higher than what they bought them. If an investor buys discounted MBS from a seller, it cannot turn around and then unload the bonds to Treasury at higher price. (I know of at least one investor who's itching to do this.) I'm not a lawyer but I believe there is a loophole in the law where if a seller of bad assets took control of mortgage bonds through a merger/acquisition or bought them out of a conservatorship that they are exempt from the Treasury's "unjust enrichment" clause. Which brings me to the case of Bank of America, which owns Countrywide and its scrap heap of payment option ARMs and HELOCs. When BoA bought Countrywide I assume it "marked to market" the lender's assets including the POAs. Let's just say it marked a CFC POA pool down 60 cents on the dollar. Because the bank bought CFC through a merger it can turn around and sell that same POA pool to Treasury at any price it wants even if it's above the "mark." In other words, the bill could allow buyers of ailing institutions to use Treasury to clean up some of the garbage they bought.

As I feared and published nine months ago, the double bottom encircling our industry has coagulated with a malevolent and recessionary punishment. The wicked nature of the accumulated FS sins is openly displayed within an unknown and unchartered “new world order.” Credit markets frozen, currencies trading in wide fluxes, while the mortgage market “deleveraging” is blamed as a root cause of it all. Yet, to assign blame is easy and we all have our personal “truths.”

In a week or so mortgage professionals and those who make their living from residential lending/servicing will begin making their way to San Francisco for the industry's annual convention. If anything, this will be the most important get together held by the Mortgage Bankers Association, bar none. The industry is grappling with not only the mortgage crisis, but plunging stock markets worldwide and the disappearance of huge swaths of household wealth. Two years ago the nation's housing stock was worth $16 trillion. If you apply a 20% haircut to that (my guess), that means consumers have lost $3.2 trillion in home equity, and counting. But let's look at the stock market losses over the past year: $8.4 trillion in wealth is gone. These are grim times for the industry and the nation at large. There's no way to whitewash the situation. Every time you think we've hit bottom, another shoe drops somewhere else - whether it's overseas or domestically. The word stock traders like to use is "capitulation." Are we there yet? Stay tuned. For updates read National Mortgage News or visit our website at http://www.nationalmortgagenews.com...

The daily news shows surely don’t lack for stories and controversy nowadays. Some advocate socialization of mortgages, others a common rate for everyone, and others an across-the-board write down of anyone deemed to be in a “troubled” mortgage. Foreclosures will affect at least one million homeowners and the government’s tab, depending on whose numbers you believe, ranges from two to seven trillion USD – and counting. Therefore, since everyone has a lot of comments, answers, and air time, let me ask some new and controversial questions – and let me introduce the concept of a constraint bound “Mortgage Molecule.”

Actually I’m happily married and have two beautiful boys. But I do think the mortgage industry can use a little togetherness. The news has been mostly bad and it doesn’t seem like it’s going to get better in the short term. Having said that, in my travels over the past month I’ve been pleasantly surprised about a few things that I’d like to share with you here.

Mike Covino has been making jumbo and "super-jumbo" loans for 27 years. Even though President Bush - as expected - signed the $700 billion capital/mortgage markets "rescue" plan Friday afternoon, Mr. Covino sees no upside for super-jumbos (loans that are north of $729,750). "If you cut off funding for anything," it tanks. Super-jumbos cannot be bought by Fannie Mae and Freddie Mac. The new bill, he said, offers no relief to super jumbo homeowners who must refinance their loans especially in Mr. Covino's backyard - the Greater New York metropolitan area. He predicts that over the next year values could slip by as much as 30% in areas likes Greenwich, Fairfield and Westchester. "New York City is the next shoe to drop," he said. "And not just for financial service jobs." Mr. Covino hopes that in the months ahead regulators turn their sights on the problem facing the high end of the market. He admits, however, that from a political standpoint, this could be difficult...

Another week has come and gone – more failed institutions, more lost jobs, and more botched policies. A circus-like atmosphere has been the backdrop to the largest bank failure in American history, as the perverse “fundamentals” of prior operations and judgment underscoring the folly of the industry “acceptable practices.” What strikes me as very peculiar is what was being measured? What were the risk-driven “levy stages” and when were they breached? Did innovation and technology provide a false sense of security, or did we completely miss what was important, their interdependencies, and the complexity of the “real markets?” It seems the only thing missing was Emperor Nero. It is past time to move forward with new ideas and leaders.

"There is a subset of your industry that is corrupt," Supervisory Special Agent Richard Jacobs of theFBI told members of the New York Association of Mortgage Brokers.