Loan Think

THIS JUST IN: Merrill Lynch this week confirmed that it is keeping its subprime servicing platform. For the full story see Monday's edition of National Mortgage News. Don't subscribe? Call: (800) 221-1809...

A person seeking advice this week asked me, “Can innovation and innovative operations — processes, products, data, and technologies — be achieved and sustained using a copycat business model?” This approach continues to gain widespread appeal from would be entrepreneurs seeking to lift consumer and operating principles from the likes of Google, social networks, online auctions and of course prior employers. However, if history has taught us anything within the FSI and mortgage industries it is that those who follow the crowd in search of a quick profit and outside investment will reach an ugly demise — like lemmings rushing into the sea.

THIS JUST IN: Merrill Lynch’s attempt to sell its Pittsburgh-based subprime servicing platform has all come to naught. Servicing brokers told National Mortgage News that Merrill didn’t like the bids. “There was a first round and some people were invited in for due diligence,” noted one investment banker. “Investors like the platform,” he added. “It’s better than most.” Translation: bidders wanted to take over the platform for a song and Merrill balked, which means the firm can’t be all that desperate...

I had the good fortune of being invited to Flagstar Bank’s corporate headquarters to talk with their staff and tour the facilities. For someone who talks about the benefits of paperless processing and embracing full e-mortgages, I was a kid in a candy store. The industry doesn’t need paper. It’s inefficient, environmentally unsound and opens the lender up to error. Flagstar doesn’t just get that message, they have acted on it.

It might be said that 2008 represents the quartet harvest of seeds planted years ago — required financial re-balancing, technological advancements, the fourth iteration of globalization, and hyper-appreciation for basic commodities. Yet as we struggle with survival, does the harvest present only suffering or is there opportunity beyond selling loans to the GSE’s?

This week we present a special treat; a sneak peek at Paul Muolo and co-author Mathew Padilla's book "CHAIN OF BLAME: How Wall Street Caused the Mortgage and Credit Crisis." Be sure to visit the website at http://www.chainofblame.com/

Prepayment rates for mortgage-backed securities fell 10.5% overall in July from a constant prepayment rate of 11.9CPR to 10.7 CPR, according to Credit Suisse.

Last month, when U.S. Treasury Secretary Hank Paulson announced the U.S. Government’s support for a traditionally European securitization instrument, many mortgage industry insiders began to wonder “what is a covered bond?” As we are now aware, the U.S. Treasury in conjunction with the FDIC efforts in June and July represented the adoption of new financial tools to aid a catatonic securitization environment – albeit a small initial step to ease the rising strain on the GSE’s. From an innovation perspective, do covered bonds truly represent the first “use-case” for private securitization efforts that demand robustly delivered and managed “e” documents and processes?

In the past two weeks we saw two very big technology mergers and acquisitions with global IT companies acquiring firms with heavy ties to the mortgage market. Specifically, IBM intends to acquire ILOG and Wipro Technologies has acquired Gallagher Financial. What’s next?

By now, Freddie Mac chief Dick Syron must be scratching his head, wondering why he ever left Boston to take the helm of the GSE. Mr. Syron is a big Boston Red Sox fan. Since moving to the D.C. area the Sox have dominated the American League East and won two World Series. And what has the "local" team, the Washington Nationals, done? Answer: floundered in last, and looked miserable. What does all this have to do with Freddie Mac? Hard to say. We listened on Freddie's hour-long conference call. One thing stuck out - CFO Buddy Piszel's comment that 90% of the "marks" that the GSE is taking "will flow back to us." I'm not going to pretend to be an expert on all the arcane accounting rules facing Freddie and every other mortgage company. But if it does get to recapture those "hits" that would be good news for the company and the nation's remaining seller/servicers. Meanwhile, Freddie needs to raise $5.5 billion in new capital. As I write this, Freddie's market cap is just under $5 billion (share price multiplied by common). How do you raise $5.5 billion when your company is worth $4.9 billion? There is one answer: sell your stock to the Treasury Department. Getting back to the Nationals and Mr. Syron. Maybe one day this awful baseball team - one that only MICA's Jeff Lubar can love - will finish first and maybe even make it to the World Series. If there's hope for the Nationals, perhaps there's hope for Freddie Mac. The government is not going to let this company go down. I repeat: the government is not going to let Freddie go down. Short sellers, take note. On CNBC Wednesday, Mr. Syron hinted there could be a slight glimmer of hope that the housing market may have reached bottom. He went no further than that. Stay tuned. For more analysis read Monday's National Mortgage News. Don't subscribe? Call: (800) 221-1809...