Loan Think

First, let's start with some good news. According to the brand-new issue of the Quarterly Data Report, six of the nation's top 20 lenders actually saw residential originations increase in the fourth quarter. The six are Chase Home Finance, Taylor Bean & Whitaker, U.S. Bank Home Mortgage, Flagstar Bank FSB, Amtrust Bank and Branch Banking & Trust. To see their numbers order the Quarterly Data Report. Send an e-mail to Deartra.Todd@SourceMedia.com...

On Friday the House Oversight Committee had its crack at Angelo Mozilo, Stan O'Neal and Charles Prince, considered by some to be the three horsemen of the subprime apocalypse. (In the Bible there are four horsemen but who's counting?) The witnesses, along with the compensation chiefs of Countrywide, Merrill Lynch and Citigroup, respectively, came into the Rayburn hearing room through the back door, thus avoiding the press. However, once seated, 10 different photographers began clicking away as the men were sworn in. As might be expected, committee chairman Henry Waxman of California raked Mr. Mozilo over the coals for his insider stock sales (an estimated $400 million over seven years). Rep. Waxman, among other things, was interested in CFC's decision in November 2006 to use $2.5 billion in capital ($1.5 billion of it borrowed) to buy back its stock in the open market. This decision was made just as Mr. Mozilo began speeding up his stock sales (after exercising options). Mr. Mozilo, who kept a calm demeanor throughout much of the hearing, said there was no connection between the corporate buyback and the acceleration of his stock sales. Harley Snyder, a CFC board member in charge of compensation, noted in his testimony that Mr. Mozilo was scheduled to retire from the company in late 2006, saying, "The individual we thought would succeed Mr. Mozilo as CEO had left the company." Mr. Snyder forgot to say that the individual, Stanford Kurland, did not leave on his own accord. He was pushed. And I would guess Mr. Kurland is sitting poolside these days, sipping a cocktail, and thanking Mr. Mozilo and the board for kicking his butt the heck out of the company...

At the recent SourceMedia Mortgage Technology Conference I chaired in Orlando, my opening remarks stressed theimportance of vendor efficiency in keeping lenders afloat during a time of decreased origination fees. Here's whatI said in my opening remarks:

Stan O'Neal's $1.3 billion mistake came home to roost this past week with the news that Merrill Lynch is closing its subprime wholesale division First Franklin. Its failure was not unexpected. In past columns we published exclusive comments from former account executives at First Franklin who said, among other things, "Merrill is starving us out." One told us that origination volumes were non-existent at the company, noting that the eight remaining co-workers at his office spent most of their days in the conference room "playing scrabble and Play Station on the conference projector screen to pass the time." It was a year ago that then Merrill CEO O'Neal signed a $1.3 billion check to buy First Franklin and two affiliates. Mr. O'Neal was forced out this past fall and walked away with severance and retirement benefits north of $130 million. Merrill had plans to originate Fannie Mae loans and promised its remaining AEs that they would be trained in GSE products but one AE told us "that training never happened." He also said many lenders refused to deal with Merrill "because of all the buyback requests forced upon them." Back in December this source predicted, "I think they're going to shut us down in January or by late February." He was right...

THIS JUST IN: The Federal Deposit Insurance Corp. may want to start staffing up on workout attorneys and loan liquidation experts. (We know the agency is concerned.) According to a new report by JPMorgan Chase, depositories and investment bankers could be on the hook for $341 billion in mortgage-related writedowns in the years ahead -- both residential and commercial. The report, which has not been issued publicly, notes that 75% of these writedowns will be borne by federally insured banks. For the full story see Monday's National Mortgage News. Don't subscribe? Call: (800) 221-1809...

The speeds of 30-year mortgage loans in Fannie Mae and Freddie Mac MBS rose "modestly" in January, accordingto the Bear Stearns Prepayment Commentary.

THIS JUST IN: JPMorgan Chase has agreed to buy certain "intellectual property" assets belonging to the residential warehouse division of Washington Mutual. Job offers are being extended to certain WaMu warehouse executives in Texas where the unit is based. For the full story see Monday's edition of National Mortgage News. Don't subscribe? Call: (800) 221-1809. The story only appears in the print version...

THIS JUST IN: It appears that H&R Block has a buyer for the $62 billion subprime servicing portfolio of Option One Mortgage. For the full story see the Monday edition of National Mortgage News. Don't subscribe? Call: (800) 221-1809...

Industry officials my colleague Brad Finkelstein and I spoke to at the Mortgage Bankers Association's annualconvention in Boston were pretty sanguine about the dangerous time that lies ahead for the mortgage market thisyear. Yet, they also saw a couple of areas that won't be as bad that industry firms can use as countercyclicalplays.

The speeds of 30-year Fannie and Freddie MBS increased 13% in December, as aggregate speeds stood at 9.0 CPR forFannie Maes and 8.4 CPR for comparable Freddie Macs.That was up from 7.7 CPR and 7.6 CPR, respectively, in November, according to the Bear Stearns Prepayment Commentary.Bear Stearns senior managing director V.S. Srinivasan said the company believes the December prepayment report"reflects some of the early response" to the rally in mortgage rates that began in late November."Given the low level of mortgage origination activity, the lag between changes in rates and the ensuing prepaymentresponse has likely decreased," he said.Prepayments on 15-year Fannie Mae and Freddie Mac collateral rose by 9% in December, with Fannie speeds climbingfrom 8.3 CPR to 9.2 CPR and Freddie speeds increasing from 8.1 CPR to 8.7 CPR.Ginnie Mae speeds rose 9%, with the biggest percentage increase coming in the 6.0% coupons of 2007, Bear Stearnsreported. The speeds jumped from 5.5 CPR in November to 11.7 CPR in December and are running nearly 2 CPR fasterthan comparable Fannies and Freddies."While some of this increase can be attributed to the recent rally in rates, we believe that servicer buyoutactivity probably contributed significantly as well," Mr. Srinivasan said.The Bear Stearns analyst predicted that the January prepayment report would show a 10% rise in speeds in responseto several factors: the full effect of the rally in rates, a one-day increase in the business calendar, and a likelyrush in refinancings as originators try to complete as many as possible before a change in the delivery fee structurefor the government-sponsored enterprises takes effect in March."However, given today's extraordinary housing conditions and structural changes to the underwriting process,the refinance response to a rally in rates is likely to be significantly less than suggested by recent history,"Mr. Srinivasan said. "We continue to believe that the refinancing curve in 2008 will be flatter than any timesince the mid-1990s."