Loan Think

Sources say Principal Residential Mortgage (that "other" Des Moines-based mortgage giant) is apparently considering getting out of the business. A spokeswoman for the insurance company parent said the firm doesn't comment on rumors. With both Principal and Cendant Mortgage testing the M&A waters that means $256 billion in residential servicing rights are up for grabs. For more details on who else might be for sale see the Monday edition of National Mortgage News. If you don't subscribe to NMN call (800) 221-1809...

Fannie Mae and Freddie Mac, which last week were criticized by the nation's central banker as being too big to fail (among other things), bought seven out of every 10 conventional loans originated last year, according to figures compiled by National Mortgage News. The two also bought 57.4% of all home mortgages funded last year. For the complete story see the Monday edition of NMN...

Fannie Mae and Freddie Mac, which last week were criticized by the nation's central banker as being too big to fail (among other things), bought seven out of every 10 conventional loans originated last year, according to figures compiled by National Mortgage News. The two also bought 57.4% of all home mortgages funded last year. For the complete story see the Monday edition of NMN...

National Mortgage News and its affiliate, the Quarterly Data Report, are done compiling fourth-quarter and full-year production volumes -- and as many anticipated, 2003 was indeed a record-breaking, barn-burner year. Just how robust was it? Try $3.917 trillion. But what's interesting about the numbers is that in the fourth quarter "A" paper production swooned -- but subprime volumes did not. In 4Q, lenders funded $682 billion in loans, a 43% decline from 3Q, but subprime originators funded $113 billion in the fourth quarter, a slight gain from the third quarter, which explains why many subprime executives we've talked to are bullish about the new year. See Monday's issue of NMN for full details...

Countrywide Financial can no longer resist the cost savings of putting call center workers in India. Even though company chairman Angelo Mozilo last year had said he would not put mortgage call center workers overseas, last week he said that competitive pressures forced the company to do so. But he said Countrywide would not close call centers in the U.S. He noted that Countrywide would shift some of its U.K. jobs to India. He also had some interesting things to say about the cost of doing business in California. (See National Mortgage News issue of Feb. 16 for full details.) Meanwhile, Countrywide, whose stock has been on fire for a good year, has been downgraded by Wachovia Securities to "underperform" from market perform. But other brokerage houses continue to be quite bullish on the company...

Will Congress this year pass legislation to create a tough, new independent regulator to oversee Fannie Mae, Freddie Mac and the FHLB System? J.C. Watts, the head of FM Policy Focus (not exactly a friend to the GSEs) thinks it's in the cards and late on Friday Fannie chief Franklin Raines urged Congress to move forward, saying, "We do not see an issue that is not bridgeable." Of course, the "bridge to cross" is this: Fannie, Freddie and their key ally, the National Association of Home Builders, adamantly want program approval to stay at HUD. Is this a "bridgeable" issue? Is this a Golden Gate Bridge issue or a Pulaski Skyway Bridge issue? Time will tell, but if a bill doesn't pass by summer you can call it quits until President Kerry takes off in 2005...

Interviews with mortgage executives indicate that the mortgage "slowdown" started in November and continued through December. It appears that applications picked up in January and have been holding steady of late. But there have been casualties. The latest is BridgeSpan Inc. , a title and technology company based in Texas. This past week BridgeSpan filed for Chapter 11 bankruptcy protection, which means it hopes to reorganize someday. The company bills itself as "a leading provider of mortgage processing solutions for lenders and settlement service providers." It also claims that it introduced the industry's first electronic mortgage technology platform. Its CEO is Larry Walker, a former EDS executive. Another potential casualty is E-Loan of California. The chief operating officer of E-Loan resigned on Thursday, a day in which the company revealed that fourth-quarter earnings plunged 95% and its stock skidded by as much as 20%. To boot, Sandler O'Neill downgraded it to "sell" and set a price target of $2 a share. On Friday it was trading at $2.60 a share. It has a market cap $161 million. See National Mortgage News on Monday for full details...

General Electric last week filed an 'S1' statement with the Securities and Exchange Commission on its plans to spin off its mortgage insurance and other insurance-related units. GE, like most large corporations, only likes to disclose bad news when it has to. But in the S1 there is little in the way of bad news concerning GE Mortgage Insurance of Raleigh, N.C. From 2000 to 2002 the MI unit alone earned $1.3 billion. Not bad. However, the MI saw its earnings slip by 20% during the first nine months of 2003. The reason isn't given and GEMI's PR folks are under orders not to discuss the S1 for fear of being thrown in the slammer prior to the actual IPO. But it stands to reason that the MI unit saw its earnings skid because of higher pay-offs on delinquent loans, a phenomena that every MI firm has suffered. No, the S1 shows what many have known for years -- that Tom Mann runs a tight ship at GEMI and the company is indeed, the most conservatively managed MI in the business. However, the S1 reveals some interesting tidbits: that 66% of the loans that GEMI insured last year were sold to Fannie Mae and Freddie Mac. GEMI, of course, is a key financial backer of FM Policy Focu s whose mission in life is to lobby against and beat the stuffing out of Fannie and Freddie at every turn. In the S1, GE notes that Fannie and Freddie have not adopted any financial policies that distinguish between "AA" and "AAA" rated firms. But it warns that if either does, GEMI will be hurt. The document also mentions why mortgage insurers are concerned about reforms to the Real Estate Settlement Procedures Act. "RESPA prohibits paying lenders for the referral of settlement services, including mortgage insurance. This precludes us from providing services to mortgage lenders free of charge, charging fees for services that are lower than their reasonable or fair market value, and paying fees for services that others provide that are higher than their reasonable or fair market value. A number of lawsuits, including some that were class actions, have challenged the actions of private mortgage insurers, including our company, under RESPA, alleging that the insurers have provided products or services at improperly reduced prices in return for the referral of mortgage insurance. We and several other mortgage insurers, without admitting any wrongdoing, reached a settlement in these cases, which includes an injunction that prohibited certain specified practices and details the basis on which mortgage insurers may provide agency pool insurance, captive mortgage reinsurance, contract underwriting and other products and services and be deemed to be in compliance with RESPA. The injunction expired on Dec. 31, 2003, and it is not clear whether the expiration of the injunction will result in new litigation against private mortgage insurers, including us, to extend the injunction or to seek damages under RESPA." If you want a copy of the S1 go the SEC's website. Happy reading...

General Electric last week filed an 'S1' statement with the Securities and Exchange Commission on its plans to spin off its mortgage insurance and other insurance-related units. GE, like most large corporations, only likes to disclose bad news when it has to. But in the S1 there is little in the way of bad news concerning GE Mortgage Insurance of Raleigh, N.C. From 2000 to 2002 the MI unit alone earned $1.3 billion. Not bad. However, the MI saw its earnings slip by 20% during the first nine months of 2003. The reason isn't given and GEMI's PR folks are under orders not to discuss the S1 for fear of being thrown in the slammer prior to the actual IPO. But it stands to reason that the MI unit saw its earnings skid because of higher pay-offs on delinquent loans, a phenomena that every MI firm has suffered. No, the S1 shows what many have known for years -- that Tom Mann runs a tight ship at GEMI and the company is indeed, the most conservatively managed MI in the business. However, the S1 reveals some interesting tidbits: that 66% of the loans that GEMI insured last year were sold to Fannie Mae and Freddie Mac. GEMI, of course, is a key financial backer of FM Policy Focu s whose mission in life is to lobby against and beat the stuffing out of Fannie and Freddie at every turn. In the S1, GE notes that Fannie and Freddie have not adopted any financial policies that distinguish between "AA" and "AAA" rated firms. But it warns that if either does, GEMI will be hurt. The document also mentions why mortgage insurers are concerned about reforms to the Real Estate Settlement Procedures Act. "RESPA prohibits paying lenders for the referral of settlement services, including mortgage insurance. This precludes us from providing services to mortgage lenders free of charge, charging fees for services that are lower than their reasonable or fair market value, and paying fees for services that others provide that are higher than their reasonable or fair market value. A number of lawsuits, including some that were class actions, have challenged the actions of private mortgage insurers, including our company, under RESPA, alleging that the insurers have provided products or services at improperly reduced prices in return for the referral of mortgage insurance. We and several other mortgage insurers, without admitting any wrongdoing, reached a settlement in these cases, which includes an injunction that prohibited certain specified practices and details the basis on which mortgage insurers may provide agency pool insurance, captive mortgage reinsurance, contract underwriting and other products and services and be deemed to be in compliance with RESPA. The injunction expired on Dec. 31, 2003, and it is not clear whether the expiration of the injunction will result in new litigation against private mortgage insurers, including us, to extend the injunction or to seek damages under RESPA." If you want a copy of the S1 go the SEC's website. Happy reading...

A large bank that doesn't have a major presence in mortgages is on the prowl for acquisitions, at least that's what sources say. Which one is it? No one is being specific, but one thing is for certain -- plenty of mortgage companies have their ears open to offers. According to Don Henig of American Home Mortgage of Long Island, "tons" of mortgage firms are available for purchase. The publicly traded American Home hopes to be a buyer, but at the right price. American's Mark Filler (a former Prism Mortgage executive) is "aggressively" looking for deals, said Mr. Henig. For more details on deals see the Monday, Jan. 19 edition of National Mortgage News...