Loan Think

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...

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...

The Office of Federal Housing Enterprise Oversight thinks ousted Freddie Mac chief executive Leland Brendsel knows a bit about Wall Street's role in some of the questionable accounting maneuvers that are central to the company's $5 billion accounting scandal. But Mr. Brendsel -- who has never spoken publicly about the matter since being forced out in early June -- isn't talking. His stance has led to briefs and counterbriefs being filed in U.S. District Court in Alexandria, Va. In summary, OFHEO has subpoenaed his cooperation but he has fought back, questioning the agency's legal authority to do so. Unlike other federal banking agencies, OFHEO cannot file civil claims directly and instead must revert to the administrative law process. This hampers its ability to take tough action against alleged wrongdoers. But the OFHEO briefs filed in Virginia are interesting because it clearly shows that the agency is not done poking the coals of this scandal, in particular Wall Street's role in the alleged shenanigans. "Mr. Brendsel is needed to get a better understanding of the relationships that Freddie Mac had with the broker-dealers and how Freddie Mac worked with them to develop and execute the transactions," says OFHEO deputy general counsel David Roderer in one filing. OFHEO is investigating the role Morgan Stanley and other broker-dealers played. (As Deep Throat once told Bob Woodward: Follow the money.) Another question begs: will New York attorney general Elliot Spitzer eventually get involved? As long as he's mopping the floor with Wall Street, why not take a look at their role in the esoteric and virtually unregulated derivatives market? Mr. Spitzer reminds some of another (now former) crime fighter, Rudy Giuliani, who cleaned up Wall Street in the go-go 1980s. Mr. Giuliani successfully ran for public office. Spitzer is expected to take a run at governor...

So, what were the biggest mortgage-related stories in 2003? According to the informal reader survey that we conducted over the past two weeks the three biggest stories of the year were the Freddie Mac scandal, the production/refi boom and the RESPA saga. Interestingly, more than a few voters noted that another big story related to the Freddie Mac accounting scandal is the new "vulnerability" of Freddie Mac and his chief competitor, Fannie Mae. As one voter told us, "These two can no longer be looked upon as being untouchable. They are now vulnerable. They can no longer argue that they are well managed." Other mortgage stories that garnished votes as being big stories include the Fairbanks predatory servicing scandal, the financial meltdown of Capitol Commerce of Sacramento, Calif., and the anticipated volume decline of 2004. One wise guy voter said that Hanover Trade announcing the "successful installation of Hanover/Busch 7.0 at Wells Fargo" was a big story. That voter's identity is being withheld to protect his reputation in the industry...

So, what were the biggest mortgage-related stories in 2003? According to the informal reader survey that we conducted over the past two weeks the three biggest stories of the year were the Freddie Mac scandal, the production/refi boom and the RESPA saga. Interestingly, more than a few voters noted that another big story related to the Freddie Mac accounting scandal is the new "vulnerability" of Freddie Mac and his chief competitor, Fannie Mae. As one voter told us, "These two can no longer be looked upon as being untouchable. They are now vulnerable. They can no longer argue that they are well managed." Other mortgage stories that garnished votes as being big stories include the Fairbanks predatory servicing scandal, the financial meltdown of Capitol Commerce of Sacramento, Calif., and the anticipated volume decline of 2004. One wise guy voter said that Hanover Trade announcing the "successful installation of Hanover/Busch 7.0 at Wells Fargo" was a big story. That voter's identity is being withheld to protect his reputation in the industry...

The Pre-New Year's Edition:

The Special Holiday Edition:

The Special Holiday Edition:

If you have some spare time during the holiday season and want OFHEO's view on just what kind of accounting shenanigans Freddie Mac was up to the past four years, I strongly suggest you read the agency's new special examination report on the company's $5 billion re-audit scandal. (Some of the best nuggets are in the footnotes.) But here's just a sample of the goodies, some of which is my paraphrasing: