Loan Think

HUD secretary Mel Martinez went on CNBC Wednesday afternoon to discuss the agency's pending changesto RESPA. No, he didn't say when his long awaited RESPA proposal would be out. (It's a bit like that play, "Waitingfor Godot," no?) Mr. Martinez gave few details -- except he's adamant about letting the consumer knowhow much in loan fees brokers are making on each deal. This should go over big with the 35,000 or so loan brokersthat operate in Florida, a state he plans to run for the Senate in. Whatever HUD finally spews out you can expectlegal challenges by certain industry factions that feel they will be harmed by the rule...

As the sun went down on Friday afternoon journalists that cover the mortgage industry (okay, maybe just me)were praying that either Lewis Ranieri or Angelo Mozilo would get the nod to become the next CEOof Freddie Mac. Both men are outspoken, blunt, and have intellects that would make it a sinful pleasureto cover the secondary giant. (Actually, Freddie Mac was already an interesting beat but the restatement scandalmade it even better.) Just picture some of the Congressional testimony that might come about when either gentlemanis asked a touchy question. In other words, there's no way in hell that either one of these industry veterans willget the job. By the way, Mr. Mozilo, chairman of Countrywide, told us he is "not available." Mr.Ranieri, one of the inventors of the MBS, was immortalized in the book "Liar's Poker," and is best knownfor his days at Salomon Brothers and for taking a failed Texas thrift, Bank United, growing it intoa regional powerhouse and then selling it to Washington Mutual for a ton of money. For details on the "WhoWill Replace Parseghian" story see the Monday September 1 edition of National Mortgage News...

Will retired Fannie Mae chairman James Johnson come back into the mortgage industry to managehis former firm's chief competitor? As the sun went down on Friday, it seemed assured that within a few days FreddieMac's Greg Parseghian would be gone as CEO, a job he's held for less than 90 days. Sources familiar withthe matter say three names are being kicked around to replace Mr. Parseghian: Mr. Johnson, soon-to-be departingTreasury official Peter Fisher, and former Bush administration economic advisor Larry Lindsey. Thebelief is that one of these three could be named interim CEO while the company cleans house and searches for apermanent director. To say the least, the situation was fluid as this weekend column went to press. One thing isfor certain: whoever replaces Mr. Parseghian likely will be a company outsider. One seller/servicer suggested thatFreddie's board needs to clean house of all those with close ties to ousted chairman/CEO Leland Brendseland president David Glenn. (Mr. Parseghian replaced Mr. Brendsel as CEO in early June.) The seller/servicer-- and others -- has suggested that Freddie might wish to clean house at its board as well...

The 10-year Treasury is the God of mortgage banking and smart mortgage bankers watch the yield like a hawk.And what they've been watching is the yield rise from 3.07% to 4.65% in about two months. Refi applications arefalling like a rock, and a few mortgage-related M&A deals are being scuttled because the price being discussedno longer makes sense. Also, there has been one rumor making the rounds on Wall Street that a large mortgage-relatedentity -- no one is naming names quite yet -- has, in the words of two industry veterans, "blown up."What is meant by blown up is unclear, but the feeling is that when rates move as much as they have in such a shortperiod of time, there has to be at least a few casualties, that is, firms that bet the wrong way on interest rates.Stay tuned...

Fairbanks Capital's ex-president Mark Finston is talking to investigators for the Departmentof Housing and Urban Development and the Federal Trade Commission about the servicing scandal at hisformer company. Sources familiar with Mr. Finston's story, say he warned Fairbanks' board that it was growing toofast and was not prepared to take on more servicing portfolios and platforms. A source told us that Mr. Finstonwas okay with Fairbanks' purchase of ContiMortgage's platform and servicing portfolio, but was against thefirm's purchase of servicing-related assets at New Century and Equicredit. (The New Century dealfell apart at the 11th hour.) A source told us that Mr. Finston gave the board a choice: go with him and oust thenchief executive Tom Basmajian. But the board chose Basmajian and then asked Finston to resign, the sourcesaid. He left the company in February 2001. Basmajian, who founded the company, was fired this past spring. TheHUD/FTC probe into Fairbanks' servicing practices is ongoing. A spokeswoman for Fairbanks (employed by the PR firmof Powell Tate) could not be reached for comment...

FREDDIE MAC RESTATEMENT/ ACCOUNTING SCANDAL, WEEK #3: In the wake of the shakeup at Freddie Macand the uncertainty regarding its accounting practices, it would stand to reason that short sellers (those bettingon a decline in share price) would increase their positions in both Freddie and Fannie Mae. The big shakeuphappened on June 9, but short figures for June 13 show that speculators actually decreased their bets against bothcompanies. This could mean that these two stocks -- both bloodied since June 9 -- may not fall much more unlesssome major negative surprise pops up.

This past week was Freddie Mac accounting scandal, week No. 2. On Monday National Mortgage Newswill publish an update on the "Glenn Diaries." The long and short of it: Freddie wants them out, butrecently fired president David Glenn does not. Mr. Glenn and his attorney have yet to discuss the diaries.Chances are criminal investigators will get their hands on the scribblings before the public sees them. Sourcessay there could be non-business-related information in the diaries that some folks may not want released. Meanwhile,another law firm is suing the company on behalf of shareholders who saw the value of their Freddie Mac stock getclobbered on June 9 and the days that followed. The latest lawsuit (latest as of Friday afternoon) comes from thelaw office of Alfred G. Yates in Pittsburgh. Filed in Federal Court in Lower Manhattan, the complaint accusesFreddie of failing to properly account for hedges, smoothing out earnings, and providing investigators with "incompleteand altered" documents, among other charges.

THE FREDDIE MAC SCANDAL:

It looks as though more turmoil is ahead for the nation's top subprime subservicer, Fairbanks Capital Corp.On Monday June 9, National Mortgage News reports on the firing of Fairbanks' president Bill Garland.Mr. Garland could not be reached for comment. Bill, by the way, used to work for Advanta Mortgage, whichwas sold a few years back to Chase. One source with close ties to Fairbanks notes that the company likelydoes not have the option of selling any of its subservicing contracts. "Would you buy those contracts knowingthat a class-action suit could be imbedded in the portfolio?" he said. Fairbanks is under investigation bythe Federal Trade Commission and the Department of Housing and Urban Development. One fear for thecompany is that any successful class-action claims could result in the company paying out millions of dollars."Think about the people who lost homes because of them. This could be a real black hole." Fairbanks issaying very little about its problems these days. It didn't announce Mr. Garland's departure and only confirmedit after an NMN reporter called the company...

According to figures compiled by National Mortgage News, residential delinquencies hit a two-yearlow in the fist quarter, but the "past due" figure could be masking a rise in foreclosure activity. Theforeclosure business is so good that Foreclosures.com which tracks "notices of defaults" in 18counties (mostly California) is making a big push into Florida, Texas and Washington, all of which are high-volumestates. As anecdotal evidence, NMN correspondent Georgiana Lee reports that her brother can't sellhis house on the outskirts of San Jose because the price index has dropped by 40%. (San Jose is tech central.)It's a $900,000 house. In other foreclosure-related news, Ken Brennen of KAB Group LLC, has launcheda fund to invest in foreclosed properties in the New York City borough of Queens. His timing couldn't be better.New York City's wobbly economy worsened in May as investment banking activity remained soft and the city's servicessector struggled to emerge from its doldrums. For more details on foreclosures see the Monday edition of NMN...