Moody's Sees More Mergers, Riskier Profile

Consolidation will continue in the mortgage banking industry, and low profit margins, high leverage, and growing subprime originations will weaken a "relatively stable" credit profile overall for conventional mortgage bankers, according to Moody's Investors Service.In a new industry outlook report, the rating agency said it does not expect near-term downgrades in the industry "primarily due to improved risk management techniques and strong efforts to sustain healthy liquidity." Moody's said the "overwhelming influence" of Fannie Mae and Freddie Mac is "likely to intensify" as their automated technologies become standard and they expand their presence in the alternative-A and subprime markets. The report noted that much of the consolidation in the past two years has been incidental to commercial banking mergers, but said Moody's believes it will continue "irrespective of what happens" in the commercial banking industry. "Greater competition among mortgage originators, the costs of new technologies, and scale economies in servicing and securitization, make it increasingly difficult for smaller mortgage banks to survive as independent entities," Moody's said. The Moody's website address is http://www.moodys.com.