Mortgage Scene
Viewing Into Crystal Ball for 2003
It's never too early to start thinking about the future and what better time to discuss next year then now, December,a month in which I suspect mortgage lenders and servicers will be throwing some pretty lavish Holiday parties tocelebrate the second consecutive year of $2 trillion-plus production.
So, what's ahead for 2003? More of the same? Well, sort of, but there will be some interesting trends to watch.One thing's for certain, unless the economy takes off on a rocket (not likely) mortgage rates will stay in therange of 6% to 6.75%. That's good news for lenders and brokers, but not so good for servicers. Unless unemploymentspikes, the housing market will stay robust, just not as robust as the past two years. For the consumer the choiceboils down to this: where do I put my money -- in my house or the stock market? Any way, here's a few general trendsto keep an eye on in the new year:
80-10-10 Loans: At Mortgage Servicing News and our affiliate publications we do quite a bit of surveying-- of both lenders and servicers. Recently we started collecting second lien production data. Home prices surgedthe past two years and so have second liens -- not so much by number of units, but by average loan size. Some firmsare making seconds that have average balances north of $50,000. After doing a little digging our reporters discoveredthat the 80-10-10 market is booming -- I mean, really booming. This is good news for those making the seconds,but not so good news for some of the traditional mortgage insurers.
80-10-10 Investors: One of the problems with 80-10-10 loans (an 80% first, a 10% second, and a 10% downpayment) is finding an investor to hold the second. Countrywide, for example, holds some of its seconds but it'salso securitizing the product. As this market continues to grow, the industry could see new entrants that specializein buying just seconds. (Is Wall Street listening?)
Subservicing: The servicing market has been smacked upside the head by the refi boom. When was the lasttime you read a story about a bunch of large "bulk" deals coming to market? I thought so. Mid-sized firmsthat still service their own loans might move to subservicing arrangements. Why? By selling their servicing rightsoutright they lose touch with their customer base -- customers that they need to cross sell to. Smart managerswill realize that if they exit servicing entirely they might be cutting their own throats.
Accounting for Servicing Rights: Remember when all the world thought "capitalizing" mortgage servicingrights was such a brilliant idea? Well, several billion dollars worth of impairment charges later, some in theindustry might move to revisit the issue. And if the tide does turn will this lead to a stemming in servicing consolidation?
Fragmentation Among Producers: The irony of mortgage banking is that while servicing has consolidated, productionhas "de-consolidated." Loan brokers appear to be thriving -- as are the wholesalers that fund them. Yes,Countrywide, Washington Mutual, and Wells Fargo appear to have strong production market shares -- but keep in mindthese firms use all three sourcing channels: retail, wholesale, correspondent. In recent quarters wholesale andcorrespondent volumes have grown faster than retail. Does this mean the big three are relying more on brokers andcorrespondents?
The GSEs: Now that the Republicans control the House, the Senate and the White House, some think Fannieand Freddie might face more political scrutiny. (FM Watch can only hope.) But chances are the Bush Administrationwon't mess with these two GSEs. Why? Two reasons: the U.S. economy is still weak and politicians won't tinker withsomething that works so well. Number two: President Bush wants to improve minority home ownership rates and todo that he'll need Fannie and Freddie more than ever. As for the Federal Home Loan Banks and their "MPF"and "MPP" programs, community lenders seem to like the product, but infighting between some of the FHLBscould lead to regional variations on these programs.
