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...
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When it comes to cutting costs, Washington Mutual isn't fooling around. WaMu this past week said it eliminated 4,500 jobs from its home loans group in the fourth quarter, and more cuts are on the way. To boot, an additional 1,800 workers have been notified that their positions will likely be eliminated in the first quarter of this year. All this comes at a time when mortgage rates are falling once again. One mortgage official told us that when it comes to production, January could turn out to be a very good month. Quick, hire back all those workers...
The nation's largest subprime firm (that would be the Federal Housing Administration) has unveiled a new "zero downpayment" mortgage. A few weeks back, National Mortgage News broke the news that FHA claims soared by 42% last year to $7.8 billion. When Congress is done re-regulating Fannie & Freddie, it should take a close look at the FHA. Former HUD secretary Mel Martinez (HUD oversees FHA) is running for a Senate seat in Florida. Could the FHA's poor performance become an issue in the campaign? Nahhh...
STATISTICS TO THINK ABOUT: According to the upcoming issue of the Quarterly Data Report , two firms cracked the $400 billion mark in production last year and one came close. They are Wells Fargo ($470 billion), Countrywide ($435 billion) and Washington Mutual ($384 billion). Membership in the National Association of Realtors now stands at 977,000 -- a dramatic 27% increase in three years. The median age of NAR members is 51. Over at the National Association of Home Builders the monthly gauge of builder confidence was down slightly in January from December. But overall, homebuilders expect a darn good 2004.
MORTGAGE PEOPLE: Central Pacific Mortgage has named Ed Fuchs executive vice president of finance and secondary marketing. Lime Financial Services has named Russ Wright senior vice president and regional manager. Katy Chow has been named head of residential mortgage lending at Pacifica Bank, Bellevue, Wash. Homestar Mortgage Services has hired Charles Salomon as a loan officer in its Long Island office.
EX-GSE PEOPLE: Despite its stellar earnings, Fannie Mae has not been the subject of great publicity this past year. And one of its past presidents, Larry Small, is now the subject of some, well not great, publicity. Mr. Small, who currently serves as secretary of the Smithsonian (as in museum), is expected to plead guilty to a misdemeanor violation of the Migratory Bird Treaty Act. An avid collector of Brazilian tribal art, he apparently is in possession of a bird feather that he is not supposed to have -- so says the Washington Post .
IN CASE YOU MISSED IT: Fannie May is about to be sold! That's right, the candy maker, which shares the same name (but not the spelling) of the well-known mortgage giant, is on the auction block. Fannie May has a retail outlet in Washington, D.C. -- right across the street from the Office of Federal Housing Enterprise Oversight .
WATCH ON THE 10-YEAR: Late last week the yield on the 10-year Treasury was 4.06%...
MORTGAGE DATA NOTICE: The M&A market is heating up. To find out who might be buying whom, get a peek at the nation's top 100 lenders and servicers. It's all in the Quarterly Data Report. Also available is "National Mortgage News M&A Database" with information going back to 1996. For information about either product, contact contact Deartra Todd at Deartra.Todd@ThomsonMedia.com.
