Weekend Update readers: We're still putting the finishing touches on our annual data directory/analytical book-- The Mortgage Industry Directory -- so this column will be brief. Once again I've chosen some marketcommentary from an industry insider, Ross M. Strickland who once worked for mortgage lender Webster Bank.Before we get to Ross' comments, keep in mind that the 1Q edition of the National Mortgage News'Quarterly Data Report has just been released. According to the QDR, subprime production fell to just $88billion in the first quarter, a stunning 50% decline from the same quarter last year. Of course, the plunge wasnot unexpected given the current subprime crisis. Among the top 10 subprime funders, the biggest decline was atHSBC Finance of Prospect Heights, Ill., which is restructuring its B&C business. HSBC's parent bankhas bad debt reserves of more than $10 billion, in part, because of its U.S. subprime business. The bank, though,refuses to tell the public how much of the $10 billion is attributable to subprime. That's the British for you...
And now Mr. Strickland's observations: "I retired three years ago after creating and managing the consumerfinance unit for Webster Bank. One of the principles I instilled in my team was never make a loan where theborrower was not better off after it closed. Option ARMS were clearly in the category of loans that oftenwere only in the interests of the originator. We did not book the loans but casually offered them (as a broker)and primarily to higher net worth individuals who understood the ramifications. There are times for radicalinstruments (we offered neg am ARMS on Long Island in 1982 because fixed rates were 17.5% and people still neededto buy homes.) Interestingly enough, I can't remember a foreclosure. No one was speculating or 'reaching'with those instruments. Real estate rebounded in the mid 80’s, everyone refinanced at lower rates and lifewas good again. This time has been different and it was so easy to see the train wreck coming several yearsago. I will say that the borrowers who have been hurt by Option ARMS after taking significant cash out andor buying homes to flip do not bother me much. I grew up on Long Island (Northport) and drove through Wantagh formany years on the way to Baldwin where I first worked. I am always interested in hearing about that market."
DATA NOTICE: The first quarter edition of NMN's Quarterly Data Report is now available.(The 1Q issue of the Alternative Products Quarterly Data Report will be ready early next week.) The regularQDR provides information on the nation's top 100 prime lenders and top 45 subprime. If you want details on thetop funders of alt-A, payment option ARMs, jumbos and more check out the AP-QDR. For more information email:
