THIS JUST IN: Now that the Federal Housing Finance Agency (with Treasury's blessing) has placed Fannie Mae and Freddie Mac into a conservatorship, one huge question needs to be settled: is Uncle Sam ultimately responsible for their $5.2 trillion in guarantees and loans? If that's the case the U.S. government's obligations (debt) now stand at $14.2 trillion compared to 'pre-GSE' obligations (all those Treasury bonds) of $9 trillion. What does it all mean? Someone call an accountant. Is Bert Ely in the house?
We're hearing reports that some Wall Street firms are auctioning off small pools of mortgages where the loans have been delinquent for up to two years with no foreclosures initiated. One source told us the Street-owned firms haven't bothered to foreclose because it takes so long. "In Florida it used to be eight months from filing to takeover," he said. "Now it's 15 months." If what this industry veteran says is true, that means the foreclosure figures we saw this past week are actually much worse...
Let's talk about the payment-option ARM, that wild and wacky loan that Angelo Mozilo's Countrywide and Herb and Marion Sandler's World Savings liked so much. According to the upcoming edition of the Alternative Products Quarterly Data Report, the number of firms still making POAs is sinking like a rock. Meanwhile, one investor told us that a majority of homes bought in California over the past three years were purchased using POAs. But have POAs yet gone delinquent in huge numbers or will they begin to go bad later this year and into next? Stay tuned. Meanwhile, according to the new 2Q edition of the Quarterly Data Report, the overall subprime delinquency ratio is almost 30%. To order the AP-QDR and QDR e-mail
A ton of ink has been spilled about the mortgage crisis but not so much about the role of "outsourcing" companies like Clayton Holdings and The Bohan Group which were hired by Wall Street firms including Merrill Lynch, Bear Stearns and Lehman Brothers to underwrite the billions in subprime loans they were buying through their trading desks. The whole culture of underwriting "sweat shops" and Wall Street trading desks are explored in the book "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis." This week's excerpt:In the modern area of mortgage finance - one where Wall Street was in control of the nonprime sector - the idea was to keep the head count lean. If Bear Stearns was going to hire people to work in its mortgage department, it would much rather employ managing directors who could bring in mortgages through the trading desk - people like Mike Nierenberg and Jeff Verschleiser. The clerical work of actually reviewing the loans they were buying through the desk fell to contractors who worked for Clayton, The Bohan Group of San Francisco, or Opus Capital Markets of Chicago. It was the type of work that Carl Chamberlain and hundreds of others did. They were the grunts looking over the files. Over a three-year period the Carl Chamberlains of the world reviewed thousands upon thousands of mortgages bought through the trading desk of Bear Stearns.
Even though he'd had a bad experience at First Franklin, Chamberlain figured if he worked as a contract underwriter for a year or so he could latch on to a mortgage job in New York where he lived. After signing on at Clayton, the first thing he learned was that he wasn't working for Clayton at all. He was working for the PCI Group, an employment agency based in northern New Jersey. (Wall Street firms weren't the only ones concerned about FTEs.) "'You work for us,' Clayton always told us, but PCI was the actual employer," Chamberlain said. "That was the name on the paycheck."
Each investment banker using Clayton or Bohan would give the contract underwriter a set of guidelines, contained in an Excel spreadsheet, to measure the loans against. "There are 600 pages in a guidebook," noted Chamberlain. "You don't have time to do it over."
A rating of a one or two meant the loan was good, and the Street firm would buy the mortgage. A three meant fail, with a recommendation not to buy. But sometimes Chamberlain's supervisor on the job would overrule his three ratings. "They would make it a one or delete your comments," he said. "There were compensating factors or CFs. If it does not meet [the investor's loan] guidelines you can say it's a two because it has CFs." (For more information about the book visit
MORTGAGE PEOPLE: Lewis Ranieri, co-inventor of the mortgage-backed security, has stepped down as interim chief executive of Franklin Bank Corp. of Texas but will remain as chairman as the depository searches for new capital. Replacing Mr. Ranieri as CEO is Alan E. Master, a director in the company who was named its president in May.
MUST ATTEND CONFERENCES: Don't become another fraud statistic. National Mortgage News, Mortgage Technology and American Banker invite you to attend the 3rd Annual Mortgage Fraud Conference on November 13 and 14 in Las Vegas. For more info call: Tiffany Patrick at (212) 803-8699.
DATA NOTICE #1: Need a list of wholesalers that have recently departed the sector? Visit
DATA NOTICE # 2: With the mortgage industry in the throes of a historical correction you need up-to-date data on which firms are left standing. You need hard numbers on their servicing and production volumes, including executive names and telephone numbers. All of this contained in the brand new Mortgage Industry Directory and the Web version of the production, the eMID. The book and e-book provide 1Q 2008 information plus full-year 2007 stats. For more information e-mail
