Mike Covino has been making jumbo and "super-jumbo" loans for 27 years. Even though President Bush - as expected - signed the $700 billion capital/mortgage markets "rescue" plan Friday afternoon, Mr. Covino sees no upside for super-jumbos (loans that are north of $729,750). "If you cut off funding for anything," it tanks. Super-jumbos cannot be bought by Fannie Mae and Freddie Mac. The new bill, he said, offers no relief to super jumbo homeowners who must refinance their loans especially in Mr. Covino's backyard - the Greater New York metropolitan area. He predicts that over the next year values could slip by as much as 30% in areas likes Greenwich, Fairfield and Westchester. "New York City is the next shoe to drop," he said. "And not just for financial service jobs." Mr. Covino hopes that in the months ahead regulators turn their sights on the problem facing the high end of the market. He admits, however, that from a political standpoint, this could be difficult...
When it comes to legislation the devil is in the details. I spent part of Friday reading the 451-page bill and filed a story for NationalMortgageNewsOnline, noting that asset "flippers" may have a hard time gaming the system. Or will they? According to the bill, investors that want to sell assets to the Treasury cannot do so at a price higher than what they bought them at. In other words, if an investor buys discounted MBS from a seller, it cannot turn around and then unload the bonds to Treasury at higher price. However, the legislation leaves a loophole: if a seller of bad assets took control of mortgage bonds through a merger/acquisition or bought them out of a conservatorship they are exempt from the Treasury's "unjust enrichment" clause. In other words, attorneys with an expertise in bad debt can start charging $400 an hour...
As if the housing market didn't have enough trouble already, the governor of California brought some more - and right before the House voted on the bill. In a letter to the U.S. Treasury, Gov. Arnold Schwarzenegger warned that his state might need a $7 billion emergency loan from the federal government to fund day-to-day operations and to pay teachers' salaries, nursing homes, law enforcement and other state workers. Keep in mind that many of these state workers have mortgages. California home prices, as we all know, continue to suffer tremendously. State and local governments depend heavily on real estate taxes (and mortgage recordation taxes) to fund their coffers. If home prices decline that means an owner can file to get a break on their RE taxes. Less tax money means less revenue for the city. This is what we call a "spiral-down" affect...
Among the many trade groups heralding the new bill is the Mortgage Bankers Association. MBA, in its press release, notes that the Emergency Economic Stabilization Act of 2008 preserves tax deductions for energy-efficient commercial buildings. As memory serves me, didn't MBA just move into a new building that it helped construct - one that is "energy efficient"? I believe so...
Just how bad is the "scratch and dent" loan market doing these days? According to one investor, some nonperforming second liens are selling at one-tenth of a penny. This source, requesting his name not be publicized, said that one bottom fisher bought a $120 million pool of seconds from WMC Mortgage a while back and has since taken a $5 million loss on the portfolio. "They bought it and now they're eating it," he said. For the full story on the scratch-and-dent market see the Monday edition of National Mortgage News. Don't subscribe? Call (800) 221-1809...
On Tuesday in New York - at the former headquarters of Bear Stearns, no less - JPMorgan Chase & Co. held a conference on the servicing of distressed assets. According to one attendee, Treasury undersecretary for finance, Seth Wheeler, spoke, as did an executive from EMC Mortgage, a scratch-and-dent servicer that JPMorgan inherited when it took over Bear in a deal assisted by the Federal Reserve. As for what was said at the meeting, both Treasury and JPM aren't talking...
A former loan trader at Nomura once explained to us how "credit default swaps" magnified the mortgage crisis. This trader, requesting his name not be used, noted that in 2005 and 2006 $40 billion worth of BBB-rated subprime bonds came to market. These were the "subordinated" pieces of larger securitizations - the ones that took the first losses when the market crashed. He noted that in the scheme of things $40 billion may not seem like a huge number. But the dollar volume of credit default swaps written against that $40 billion totaled $130 billion. This means that insurers (a swap is essentially an insurance contract) might have to shell out $130 billion of coverage if all those BBB pieces went bad. (Remember American International Group?) In other words, more "bets" were taken against a game then the total size of the game. Crazy stuff...
NO LONGER WITH US: Actor Paul Newman. What does this have to do with mortgages? Mr. Newman once starred in the movie "HUD." OK, so it had nothing to do with the Department of Housing and Urban Development but Mr. Newman was a fine actor. Any journalist worth his/her weight, I hope, has seen multiple times, Mr. Newman's "Absence of Malice," a flick that reminds us that sources aren't always trustworthy...
MORTGAGE PEOPLE: Wingspan Portfolio Advisors, a Texas-based mortgage servicing specialist, is now in business to assist lenders and servicers plagued by seriously delinquent loans. Wingspan's founder is industry veteran Steven Horne, a lawyer who formerly worked as director of servicing risk strategy at Fannie Mae.
DATA NOTICE #1: Meanwhile, if you need fresh data on who the top players in residential lending and servicing are (the deck chairs have changed) read the new 2Q edition of the Quarterly Data Report. The QDR has complete delinquency and loan numbers - plus info on 23 firms that are still servicing subprime loans. To order the QDR shoot an e-mail to
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 Nov. 13 and 14 in Las Vegas. For more info call Tiffany Patrick at (212) 803-8699...
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 is 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
