Remember how at first, Treasury was going to buy "troubled" mortgage assets under the TARP program and then Hank Paulson pulled the plug on the idea two weeks ago? Well guess what? Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee wants Treasury to buy troubled mortgages after all. In a new letter to Paulson, he asks that Treasury begin purchasing whole loans on a "large scale" for the specific purpose of modifying the loans and keeping borrowers in their homes. If Frank gets his way, I would assume Treasury will start hiring contractors to help carry out the plan. Ultimately, the decision will be up to the incoming Obama Administration and New York Federal Reserve president Tim Geithner who was just tapped to be the first Treasury secretary in the new White House
Let's talk about U.S. automakers, home prices and the unemployment rate. If one or two of the "Big Three" go down, rest assured that today's mortgage delinquencies will be a picnic compared to what follows. But first, a story I was told by closing attorney John McDermott who writes a column for our sister publication, Origination News. The Ann Arbor-based McDermott told me a friend of his works as an engineer for an auto parts supply company. The rumor making the rounds this week is that some of the company's employees -- including this engineer -- will be furloughed for the entire month of December. Now, think about all those assembly line workers, managers, parts suppliers and businesses that operate in communities where GM, Chrysler and Ford have plants. All are at risk when it comes to layoffs and furloughs. Let's assume that 60% of these workers have a mortgage. Should TARP money be used to extend a line of credit to the automakers? That's up to Congress to decide, but a $25 billion line of credit would seem like a small price to pay for avoiding even more damage to the economy -- and the housing/mortgage market in particular. If Congress does "bail out" the automakers it should be a "strings attached" loan with union contracts reworked and a mandate to produce more fuel efficient and cheaper cars. Maybe TARP money should even be used to sell the Big Three to Honda or Toyota. Oil is at $50 a barrel, compared to a summer high of $140. But does anyone really think oil will stay at $50 over the long haul? Go 'Green'
Meanwhile, here's a preview of the First American CoreLogic home price index report for September and early October: Nationally, housing prices declined by 11.2% in September. As of early October, the year-over-year decline was 10.5%. Mark Fleming, First American’s chief economist said, "Home prices have now maintained an annualized depreciation rate of between 10% and 11% for eight months in a row. Thirty-four states experienced annual price declines as of September, but the geographic breadth of the declines seems to have stabilized." Now let's add a bankrupt GM or Chrysler into the mix or both and see what happens
Former Countrywide Financial chief Angelo Mozilo this past week found himself on the front page of The Wall Street Journal again. He was on a list of executives who cashed out by selling stock before their company's earnings hit the wall. Also making the list was Bank of America CEO Ken Lewis. BoA, of course, now owns Countrywide. What does CFC's mortgage assets hold in store for BoA? From the book, "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis": Over the next 15 years Countrywide and Fannie Mae—Mozilo and Johnson and then Mozilo and Franklin Raines, Johnson’s successor—would be linked at the hip. Johnson invited Mozilo to attend and speak at retreats for Fannie Mae’s top executives and sales team. The Fannie Mae chief, in turn, frequently flew on the Countrywide corporate jet. They played golf together. Later on when Johnson retired from Fannie Mae to chair the Kennedy Center, who would be sitting in the box with him at plays and performances but Angelo Mozilo?
As Countrywide’s loan originations soared into the stratosphere, so did Fannie Mae’s on-balance-sheet assets. As one firm’s earnings rose, so did the other’s. Depending on the year, Countrywide might account for 10 percent to 30 percent of all the loans Fannie Mae bought. One joke making the rounds in the industry was that Countrywide was really just a subsidiary of Fannie Mae. When General Electric, Wells Fargo Bank, Household Finance, and three other financial service giants formed a lobbying group called FM Watch to fend off Fannie and Freddie’s efforts to enter other mortgage-related businesses that they dominated, Mozilo refused to join the group, defending the GSEs. “They don’t know what they’re doing,” he said. “If Fannie and Freddie catch a cold, I catch the f---ing flu"
For more information visit:
Meanwhile, BoA has declined to disclose what Countrywide's subprime servicing portfolio was at the end of September
Speaking at the National Press Club a few days ago Housing secretary Steve Preston sounded like a true (Republican) believer in "structured mortgage finance" telling members of the media that in time the "private institutions" should be the ones providing liquidity to the mortgage market -- and not necessarily Fannie Mae, Freddie Mac and FHA. He jokingly told reporters that he should've left the Lehman Brothers reference off his resume"
WASHINGTON NEWS: One FHA consultant says he gets more calls from clients about the 'Hope for Homeowners' program every time the government makes changes to the FHA refinancing program. "Interest is growing. But it hasn’t translated into loans yet," consultant Brian Chappelle of Potomac Partners told NMN's Brian Collins. House Financial Services Committee chairman Frank welcomed the changes to H4H announced by HUD. But he wants the Treasury Department to make even more changes. The Federal Housing Administration is required to charge a 3% upfront and a 1.55% annual premium. "These high fees are depressing program usage, and using TARP funds to pay them down could significantly increase the number of foreclosures averted," Rep. Frank said. On a regular FHA loan, the upfront premium is 1.75% and the annual premium is 55 basis points.
DATA NOTICE: In a week or so the 3Q edition of National Mortgage News' Quarterly Data Report will be ready, including a complete ranking of the nation's top 100 lenders and servicers -- and subprime subservicers playing in the 'scratch and dent' arena. During the quarter just $333 billion of home mortgages were funded -- the lowest reading since the year 2000. To order the QDR send an email to:
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 ebook provide 2Q 2008 information plus full-year 2007 stats. For more information email:
