Archive for January, 2011
As the paintball game speeds up and all major players dodge faster to avoid designation as bearers of systemic risk, let's not get fixated on "too big to fail" as the past or future cause of the disaster.
There is something worse than "too big to fail," namely, "too few to compete." The rating agencies, for instance, were not too big to fail — but they were too few to compete. The same is true for mortgage servicing.
Residential mortgage origination will fall short of $1 trillion in 2011, dropping to levels last seen about 15 years ago, according to one market research firm.
iEmergent expects mortgage loan purchase volume plus refinancings of between $903.8 billion and $990.7 billion this year.
"Expect total volume to move toward the lower end of the range if mortgage rates rise and the refinance spigot shuts off during the first half of the year," said Dennis Hedlund, president of the Iowa-based firm.
iEmergent expects the total number of refinancings to decline by nearly one-third this year with a corresponding drop in dollar volume of 29%. The company also projects slow growth in the housing market for 2012 through 2015.
"No one wants to hear about crippled communities and dire housing situations. We'd rather not forecast a floundering home financing depression, either. But we believe that those who trumpet a burgeoning housing recovery for 2011 are grasping at very elusive straws," Hedlund said. (Click chart to expand.)
iEmergent also projects slow growth in the housing market for 2012 through 2015.
While the number of purchases is projected to be flat with 2010 at about 2,620, the total dollar amount is expected to dip 0.4% from last year's estimated $493.2 billion to $490.9 billion, according to iEmergent.
The firm also expects average loan size to decline in 2011, due to continued declines in housing prices "caused by high for-sale inventory levels, recalcitrant overhang, weak homebuyer demand, the shadow inventory of impending foreclosures, and tighter product, down payment and credit standards."
iEmergent said Fannie Mae, Freddie Mac and the Mortgage Bankers Association "offer slightly rosier futures" with their projections for 2011 home loan originations. But the estimates these "industry oracles" have put forth for each year between 2004 and 2009 were consistently high by an average of more than 30% compared to volumes eventually reported by lenders, the research firm said.
Hedlund said the robo-signing debacle of the past few months has severely damaged the reputation of the entire banking and mortgage lending industries. And demand is too weak despite rates at generational lows and falling home prices.
"The result: An angry American public that likes banks and bankers less than they like the TSA," he said. "The U.S. will remain in the throes of a real estate collapse that will take years to repair."
iEmergent has been projecting mortgage volume declines consistently for the past few years.
Write to Jason Philyaw.
Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."
