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Lending

Whalen: Nonbanks are taking over mortgage originations

Regulators "get in the way"

Fed Money
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Investment banker and outspoken housing analyst Christopher Whalen, predicts that by this time next year, 40% of mortgage originations will be done by nonbanks.

"When you hear Ginnie Mae CEO Ted Tozer speaking at public events, he says more and more he's seeing nonbank counterparties for FHA," Whalen said, speaking at the SourceMedia Mortgage Servicing conference in Dallas. "I hope that nonbanks will step up to the plate and take over originations. Commercial banks no longer want anything to do with closing that note."

Whalen is giving his first public appearance as Head of Research for Kroll Bond Ratings Agency; news exclusive to HousingWire. In an aside, he told HousingWire that Kroll will be paying close attention to nonbanks in the future.

Whalen estimates around $250 billion in unpaid principal balance on mortgages at the big banks remains distressed or is going to need future resolution.

"Timelines for resolving defaulted loans extend as long as three years in Northeastern states and Florida," he said, adding that he would prefer investing in NPLs over REO-to-rental, where the margins remain compressed.

Indeed, as his slide show presentation showed, more than 6% of FDIC-insured mortgages remain distressed and will require resolution. "All those people need phone calls," he told the gathered group of mortgage servicers.

Whalen warns about the "dumb money" flooding into the NPL and REO-to-rent market. Dumb money, Whalen explained, is unsophisticated investment capital that distorts prices in the market place. Mortgage Servicing Rights are now trading at six times the annual cashflow, whereas Whalen believes it should be closer to two or three at fair market value.

New regulations promulgated by the Consumer Financial Protection Bureau discourage lending by banks and nonbanks alike and are causing loan portfolios and loan securitization volumes to fall steadily, he added.

Whalen told the audience that those who follow him know his stance on the current regulatory environment and how he disagrees with their current activity.

"These people get in the way," Whalen said. "It's a shame because Americans do want to buy a home, but provisions under Dodd-Frank prohibit this from happening."

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