Commentary: This Will Hurt a Little Bit

No words: I usually reserve this space for my comments on the mortgage banking week that was, and this week won’t be any different, except to say that I’m deeply saddened by the trouble I’m seeing unfold in the subprime — and to a lesser extent, Alt-A — mortgage market. I’m not bearish on the mortgage markets per se, but as the subprime industry goes through a seismic shift of sorts and in spite of how many in the outside media have portrayed the entire subprime industry as bunch of villians, there are going to be plenty of good, hard-working people on the origination side of the business that are going to lose their jobs because of what is now taking place. And that doesn’t get into the homeowners that have been or will be impacted as well. I’ll never forget meeting with a guy who had helped Credit Suisse put together one of their original securitizations, and he once told me the following: “We don’t securitize this stuff out of the goodness of our hearts, we do it because the market allows us to.” I think we’re finding out now, for the first time, what happens when a market changes its mind. That being said, I come from the default side of mortgage banking — a side of the industry that up until now had been pretty much an afterthought. It’s an interesting industry, to say the least, and one that is now more critical to originators than anyone would probably admit in public. The ability of the default industry to do its job efficiently is going to determine how badly the currently-emerging wave of foreclosures and REO will hurt the mortgage industry at-large, and determine outcomes for potentially millions of borrowers who can no longer afford their mortgages as well – which will in turn impact credit standards going forward.

When S&P director Michael Gutierrez said earlier this week that firms will need to “think outside the box” on their loss mitgation efforts, I can tell you that the man knows what he’s talking about. I’d add that the default industry will need to start to think creatively as well, finding new ways to limit loss for the lending institutions they represent. 100 percent gets the boot: It’s pretty clear at this point that 100 percent financing, at least for subprime loans, is a thing of the past…same goes for second liens, all of which means mortgage insurers might be due for a strong comeback in the quarters ahead. Option One was the first major subprime shop to confirm that it had eliminated 100 percent financing, as we reported on Thursday, followed shortly by New Century (whose SEC filing fried some bigger fish, but did note a change in underwriting standards). If you’ve got comments on the loan programs at your company or those you send loans to, or know of companies that will still float 100 percent financing in subprime, feel free to drop a line to [email protected]. We’d love to hear about it. Paging C-BASS: Rumors are surfacing that C-BASS may be reconsidering its pending purchase of Fieldstone Investment Corp. (NYSE:FICC), as the company’s stock price hasn’t been above the $5 per share mark since last week. If you’ll recall, HW reported on February 16 that C-BASS had agreed to acquire the subprime operation for $5.53 per share in an all-cash deal. With a nearly $2 per share spread between the current trading price and the purchase price, the C-BASS deal would appear to be on shifting ground….. More rumors: We’ve published more than our fair share of rumors here at HW this week, but by far the one that drew heated response was our reporting on industry rumors that Wells Fargo may possibly be considering an exit from subprime, mentioned in our larger story on Option One’s changes to its loan programs. While we cannot divulge our sources, or who they work for, we chose to publish the rumor because it’s something we’ve been hearing about for weeks on end, and from numerous independent sources to boot. Our thought process on this was pretty simple: any time one of the largest financial institutions in the world even remotely, possibly, potentially considers exiting an entire line of business, it’s news. For what it’s worth, we’ve heard since yesterday’s publication deadline that Wells will now only fund loans below 620 FICO at 85 percent CLTV….more rumors, of course, and not exactly consistent with the full-scale exit theory floated to us by industry sources. Wells officials are mum on mortgage operations for the time being, as expected, but when we hear more, we’ll pass it on. The Aaron Krowne Affair: Blogger Aaron Krowne of the Mortgage Lender Implode-o-Meter has seen his traffic jump as the site has become the de-facto standard both inside and outside the industry for tracking lender closures — a site he started in just mid-December (correction: Krowne started the site on December 31st of last year), right before the credit crunch now part of the entire industry’s collective psyche began to gather steam. You may have noticed that HW does not provide a list of lender closures on this site, and that’s by design: it’s just a little too macabre for our sensibility as a mortgage industry publication. (Well, that, and why reinvent the wheel?) That’s not to say his idea isn’t already being imitated elsewhere; it took a few months for industry media to catch up, but at least one industry rag is now running a competing list. I have to wonder what advertisers at that industry rag think of it. Thanks for your support: I started Housing Wire less than three months ago because, after leaving my position as an editor at a niche pub covering just default management, I felt that the mortgage banking industry needed a free, independent and objective voice. With more than 1,000 industry professionals already receiving our daily email updates, thousands and thousands of daily visitors to the site and hundreds of thousands of page views served each month — less than three months into this — I think it’s safe to say that I might have been on to something. Have a great weekend. Full disclosure: The author owns shares in Fieldstone Investment Corporation, although not enough for his holdings to impact overall performance in his personal investment portfolio either for better or for worse. Housing Wire will always disclose the financial interests of its authors.

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