Fate of Mortgage Brokers, Foreclosures Up 81% In 2008, Banking Sector On Ropes

Here is a job listing just in time for all those great folks at Chase wholesale.

The Fate of Mortgage Broker Business
Chase’s exit from wholesale left brokers searching the rate sheets in their fax machines, wondering which major banks are left buying loans in that channel. It also caused those remaining wholesale investors to once again re-examine their business lines. I imagine that no one wants to be the last one standing in buying TPO loans from brokers. Looking at the largest banks here in the US, one sees Citi, Chase, BofA/CW, Wells/Wachovia, HSBC, US Bancorp, Bank of New York, SunTrust, Citizen’s, National City, etc. There are no rumors about who is going to start up a wholesale division, but rather who will be next to close one.

After their consolidation a few months ago, and focus on roughly 1,000 wholesale broker accounts, Citi appears to remain committed to the channel. In fact, their correspondent reps are covering many broker accounts. One Wells wholesale rep sent this out to his/her clients: “Wells Fargo Sr. Mgt. reports: we are committed to the Wholesale business, to prepare for a busy year, to focus on quality Brokers and to thank you for your business!” Many brokers are hoping that this statement doesn’t fall into the category like someone dating a guy who tells them, “I only have eyes for you, honey” or coming out of an operation and having the doctor say, “Well, I think that we got it all.”

How Are Companies Handling Refi Boom?
You know a company is busy when they (in this case, GMAC) send out a statement reading, “GMAC Bank Correspondent Funding (GMACB) approved Non-Delegated Clients please note, due to a recent increase in the demand for GMACB Underwriting resources, the recommended minimum lock period for all Non-Delegated loans that have not been previously submitted and approved by GMACB is 60 days.”

How are companies dealing with the backlog? Successful mortgage companies are pushing originators to choose the shortest lock period possible. Others have begun collecting up-front fees for application, credit report and appraisal with the thinking being “once a customer writes a check, even for a nominal amount, they are motivated to stay put”. And successful companies are doing what they can to stay on top of cancellations – loans that won’t close clog up pipelines and raise hedging costs.

Banking In Trouble
How are banks doing out there? For big banks, things are not good. B of A is having difficulty absorbing Merrill Lynch, and may soon ask the US Government for more money to aid the process. JP Morgan’s earnings for the 4th quarter dropped 76%, although it was apparently better than anticipated. And Citi is breaking itself up. Barclays published their view on bank earnings. Focusing on asset quality, securities write-downs, goodwill impairments, and capitalization, Barclays expects financial performance to be weak due to deteriorating loan quality, continued losses on risky securities, and goodwill impairments. “Economic conditions will cause problems in loan portfolios to migrate from residential-related products to credit cards and commercial real estate, leading to materially higher nonperforming assets and exposing the inadequacy of loan loss reserves, in our opinion.” Barclays does go on to say that banks should be ok as long as government intervention continues, especially for Bank of America, JP Morgan, and Wells Fargo, “three banks that have exceptional systemic importance, in our opinion. We remain cautious on regional banks given the continued deterioration in asset quality.”

Foreclosures Up 81% for 2008
Speaking of deterioration, our housing market is pretty grim. This morning’s RealtyTrac report on foreclosures shows an 81% increase for ’08, with the December level at 303k — up 41% year-over-year. RealtyTrac’s CEO notes that foreclosure prevention programs offered by banks and some legal delays “have not had any real success in slowing down this foreclosure tsunami.” And folks wonder why Treasury rates go down while mortgage rates don’t…

Producer Price Index
This morning we have already seen the Labor Department’s Producer Price Index fall for a 5th straight month, -1.9% in December after dropping 2.2% the previous month. Core producer prices, for people who don’t heat their homes or eat, increased by 0.2 percent in December. Core producer prices were up 4.3 percent over the last 12 months. Gasoline, which accounts for about 7.4 percent of PPI, fell more than 25%. Jobless Claims shot up by 54,000 to 524k from 470k the week before. The four-week moving average for continuing claims, at 4.498 million, was the highest in 26 years. We still have some news ahead of us later this morning, but for right now the 10-yr is wallowing around 2.22% and mortgages are, once again, roughly unchanged.

Daily Humor
A Doctor was addressing a large audience:
“The material we put into our stomachs is enough to have killed most of us sitting here, years ago. Red meat is awful. Soft drinks corrode your stomach lining. Chinese food is loaded with MSG. High fat diets can be disastrous, and none of us realizes the long- term harm caused by the germs in our drinking water. But there is one thing that is the most dangerous of all and we all have, or will, eat it. Can anyone here tell me what food it is that causes the most grief and suffering for years after eating it?”

After several seconds of quiet, a 75-year-old man in the front row raised his hand, and softly said, “Wedding Cake.”