More Jumbo News
Here is some company news of note. Springleaf, an offshoot of American General Finance, is planning to raise $500 million for nonconforming/non-agency loan financing. It is hard to tell if this means jumbo, or subprime. Either way, in the “old days” companies like Beneficial, Household Finance, and Aames knew how to run their subprime businesses, from processing to servicing. In the early 2000’s that changed as other companies moved down the credit curve and bought loans they shouldn’t have, for a variety of reasons, and for several years now the industry has waited for a “mainstream” outlet for those loans. I don’t know if this is it, but the lender/investor has filed a registration statement with the SEC to raise $500 million in order to originate and buy nonconforming mortgages and “consumer loans” through its 1,100 branches.
Similar to the way PennyMac is derived from old Countrywide management, Springleaf is brought to us by American General, an AIG company, with AIG owning a 20% stake and the other 80% by FCFI Acquisition LLC, a private equity fund. FCFI is, in turn, managed by an affiliate of Fortress, run by Daniel Mudd, the former CEO of Fannie Mae. Fortress also owns Nationstar, which is not only expanding but also trying to go public with its $65 billion of specialty servicing. Nationstar hopes to raise as much as $400 million in an initial public offering, according to a regulatory filing. It did nearly $3 billion of production last year, and it is one of the five largest non-bank mortgage servicers in the U.S., servicing almost 400,000 loans. Along with that comes running businesses like REO management and recovery of charged-off mortgage deficiencies, and it owns a portion of National Real Estate Information Services, which provides settlement and valuation services.
One reader wrote to me and said: “I am the owner of a mid-sized mortgage bank, and have been for many, many years. I am trying to figure out if it is only the productivity of my staff that is going down the drain, or if all companies are seeing this. Suddenly, it seems, underwriters are lucky if they do 3 loans in a day. And underwriters aren’t cheap. My LO’s numbers are down to the point where I am wondering about this whole minimum wage thing I put in place for them. We always thought of ourselves as a “high touch” company with the borrower – now we may-as-well be Super Glued to them. Our cost to produce a loan is way out of whack – there is no way the borrower is better off. And comparing any metrics with last year’s makes little sense – are you hearing this from other companies?”
As a matter of fact, I am indeed hearing that. Folks in the trenches talk about standard Fannie or Freddie single family home loan files that are more than 2 inches thick, and non-agency loan files are twice that, filled with documentation in an effort to make sure that all investor requirements are met. Many mortgage banks had a very productive 2010 but saw underwriting and funding productivity per person deteriorate, though profits were good so they didn’t notice it as much.
On the production side, in some cases loan officers who blamed the slow business earlier this year on the comp issue have learned that the blame doesn’t rest with the comp issue. Rates stayed relatively, surprisingly, low, especially when compared to what “experts” thought rates would happen. But as documentation requirements have increased over the last several months, the importance of underwriting and compliance has increased dramatically. And when combined with the changes in underwriting guidelines, yes, every mortgage company is grappling with the same issues.