Aug. 20, 2007: Monday mortgages: what does First Magnus have in common with Capitol Commerce? More companies in the news, and some humor

They both shuttered their doors on August 15th. Cap Com closed in 2003, First Magnus last week.

Last week 450 employees of National City‘s home equity division learned that the unit is shutting down. National Home Equity processed home equity loans and lines of credit generated through third-party mortgage brokers. National Home Equity produced nearly $1 billion in loans each month. On August 6th the bank suspended applications through National Home Equity but said the move was temporary. Since then, the nation’s ninth-largest bank has curtailed second mortgages offered through other parts of the company.

Speaking of home equity, Fitch Ratings said Thursday it is placing all classes of 58 securities backed by pools of home equity loans on negative ratings watch. The 58 mortgage-backed securities have an outstanding balance of $12.1 billion, and account for every pool of home equity loan-backed securities Fitch has rated since 2005.

According to Forbes and the WSJ, Countrywide has started laying off origination workers at Countrywide’s Full Spectrum Lending unit, which is involved with home mortgages known as Alt-A. Speaking of CW, what makes up their bank’s portfolio? The assets at Countrywide Bank are cash ($2.2 billion), MBS ($18.4 billion), and mortgage loans ($76.2 billion). If they need to liquidate assets, it is believed that many are pay-option ARMs and home equity loans, which could be difficult to sell at a reasonable price.

Greenpoint has had four owners in 12 years, and since 2003 some analysts have viewed its ownership as a liability because of concerns that mortgage finance was approaching its peak. When North Fork bought it a year later some analysts speculated that the company would sell it. Capital One chairman’s, president, and CEO Richard Fairbank once expressed reluctance to enter the mortgage business, citing its volatility and margins. Through midyear the mortgage division had posted a $10 million loss at Capital One, compared to a $34 million gain a year earlier while it was part of North Fork. During the second quarter Capital One put $600 million of GreenPoint-originated home equity lines of credit on its books, and last week Rowen called these home equity lines “effectively a stranded asset”.

On Friday the University of Michigan Consumer Sentiment Index tumbled in August to 83.3, well below July’s 90.4, and down from June’s 85.3 according to preliminary data. Confidence tumbled to its lowest level in a year. This week’s economic calendar is on the lighter side (see below) and will be highlighted by the Durable Goods and New Home Sales reports Friday.  The Leading Economic Indicators Index today is expected to show a 0.3% increase for July. In mortgages, prices are about unchanged. Lenders continue to report slow volumes for new production, especially in Jumbo volume as the spread between jumbo and conforming rates continues to widen. It is now, on average, a full percentage point spread between jumbo and conforming rates, 30-40 basis points higher than the previous week.

HIGH-TECH RESTAURANT

A man walked into a very high-tech restaurant in a fancy hotel. As he waited to be seated, he noticed that the Maitre D’ was a robot. The robot clicked to attention and said, “Sir, there is a one hour wait. And I am programmed to converse with you until a table is ready, if you please.” Intrigued, the man said, “OK.” The robot clicked a couple more times and then asked, Sir, what is your IQ?” The man answered, “Oh, about 164.” The robot then proceeded to discuss the theory of relativity, Interstellar space travel, the latest medical breakthroughs, etc. The man was most impressed. The next day he returned, but thought he would try a different tack. The robot again asked, “What is your IQ, sir?”

This time the man answered, “Oh, about 100”. So the robot started discussing NASCA R racing, the latest basketball scores, and what to expect the Red Sox to do this weekend. The guy had to try it one more time. So the next day he returned. Again the robot asked the question, “What is your IQ?” This time the man drawled out, “Uh…..’bout 50.” The robot clicked, then leaned close and very slowly asked, “W-h-e-r-e a-r-e m-o-r-t-g-a-g-e r-a-t-e-s g-o-i-n-g?”

Week of August 20 – August 24