Aug. 21, 2007: Greenpoint, #19 in originations last year, is winding down, and a decent joke

As one top originator summed things up for me yesterday, “Cut the pay options, hybrids, and odd loans that were created over the past 5 years. Go back to standard 30, 10/1, 7/1, and 5/1 loans. Throw an I/O option with at least 10-20% equity in the house and let’s get back to business!”

Early Monday, due to the “continuing volatility in the marketplace”, Greenpoint has stopped taking new applications or locks on their Hybrid Option and Pay Option ARMs. The release also mentioned that, “Existing applications that are not locked will not be honored by GreenPoint. Loans that are locked with GreenPoint must be purchased within the existing lock period. No extensions will be granted.” Later yesterday, however, the news came over the tape that Capital One Financial will be closing 31 GreenPoint locations in 19 states and “cease residential mortgage origination” effective immediately. They did, however, say that they will honor commitments to customers with locked rates who have loans already in the pipeline. GreenPoint has roughly $50 billion in servicing, funded $36 billion last year, and was #14 in wholesale origination volume.

At least Thornburg had some good news, with their president saying that through the sale of assets and the liquidation of mortgage hedging instruments, they will “stabilize the company’s ability to meet its financing obligations and continue its mortgage portfolio lending operation” although “it will realize an approximate capital loss of $930 million”…. “As a result, we believe we have nearly stabilized our liquidity situation, which we expect will allow us to begin to resume normal operations over the next two weeks as a leading residential mortgage portfolio lender in the high quality jumbo and super-jumbo adjustable-rate mortgage market.”

What else happened yesterday? Treasury prices finished the day higher (and rates lower) as the flight-to-quality bid kicked in, especially in the short end of the curve (which helps ARM prices). In fact, the yield on the 3-month T-bill had its largest one day drop in almost 20 years! 1-month T-Bills, which were yielding about 4% last week, have moved down to 3.2%. Conference Board index of leading indicators rose 0.4% in July, following an unrevised 0.3% decline in June. An increase in consumer expectations and longer delivery times in manufacturing were the main reasons for the sharp rebound in the index. A decline in building permits held back an even bigger advance in July. Rates are down again on expectations of further rate cuts from the Fed: Bernanke is meeting with Treasury Secretary Paulson and other government officials today to discuss the liquidity crunch and mortgage-related issues. Prices on Fed Fund futures shows that the market fully expects the FOMC to cut the target rate at their September meeting, if not sooner. Dealers report that ARM flows this month have been comparably light as “some originators have decided to hold on to a lot of their current production rather than sell at wider levels in the market”. They must be either smarter than most, including me, or are afraid to take the hit.

Louisiana State Trooper pulled a car over on US 165 about 2 miles south of the Louisiana/Arkansas State line. When the Trooper asked the driver why he was speeding, the driver said he was a magician/juggler and was on his way to Monroe to do a show at the Shrine Circus. He didn’t want to be late.  The Trooper told the driver he was fascinated by juggling and asked if the driver would do a little juggling for him then he wouldn’t give him a ticket.  He told the Trooper he had sent his equipment ahead and didn’t have anything to juggle. The Trooper said he had some flares in the trunk and asked if he could juggle them. The juggler said he could, so the Trooper got 3 flares, lit them and handed them to him.  While the man was juggling, a car pulled in behind the patrol car.  A drunken good old boy from Arkansas got out, watched the performance, then went over to the patrol car, opened the rear door and got in.  The Trooper observed him and went over to the patrol car, opened the door asking the drunk what he thought he was doing.  The drunk replied, “You might as well take me to jail, ’cause there’s no way in hell I can pass that test.”