Apr. 20, 2009: Bank of America earnings; Chase’s origination figures; press condemning fees for loan modifications

Apr. 20, 2009: Bank of America earnings; Chase’s origination figures; press condemning fees for loan modifications Rob Chrisman

What is the difference between death and taxes? Death does not get any worse. Along those lines, on Friday American Sterling Bank, out of Missouri, was the 24th bank in 2009 to fail. According to the OTS, the FDIC was named receiver and Metcalf Bank (also in Missouri) will assume all the deposits and purchase their assets. The cost to the FDIC? $42 million.

Hopefully American Sterling doesn’t have anyone during these days at the National Secondary conference in Chicago. The winner of the conference is the one the one that best schedules meetings from 8-9, 9-10, 10-11, 11, 12, 12-2, and so forth, with a minimum of travel time between meeting rooms. Hopefully there are enough investors, MI companies, and vendors out there to fill the slots: woe to anyone left standing around the lobby and not being engaged in meaningful dialog. And of course the topic will be the state of the industry and managing buybacks and costs, rather than new products. Volumes will be discussed, which are much easier to determine than profit margins, which are critical.

Speaking of MI companies, how are those mortgage insurance companies doing out there? Maybe not so well. Most appear to be focusing on paying out claims and surviving the cycle rather than going out to find new business. Most, if not all, have been downgraded (none are above an “AA” rating), Genworth recently cut their staff by 14%, and Triad (whose regulator is the Illinois insurance commissioner) announced that starting this summer that all valid claims under Triad’s mortgage guaranty insurance policies will be paid 60% in cash and 40% by the creation of a deferred payment obligation (DPO).

Many mortgage companies are outsourcing their underwriting to MI companies, believing that if a loan “goes bad” after the MI company has underwritten it, the MI company will stand behind it. No so fast… you should check to see if your MI company underwrote the loan, or if a service company, capitalized by the MI company, actually did the work. It may make a difference down the road. And most contracts cover underwriting errors caused “gross negligence”, which is very hard to prove.

With all of the loan modification activity going on, it should be of no surprise that the press is pointing out that borrowers are not required to pay fees when modifying their mortgage. The stories that I have seen generally tell borrowers that, if they are having trouble making payments, their first phone call should be to their lender. “These days lenders are instituting their own modification programs for troubled borrowers. You should not pay a "fee" to any company that says it can negotiate with your mortgage company.” Stories also reiterate that the government also has its own mortgage modification program that lenders are signing onto. For information go to www.makinghomeaffordable.gov.

How is Chase’s correspondent channel doing? Very nicely, thank you. In a story out of Mortgage Daily, 57% of JPMorgan Chase & Co.’s residential originations are being acquired through its correspondent channel. Their residential originations were $38.6 billion during the first quarter, strong and 3rd in the industry but obviously off their $53.8 billion a year earlier. Maybe Chase will do $150 billion this year – but there I go again talking “volume” instead of “profit margin”. (Bank of America, which includes Countrywide, clocked in at $100 billion during the first quarter.) Chase’s retail channel contributed 36%, helped by Washington Mututal.  As of March 31, Chase employed 219,569 people.

Bank of America reported a first quarter profit of $4.2 billion, ahead of expectations, but the bank warned of "deteriorating credit quality." On a relative basis, this compares to last quarter’s loss of $1.8 billion, but a gain of $1.2 billion a year ago. According to the press release, earnings were helped by Merrill Lynch and Countrywide. Nice to see!

The Economic Calendar will be relatively light this week, and in fact not much happened over the weekend. We do have Leading Economic Indicators for March today at 10AM EST (they were -.4% last month, expected -.2% this time around). There is no news out tomorrow, or Wednesday, and Thursday we have Existing Home Sales and the usual jobless claims, and on Friday New Home Sales. Currently the 5-yr Treasury and mortgage prices are better by almost .250 in price, and the yield on the 10-yr is 2.87%.

The Sierra Club and the U.S. Forest Service were presenting an alternative to Wyoming ranchers for controlling the coyote population. It seems that after years of the ranchers using the tried and true methods of shooting and/or trapping the predator, the tree-huggers had a "more humane" solution.

What they proposed was for the animals to be captured alive, the males castrated and let loose again and the population would be controlled. This was actually proposed to the Wyoming Wool and Sheep Grower’s Association by the Sierra Club and the USFS.

All of the ranchers thought about this amazing idea for a couple of minutes. Finally, an old boy in the back stood up, tipped his hat back and said, "Son, I don’t think you understand the problem. Those coyotes ain’t sleepin’ with our sheep – they’re eatin’ ’em."

Rob

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