How much did you make last
year? (That was a rhetorical
question.) The president of Countrywide earned
$48 million, the president of
Freddie Mac $15 million, WAMU $8 million, Indy
Mac $4 million.
According to Goldman Sachs
and Wells Fargo, jobless subprime
mortgage lenders are looking for employment in
the booming market for loans to
senior citizens. So far the mortgage industry
has lost 15,000 employees, and
obviously some will enter the growing market for
reverse mortgages. Some
bankers worry the market's rapid growth may make
reverse mortgages vulnerable
to fraud and increased litigation, which has
plagued subprime loans. "As
you look at what's going on in the subprime
market, are those the types of
folks who are really appropriate for pursuing
reverse mortgages?" asked
Rolf Edwards, a vice president at Goldman, Sachs
& Co. in New York.
The number of federally insured
reverse mortgages has skyrocketed, climbing to
76,351 in 2006 from 7,781 in
2001. So-called HECM loans, or Home Equity
Conversion Mortgages, make up 90% of
them, according to the National Reverse Mortgage
Lenders Association. In
another sign of growth, Bank of America
Corp. in April said it agreed to buy
the reverse mortgage business of Seattle
Mortgage Co., making it the
third-largest U.S.
provider. IndyMac Bancorp Inc. is the industry
leader. At Wells Fargo,
for example, about
700 loan officers specialize in reverse
mortgages.
Not that it directly impacts
30-yr mortgage prices, but
traders now assign a 44% percent chance the Fed
will raise rates 25 basis
points by December, compared with 0% a month
ago. (Mortgage prices are worse
by almost .250 today after improving Friday –
we are back to where we
were Thursday afternoon.) The Federal
Reserve has kept its overnight
lending rate between banks at 5.25% at its last
seven meetings; the 8th is
later this month on June 28th. It is a very busy
week for news – see
below.
There has been much talk
regarding the appropriate level for
IO fixed rate pools. Interest Only fixed
rate products
are very new and so prepayment patterns are
unknown, and thus the
price compared to amortizing loans is
difficult to gauge. If IO loans
pay off faster, and they are priced worse, then
there is significant value
because when those loans prepay the investor
will receive par - 100.
A circus owner runs an ad for
a lion tamer and two people
show up. One is a good looking, older retired
navy chief in his mid-sixties and
the other is a gorgeous blonde in her
mid-twenties.
The circus owner tells them, "I'm not going to
sugar coat it. This is one
ferocious lion. He ate my last tamer so you guys
better be good or you're
history. Here's your equipment -- chair, whip
and a gun. Who wants to try out
first?"
The girl says, "I'll go first." She walks past
the chair, the whip
and the gun and steps right into the lion's
cage. The lion starts to snarl and
pant and begins to charge her. About half way
there, she throws open her coat
revealing her beautiful naked body. The lion
stops dead in his tracks,
sheepishly crawls up to her and starts licking
her; feet and ankles. He
continues to purr and rub her body for several
minutes and then rests his head
at her feet.
The circus owner's mouth is on the floor. He
says, "I've never seen a
display like that in my life." He then turns to
the retired chief and
asks, "Can you top that?"
The tough old chief replies, "No problem, just
get that lion out of the
way!"
Week of June 11 - June
15
