What’s the difference between an A.I.G. executive and a drunken sailor? A drunken sailor spends his own money.

Is now the time for mid-sized mortgage companies to be spending some money and starting a servicing portfolio? Perhaps. When I first got into this business in the mid-80’s, the company that I worked for had a big party when they hit $1 billion, which is small potatoes now. But some mid-to-large-sized mortgage banks, which are not currently servicing loans, are taking a look at the business channel. If you have the money now might be a great time to start a servicing portfolio: retaining Fannie & Freddie loans (are they still two separate companies?) and FHA/VA loans can be very profitable especially with the guarantees the US government is giving out. In addition, these companies can price their rate sheets much more easily to the MBS market, as opposed to what investors are paying for servicing.

With applications appearing to drop, some managers are (once again) taking a look at the extra staff that has recently been hired and then taking another look at the current profit margins.  Many firms still have backlogs, but others, who are caught up, are looking at their current margins and deciding to reduce them to keep business coming in the door. The spread between the MBS market and where the average consumer can find a 30-yr fixed rate loan has been very high in the last few months – analysts expect that spread to narrow in the near future especially with base rates easing upward.

Will the marketing that mortgage companies do ever match that of NASCAR? Check this out: 1 in 3 U.S. adults, or 75 million people, are NASCAR “fans”. It is the #1 spectator sport, and 17 of the top 20 most attended sporting events in the United States are NASCAR events. More than half of young people age 7 to 17 say they are NASCAR fans, and 40% of all fans are willing to switch brands to buy NASCAR-linked products. Granted, NASCAR has almost become more of a lifestyle than a sport. Unlike baseball, football, and basketball, its attributes include being genuine, open to all, like a big family, and athletes that are role models and down-to-earth regular people – it is easy to get an autograph or a photo with your favorite driver. And NASCAR has educated fans about the sports' economics (like teams spending $1 million a year just on tires). Can you imagine doing that with your clients or borrowers?

I haven’t quite figured out yet if this website is “cool” or “big brotherish”. One can take a dollar bill, enter some information about it, and the site will show you where the bill has been: http://www.wheresgeorge.com/main.php#bill

Barclays Capital put out a research piece showing that Jumbo fixed performance has deteriorated as of late. Barclays’ research on existing portfolios shows that, “The deterioration is uniform across collateral characteristics. The pace of deterioration is faster than comparable Alt-A collateral, though it remains lower than Alt-A in absolute terms. There has also been a large increase in prepays for the refi eligible population.” So don’t look for conforming/jumbo spreads to narrow soon for most investors. The rate at which current loans are turning delinquent has more than doubled from just six months ago. In what was the least risky collateral within the non-agency space, current loans are now turning delinquent at the rate of close to 1% each month. Jumbo performance is worsening at an increasing pace. Eligible loans are prepaying faster than before, so some believe that toxic loans will be left in the current pools.

Silvergate Bank (out of So Cal) announced that they are launching a warehouse lending division. “We are pleased to announce this program to provide financing for the origination of single family home loans by independent mortgage bankers,” said Alan J. Lane, President and CEO of the Bank. “A sizeable funding gap has emerged in the mortgage marketplace over the past year as financial and liquidity strains have caused many other firms to totally abandon warehouse lending. We are fortunate that our strong financial condition permits us to help fill this important need.” This business channel makes a lot of sense if it is done correctly, especially with the reduction in competitors.

In the markets, yesterday’s prices were at the mercy of supply and demand. The day started off well with strong buying, but as time went on Wall Street dealers reported heavy selling (origination) which pushed prices down and rates higher. Citigroup Inc. posted its first profit in 18 months, and the stock appears to be rallying on the news. (For those lucky investors, the stock has quadrupled in the last month.) There isn’t much other news scheduled for released today, and so far the 5-yr Treasury and mortgages are worse by .250 in price, and the 10-yr is up to 2.88%.

A blonde city girl marries a Texas rancher.

One morning, on his Way out to the fields, the rancher says to her, "The insemination man is coming over to impregnate one of our cows today. I drove a nail into the 2 by 4 just above the cow's stall in the barn. You show him where the cow is when he gets here, OK?"

The rancher leaves for the fields.

After a while, the artificial insemination man arrives and knocks on the front door. The wife takes him down to the barn. They walk along the row of cows and when she sees the nail she tells him, "This is the one, right here."

The man, assuming he is dealing with an airhead blonde, asks, "Tell me, lady, 'cause I'm dying to know; how would YOU know this is the cow to be bred?"

"That's simple. By the nail over its stall," she explains very confidently.

Laughing rudely at her, the man says, "And what, pray tell, is the nail  for?"

She turns to walk away and says sweetly over her shoulder, "I guess it's to hang your pants on."

Rob

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