How Many Mortgages Are Brokered?

Submitted by Tanta on Fri, 09/07/2007 - 3:18am (33 comments)
in
risk capital wrote on Fri, 9/7/2007 - 3:34 am

Tanta-

if you would be so kind as to comment. Last night, ncc announced an upcoming charge due to mark-to-market from bringing loans held for sale back onto the balance sheet due to the inability to sell them. Thus, the question, what is the rule in regard to facing reality in regard to loans held for sale?

tia

borkafatty wrote on Fri, 9/7/2007 - 3:35 am

State-by-state mortgage delinquencies and foreclosures

State-by-state mortgage delinquencies and foreclosures - USATODAY.com 

risk capital wrote on Fri, 9/7/2007 - 3:48 am

barclays alledgedly steps in again-

BarCap steps in again with $1bn bailout of SIV fund - Times Online

Tanta wrote on Fri, 9/7/2007 - 4:10 am

Thus, the question, what is the rule in regard to facing reality in regard to loans held for sale?

The short version is this:

  1. All loans are originated as either HFS or HFI (Held for Investment, a/k/a HTM or Held to Maturity). That means that no later than the day you close that loan, you have elected the accounting treatment. (Practically, you make that decision the day you put out your rate sheet.)
  2. Held for Sale loans are carried at market value, net of hedges. (If you have a forward commitment to sell the loans, you can carry them at a fallout-adjusted commitment price, which, since it's a forward, could be better than today's actual MTM. If your commitment expires, you mark to current value.)
  3. Held for Investment loans go on your books at the lower of cost or market. (You can't take a screwed-up "scratch & dent" loan out of your HFS pipeline and put it in your portfolio at "cost." You have to take the write-down to fair value.)
  4. The investment portfolio, since it's "held to maturity," is not marked to market. It is subject only to valuation allowances (write downs) when performance deteriorates or DQs go up or what have you. These adjustments are based on projections of whether you will actually collect under the terms of the note, not the market price for seasoned loans.
  5. If you decide to sell loans you originally held for investment, you must transfer them to your HFS pipeline. The day you do that, you take them to the sale pipe at current market value. Clearly, in some situations, like right now, that can involve a mark down.
Tanta wrote on Fri, 9/7/2007 - 4:12 am
  1. The reverse, taking loans out of HFS to HFI, can also result in a big write-down, since the HFS price was probably including a "hedge" that failed. In other words, the expected trade didn't happen, so the loans went to portfolio at fair market value, not the original trade price.
risk capital wrote on Fri, 9/7/2007 - 4:18 am

Thanks-

this was what I was looking for.

"6. The reverse, taking loans out of HFS to HFI, can also result in a big write-down, since the HFS price was probably including a "hedge" that failed. In other words, the expected trade didn't happen, so the loans went to portfolio at fair market value, not the original trade price."

Bob_in_MA wrote on Fri, 9/7/2007 - 4:23 am

Brokers and correspondents (correspondents are depositories or mortgage bankers using warehouse lines) together accounted for 62% of all loans produced...

Tanta,

Is the reference to depositories there just referring to those using warehouse lines, so, presumably, the other 38% of originations are by depositories lending directly?

I think the ratio must vary a lot state-to-state. Massachusetts seems to have some laws favoring small banks, so there is a bank based here in our little village, another within our city limits, another in one town over (pop. ca. 15,000), and another 3-4 based in other small towns/cities within 25-20 mi. There rates on conforming and the standard ARMs are pretty much identical and you know the person servicing your loan is easy to get a hold of, etc., so a lot of the local loans are definitely originated by them.

That said, we average 2-3 foreclosure announcements in the paper per day for the county. Almost all are national subprime/alt-a lenders whose names I've become familiar with in the last few years.

Tanta wrote on Fri, 9/7/2007 - 4:27 am

Bob, in this particular context they aren't really just talking about warehouse lines.

It's all very complicated. I could do a nerdish post on "broker" versus "correspondent" and "retail" verus "wholesale" if you all are interested.

I need at least six yes votes. I'm happy to do it, I just want to make sure enough of you give a rat's thingy.

number2son wrote on Fri, 9/7/2007 - 4:33 am

I need at least six yes votes. I'm happy to do it, I just want to make sure enough of you give a rat's thingy.

You have my nerdly vote.

Bob_in_MA wrote on Fri, 9/7/2007 - 4:38 am

Tanta,

I think I'm just having a problem with the basic arithmetic. If depositories and brokers account for 62%, who else is left for the other 38%? I realize I'm probably missing some obvious point.

BTW, jobs number was -4k, yeow. I guess we'll get the rate cut....

kurtyboy wrote on Fri, 9/7/2007 - 4:39 am

Yes, please, to nerdliness. I have several rat-thingies to give.

Thank you Tanta.

bacon dreamz wrote on Fri, 9/7/2007 - 4:47 am

i watched this subprime debate thingy on CSPAN a couple of weeks ago, and at the end they did Q&A and this dude from NAMB got up and was like, 'how do you distinguish between a mortgage broker and a mortgage broker with a warehouse line?' and there was stupfied silence before the nice lady from the Fed was like, 'well, if he's funding loans we would consider him a correspondent, not a broker...'

i saw something yesterday from DBRS that said 70% of originations were brokered.

Bob_in_MA wrote on Fri, 9/7/2007 - 4:47 am

Damn, kurtyboy, several? Well, I honestly (and thankfully) don't have a rat thingy, but if I can buy a future on one of kurtyboy's, I'll be happy to contribute that. I don't want to handle a rat thingy, but I'm always happy to speculate.

bacon dreamz wrote on Fri, 9/7/2007 - 4:50 am

i will vote 'yes' but i don't understand what's so complicated about it...

Jim a wrote on Fri, 9/7/2007 - 4:50 am

I vote yes to another semester in übernerdliness. Do I have to talk to the bursar?

nocaster wrote on Fri, 9/7/2007 - 4:52 am

Yes to all nerdness.

number2son wrote on Fri, 9/7/2007 - 4:55 am

Nerds RULE!

Todd wrote on Fri, 9/7/2007 - 5:12 am

One more vote for nerdliness!

LastTrancheSaloon wrote on Fri, 9/7/2007 - 5:26 am

I vote 'yes'.

There's a lot of confusion about what a Mortgage Broker is, and justifiably so. A Not-a-Broker can, sometimes, be a Broker, and that just adds to the confusion.

Todd wrote on Fri, 9/7/2007 - 5:28 am

Tanta,

I would like to hear an explanation for why a bank, let's say a small community bank, might originate some loans under their own, "common sense" u/w guidelines with the intent of keeping that loan in their portfolio while also acting as a correspondent and selling off other loans. I know that many of these banks keep the two divisions separate. It's probably self-explanatory (they sell the riskier, more difficult-to-service loans), but I wondered if I was missing something.

Clyde wrote on Fri, 9/7/2007 - 5:43 am

Pile on vote for the broker/correspondent post.

burnside wrote on Fri, 9/7/2007 - 5:58 am

I see the headline doesn't match the IMF survey parameters. I see morning call equates a broker survey with a 2004 RE agent survey.

You know, it's tough enough getting a grip on what's happening without this kind of 'help.

quartz wrote on Fri, 9/7/2007 - 6:06 am

another yes, please

Shnaps Parlor wrote on Fri, 9/7/2007 - 6:16 am

I vote no.

IMHO, knowing the damn difference btw a broker and a correspondent should be a prerequisite of being able to even post a comment here in the first place.

RayOnTheFarm wrote on Fri, 9/7/2007 - 6:25 am

a yes vote to help the less 'worldly knowledgeable' among us.

Alistair wrote on Fri, 9/7/2007 - 6:41 am

I vote yes. I love UberNerd posts.

As for a bank doing both HFS and HFI simultaneously, I know when I got a mortgage a couple of months ago, they told me that they resell 78% of their originations. So they obviously hold on to some. (They sold my first to GMAC and my piggyback to CFC. Yes, I got a piggyback, but mostly just to stay inside conforming limits. Plus, the rate on the piggyback was 6.25% -- can't beat that!)

I'm also in MA, and my local credit union (who did my mortgage before we moved) are originating jumbos at the same rate as conformings, because they hold almost everything for investment. They must be about the last place left where you can still get a 30-year fixed jumbo for 6.5% with no points.

Todd wrote on Fri, 9/7/2007 - 7:32 am

Hey Shnaps Parlor,

IMHO, your HO isn't quite so H. I think many of us have a pretty good understanding of the differences between a broker and a correspondent lender. However, many of us visit this blog on a daily basis for the ADDITIONAL insight Tanta always seems to provide. In fact, I'm quite certain Tanta wouldn't have suggested an Ubernerd post if she didn't think it would add value. Having worked for a correspondent lender, I think I've got a pretty good understanding but would like to delve in a bit deeper about the risks/benefits of becoming a correspondent lender rather than remaining a broker. The lender I worked for is now on the implode-o-meter, btw.

CW wrote on Fri, 9/7/2007 - 7:58 am

Tanta, one comment and one question.

The comment is that when things are going good, two-thirds of the loans are originated by mortgage brokers who want all the credit. When things are going bad, one-third of loans are originated by mortgage brokers who want none of the responsibility.

The question is this: I have a friend (yes, really -- it's not me) who's behind on his mortgage. WAY behind, as in 11 months behind. Is it possible to approach the servicer and try to buy the mortgage at a discount, or is it likely so wrapped up in securitization that this would be pointless?

Tanta wrote on Fri, 9/7/2007 - 8:38 am

it possible to approach the servicer and try to buy the mortgage at a discount,

No servicer in its right mind would sell you (a private individual) a loan, whether it was securitized or not.

Nothing stops you from refinancing your friend's mortgage. All you need to do is hire an attorney to do the title search/closing documents/recording of mortgage etc. for you, you give the friend the money to pay off the current servicer, and you own a loan! If you don't want to advance the whole payoff amount, your friend has to talk the servicer into accepting a "short payoff." If the servicer doesn't accept a short payoff, then you're making a big second lien loan.

I don't recommend it, but it can be done.

sk wrote on Fri, 9/7/2007 - 9:55 am

Thanks Tanta for getting behind the headlines (AGAIN). I'm usually pretty careful and read entire articles but like many people, since the headline conformed to my expectation I never looked past it. It was a timely reminder for me - "Don't trust a headline - ESPECIALLY when it confirms one's bias"

-K

Shnaps Parlor wrote on Fri, 9/7/2007 - 11:02 am

Todd -

You're right, I don't really DO humble most of the time. I'll work on that. Really.

Anyway, I love additional INSIGHT more than anyone. But -- I tend to get really impatient with the moronic posts one has to sift through sometimes to find any. Although this blog is better than others.(Hey there, Michelle Malkin.)

And...don't get me wrong...I dig the ubernerd stuff as much as the next nerd. I just don't think this particular topic is deep enough. The main benefit of a broker becoming a correspondent = not having to disclose your YSPs. The main risk = your own f-ups clog your warehouse with scratch/dent, buybacks, etc.

CW wrote on Fri, 9/7/2007 - 1:00 pm

Thanks for your answer, Tanta. My thinking was that the borrower is already about $30,000 in hock, and that if he walks away from the property the lender is going to take not just that hit but will have a house on their hands with all the costs of holding and then selling it.

So, maybe the thing to do is have my friend give it back to the lender and then, once it goes on the market, buy negotiate as an ordinary buyer if I want to do so. Seem to me that a servicer "in its right mind" would rather skip all the sturm und drang, but I guess not.

I mean, they were irrational on the way up (no one ever should have given my friend a $400,000 loan) so they'll be irrational on the way down!

Anyway, please don't take any of my comments as a slam at you. Your blog is outstanding.

raymol wrote on Wed, 2/8/2012 - 12:00 am

Well. I was thinking that way too back then. But, taking out everything is not the solution after all. It was a futile resistance. You know it kinda hard to thought.sewa genset

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