By mortgage servicing portfolio size, Wells Fargo Home Mortgage still was the biggest servicer. Countrywide held the No. 2 position, while Washington Mutual Inc. was the third largest U.S. residential mortgage servicer. Citigroup and Chase respectively held spots No. 4 and No. 5.
Damn, I'm planning on going in on Friday to see if I can help them out with their cash crunch-- in my own small way. I'm taking a copy of this with me.
I was charting the last 25 months of CFC data. The delinquency data understated the delinquency/foreclosure issue. CFC was aggressively growing its servicing portfolio (+~1% a month) so when you would look at the snapshot of delinquency/foreclosures today and compare it to todays portfolio you get an understated measure of the problem (presuming of course CFC isnt out there buying up loans not performing).
The reason you see such a big spike in the CFC data is because they can't grow their portfolio as fast anymore and so the delinquency/foreclosure issue is showing itself much more. They were growing around 1% (MoM) and now its about .3% (on 1.5 trillion dollars). The rate of change in delinquency/foreclosures would have to be greater than the portfolio growth percentage to show an increase.
CFC better hope servicing delinquencies is as profitable as they claim because they are going to up to their eyeballs in them.
Hmmm, just thinking about this it'd be more convenient for one of the large servicers to have some sort of large computer melt-down losing their entire database of mortgage customers including the total loss of all backups.
When do the servicers get paid back for the advances...if the answer is on the proceeds from foreclosure sale, the next question is what happens if there is not enough sale proceeds from an individual property..i.e. a Heloc which is underwater or a multi that has been abandoned and does not sell for enough to cover advances?
HK_vol: Well my understanding is that back when servicing was a profit center, servicing rights (at least in aggregate) were an asset so SOMEBODY always picked them up and when they were sold, the money from the sale would go towards satisfying the former servicers creditors. Of course is servicing is no longer a money making business...
Countrywide Financial continued to rank as the top mortgage servicer in the industry as rough-and-tumble conditions in the non-conforming market during the third quarter did little to slow the companys growth.
Countrywide reported a servicing portfolio of $1.459 trillion, up 3.1 percent from the end of June. With the overall market growing an estimated 1.3 percent during the quarter, Countrywides market share edged up to 13.3 percent as of the end of September.
Wells Fargo reported a more modest 1.4 percent increase in its servicing portfolio, about even with the trend in the overall market. The company actually had a smaller decline in new production than Countrywide did, and had virtually no growth in its subservicing business.
CitiMortgage ranked third with $791.60 billion in mortgage servicing. That was up 1.3 percent from the midway point in 2007, but the company did not include the subprime servicing business it acquired from Ameriquest, estimated at $44.00 billion. That would boost Citis share of the mortgage servicing market to 7.6 percent.
Chase Home Finance reported a solid 4.1 percent increase in its servicing volume, which ended the quarter at $752.60 billion.
Rounding out the top five was Washington Mutual, which had another small decline in its servicing portfolio.
During the Q3 earnings call it was pointed out prepayment speeds were slowing. Normally this is a good thing for earnings. Maybe it's not so good since they can't get rid of bad loans.
CFC Loan delinquencies as a percentage of unpaid principal balances are 7.20%. 7.2% of 1.5T = 108 Billion in delinquent loans. If they have to pay interest every month at say 6.75% on average that would be approximately 600 Million they have to pay to bond holders. If they have to make good on the interest payments for 90 days they end up shelling out 1.8 Billion.
I didn't know CFC had to front interest when borrowers fell behind. I guess I should read more of Tanta's posts.
Does anyone know how this works?
Does CFC count the fronted interest as deferred profits and take a profit hit in the current quarter?
What's the payback order when the house is foreclosed and there's a shortfall? Does CFC get their fronted interest first and then what's left pays back priniciple to the MBS holder? If CFC isn't in front of the MBS holder, they're definately done. No way they'll ever see this money.
Let me do some very rough calculations...
they service about 1,500Billion. 7.2% is late. Let's pick an average interest rate of 7.2% or roughtly 0.6%/month. 0.0061,500 = 9 billion/month collected in interest. 7.2 percent of this is 9Billion0.072 = 648 million dollars/month.
CFC is fronting interest of roughly 650 million every month. Since they can't foreclose until 3 months (90 days) of payments are missed, they have to front close to $2billion on a rolling basis. The number will get bigger every month for the foreseeable future.
I'm assuming that no interest is paid on delinquent loans. I guess it's possible, but not likely, that some of these payments are partial payments that include some interest.
Well my understanding is that back when servicing was a profit center, servicing rights (at least in aggregate) were an asset so SOMEBODY always picked them up
Yea, verily, thus spake the prophet.
THE assumption, the Mother of All Assumptions, is that there will always be a bid for the servicing. For years uncounted, since the primeval mists of the savannah rose around the first gorillas, there has always been a bid for the servicing.
There is, therefore, no plan B, as far as I can tell, for what to do if there is no bid for the servicing.
My worry is that it isn't so much that someone with a sharp enough pencil can't make servicing "a money making business." It's that nobody who has the operational capacity to pick up such an incredibly unprecedentedly huge portfolio--the largest single servicing portfolio that has ever existed in history--is in any position to take it, operationally and Basel IIy.
Baby Bells. After "bongwater," that's my phrase for the new year.
Does CFC count the fronted interest as deferred profits and take a profit hit in the current quarter?
It's really just an account receivable.
What's the payback order when the house is foreclosed and there's a shortfall? Does CFC get their fronted interest first and then what's left pays back priniciple to the MBS holder? If CFC isn't in front of the MBS holder, they're definately done. No way they'll ever see this money.
The servicer is always first in line to get paid back out of liquidation. That's the rule: the servicer is the first to incur expense (advances are just that, a way for the MBS holder to not have cash-flow interruptions during the early stage of delinquencies, most of which in a "normal" market are cured and paid back to the servicer out of collections, not liquidation), and the first to get reimbursed (the servicer literally gets the check when the REO is sold, takes out what it is due, and passes the rest through to the MBS).
The real pain here is that when a borrower is not making payments, the servicer is also not getting its monthly servicing fee (which is taken out of the borrower's interest payment every month). So I think you can be assured that CFC is working its big fat tail off trying to collect those payments.
The problem here is the "backlog" or the rat-in-the-python: they just can't get the REO liquidated, REO inventory builds up, and therefore those advance balances keep growing because the liquidation process is stalled. It's not that the advances are "uncollectable," it's a cash-flow problem.
(All this is, btw, about first lien servicing. Second lienholders just throw in the towel and write the debt off very quickly. There's no point in advancing and making expensive collection efforts on second liens, because in fact you can end up with insufficient recoveries even to pay the servicer's costs.)
The problem here is the "backlog" or the rat-in-the-python: they just can't get the REO liquidated, REO inventory builds up, and therefore those advance balances keep growing because the liquidation process is stalled. It's not that the advances are "uncollectable," it's a cash-flow problem.
You do want to distinguish between collections and liquidations. Most advances, historically, are recovered from collections (ultimately getting the payment out of the borrower in the form of a check).
We're running into yet another of those situations in which we're all "stunned and surprised" by the fact that historical assumptions didn't turn out right.
Historically, the overwhelming majority of 30-day DQs cure. That is, the payment is due on the 1st, the servicer doesn't have it by the 24th, it advances the payment to the trust on the 25th, and then the check comes in on the 30th. The advance is reimbursed by that check, therefore it was only a receivable for five days, plus the servicer gets the late fee. The advance only "rolls over" another month if the borrower "rolls over" to 60-days down.
Once you're 60-days down, your likelihood of curing drops sharply. Once you're 90-days down, it really drops. So at each stage of this, as the advance balance grows on a loan, the likelihood that you will get it back out of liquidation (foreclosure) rather than collections increases.
I'm thinking that we had a lot of models that used those "historical" assumptions for cure rates. Meaning nobody could have predicted these accumulated advance balances, you see.
I am an escrow administrator for a title company and read the blog daily. I don't always understand everything but I can tell you at this level we are seeing panic and desperation, both in loan servicers and the LOs.
Servicers are doing ANYTHING to collect one more penny, including charging outrageous fees to get a payoff, update a payoff....and God forbid if you happen to send in a pay off a little short.....they save it for a week...say that they have contacted you and not heard from you and snail mail it back.
LO's are asking us to close loans with HUGE glaring problems......just close ...fast!
I think CFC is the largest by UPB, but Wells is largest by number of loans. It's like O'hare is the biggest airport by passenger volume but Atlanta has more takeoffs and landings. All usually claim to be "the biggest".
operationally and Basel IIy.
I think more Baseltooey than operationally. I'll bet BofA would be all to happy to step up if letting CFC fail was deemed to be in the interest of National security.
I'll bet BofA would be all to happy to step up if letting CFC fail was deemed to be in the interest of National security.
I'd bet BOA would ONLY be happy to step up if the regulators decreed a National Security interest in the matter.
They've had plenty of opportunity to grow their own servicing operation that as far as I can see they've been passing up. My impression is that they always wanted to contract with CFC on servicing, not own the ops.
But if it gets cheap enough . . . and they get to sit up in front of the PPT bus right behind the driver . . .
Whew, it's kinda late to dump this on us now. I wish you had warned me 4 drinks back.
IOW, been there, done that?
i think it goes countrywide, wells, citi, chase, wamu.
according to inside mortgage finance, anyway.
tj & the bear, yeah, I'm really just wanted to point out that Tanta has covered all this AND much more last year. Tanta is awesome!
bacon dreamz, I found this article (July 2007):
By mortgage servicing portfolio size, Wells Fargo Home Mortgage still was the biggest servicer. Countrywide held the No. 2 position, while Washington Mutual Inc. was the third largest U.S. residential mortgage servicer. Citigroup and Chase respectively held spots No. 4 and No. 5.
Best Wishes.
Damn, I'm planning on going in on Friday to see if I can help them out with their cash crunch-- in my own small way. I'm taking a copy of this with me.
sdtfs, please let us know how your experience goes.
I suppose with 7+% delinquency, that's a lot of money...
I was charting the last 25 months of CFC data. The delinquency data understated the delinquency/foreclosure issue. CFC was aggressively growing its servicing portfolio (+~1% a month) so when you would look at the snapshot of delinquency/foreclosures today and compare it to todays portfolio you get an understated measure of the problem (presuming of course CFC isnt out there buying up loans not performing).
The reason you see such a big spike in the CFC data is because they can't grow their portfolio as fast anymore and so the delinquency/foreclosure issue is showing itself much more. They were growing around 1% (MoM) and now its about .3% (on 1.5 trillion dollars). The rate of change in delinquency/foreclosures would have to be greater than the portfolio growth percentage to show an increase.
CFC better hope servicing delinquencies is as profitable as they claim because they are going to up to their eyeballs in them.
Top servicers as of Sept. 07:
National Mortgage News - Free Data
in an ordinary situation, if the equity level falls below 20%, would a lender offer a new heloc to that home "owner"?
As Schadenfreude goes, watching fat cats eat their just desserts is without equal. Eat up, dear fellows, and remember ancient Roman etiquette!
If the servicers listed go bankrupt, who then continues to service the loans? Oooh, what a mess.....
Hmmm, just thinking about this it'd be more convenient for one of the large servicers to have some sort of large computer melt-down losing their entire database of mortgage customers including the total loss of all backups.
Article from Fortune by way of CNN/Money on Bank of America's Countrywide investment turning into a trap.
Can Bank of America salvage its Countrywide stake? - Jan. 9, 2008
Wow, talk about being between a rock and a hard place.
It seems if CFC declares borrowers in default to stem the negative cash flow, they will be slaughtering the marks on their own book of business.
Tanta, does this make sense?
Choose your poison.
When do the servicers get paid back for the advances...if the answer is on the proceeds from foreclosure sale, the next question is what happens if there is not enough sale proceeds from an individual property..i.e. a Heloc which is underwater or a multi that has been abandoned and does not sell for enough to cover advances?
In other news, Spreads are killin' SallieMae, and they're needing some more fuel:
SLM Asks: Brother, Can You
Spare $30 Billion, Cheaply?
Sallie Mae Seeks $30 Billion of Debt - WSJ.com
HK_vol: Well my understanding is that back when servicing was a profit center, servicing rights (at least in aggregate) were an asset so SOMEBODY always picked them up and when they were sold, the money from the sale would go towards satisfying the former servicers creditors. Of course is servicing is no longer a money making business...
OT - Dec retail sales are coming in very weak, looks like the Grinch stole earnings.
<a href="http://www.marketwatch.com/news/story/updates-advisories-surprises/story.aspx?guid=%7B0F70D4C3%2D3B67%2D4018%2D9042%2D867776D64ACC%7D>Retail sales stink stank stunk
inventory of properties are going up and not down. that mean, they are stuck with paying tax and insurance on that worthless property. ouch
bacon dreamz, I found this article (July 2007):
CR, from the Nov 2 issue of IMF:
Countrywide Financial continued to rank as the top mortgage servicer in the industry as rough-and-tumble conditions in the non-conforming market during the third quarter did little to slow the companys growth.
Countrywide reported a servicing portfolio of $1.459 trillion, up 3.1 percent from the end of June. With the overall market growing an estimated 1.3 percent during the quarter, Countrywides market share edged up to 13.3 percent as of the end of September.
Wells Fargo reported a more modest 1.4 percent increase in its servicing portfolio, about even with the trend in the overall market. The company actually had a smaller decline in new production than Countrywide did, and had virtually no growth in its subservicing business.
CitiMortgage ranked third with $791.60 billion in mortgage servicing. That was up 1.3 percent from the midway point in 2007, but the company did not include the subprime servicing business it acquired from Ameriquest, estimated at $44.00 billion. That would boost Citis share of the mortgage servicing market to 7.6 percent.
Chase Home Finance reported a solid 4.1 percent increase in its servicing volume, which ended the quarter at $752.60 billion.
Rounding out the top five was Washington Mutual, which had another small decline in its servicing portfolio.
i do agree that Tanta is awesome, though.
SLM Asks: Brother, Can You
Spare $30 Billion, Cheaply?
The word "brother" in this context, of course, is pronounced "taxpayer".
Wells Fargo, Countrywide, WaMu, Citigroup and Chase.
Dead men walking.
OT
U.S. bond issuance down 15% in 2008.
Fixed-income issuance to fall to $3.4 trillion - Investment News
Dead men walking.
ROFL.
on serious note:
I'd agree that WaMu and Countrywide are dead men walking...
Citi will continue to exist but will be very different. "sex-change patient" walking?
Wells may make it IMO. Maybe "Emergency Room victim" walking.
I'm not up to date on Chase.
So much for servicing providing a Macro Hedge.
During the Q3 earnings call it was pointed out prepayment speeds were slowing. Normally this is a good thing for earnings. Maybe it's not so good since they can't get rid of bad loans.
Cramer calls Fed Chairman Hoenig and Fisher "Reckless"
Cramer: The Two Fed Officials Ruining this Market
CFC Loan delinquencies as a percentage of unpaid principal balances are 7.20%. 7.2% of 1.5T = 108 Billion in delinquent loans. If they have to pay interest every month at say 6.75% on average that would be approximately 600 Million they have to pay to bond holders. If they have to make good on the interest payments for 90 days they end up shelling out 1.8 Billion.
I didn't know CFC had to front interest when borrowers fell behind. I guess I should read more of Tanta's posts.
Does anyone know how this works?
Does CFC count the fronted interest as deferred profits and take a profit hit in the current quarter?
What's the payback order when the house is foreclosed and there's a shortfall? Does CFC get their fronted interest first and then what's left pays back priniciple to the MBS holder? If CFC isn't in front of the MBS holder, they're definately done. No way they'll ever see this money.
Let me do some very rough calculations...
they service about 1,500Billion. 7.2% is late. Let's pick an average interest rate of 7.2% or roughtly 0.6%/month. 0.0061,500 = 9 billion/month collected in interest. 7.2 percent of this is 9Billion0.072 = 648 million dollars/month.
CFC is fronting interest of roughly 650 million every month. Since they can't foreclose until 3 months (90 days) of payments are missed, they have to front close to $2billion on a rolling basis. The number will get bigger every month for the foreseeable future.
I'm assuming that no interest is paid on delinquent loans. I guess it's possible, but not likely, that some of these payments are partial payments that include some interest.
Well my understanding is that back when servicing was a profit center, servicing rights (at least in aggregate) were an asset so SOMEBODY always picked them up
Yea, verily, thus spake the prophet.
THE assumption, the Mother of All Assumptions, is that there will always be a bid for the servicing. For years uncounted, since the primeval mists of the savannah rose around the first gorillas, there has always been a bid for the servicing.
There is, therefore, no plan B, as far as I can tell, for what to do if there is no bid for the servicing.
My worry is that it isn't so much that someone with a sharp enough pencil can't make servicing "a money making business." It's that nobody who has the operational capacity to pick up such an incredibly unprecedentedly huge portfolio--the largest single servicing portfolio that has ever existed in history--is in any position to take it, operationally and Basel IIy.
Baby Bells. After "bongwater," that's my phrase for the new year.
"operationally and Basel IIy"[ Tanta 9:22 am]
Thank you very much for that.
Does CFC count the fronted interest as deferred profits and take a profit hit in the current quarter?
It's really just an account receivable.
What's the payback order when the house is foreclosed and there's a shortfall? Does CFC get their fronted interest first and then what's left pays back priniciple to the MBS holder? If CFC isn't in front of the MBS holder, they're definately done. No way they'll ever see this money.
The servicer is always first in line to get paid back out of liquidation. That's the rule: the servicer is the first to incur expense (advances are just that, a way for the MBS holder to not have cash-flow interruptions during the early stage of delinquencies, most of which in a "normal" market are cured and paid back to the servicer out of collections, not liquidation), and the first to get reimbursed (the servicer literally gets the check when the REO is sold, takes out what it is due, and passes the rest through to the MBS).
The real pain here is that when a borrower is not making payments, the servicer is also not getting its monthly servicing fee (which is taken out of the borrower's interest payment every month). So I think you can be assured that CFC is working its big fat tail off trying to collect those payments.
The problem here is the "backlog" or the rat-in-the-python: they just can't get the REO liquidated, REO inventory builds up, and therefore those advance balances keep growing because the liquidation process is stalled. It's not that the advances are "uncollectable," it's a cash-flow problem.
(All this is, btw, about first lien servicing. Second lienholders just throw in the towel and write the debt off very quickly. There's no point in advancing and making expensive collection efforts on second liens, because in fact you can end up with insufficient recoveries even to pay the servicer's costs.)
Isn't it about time to start cutting the Bongwater with everclear and begin sobering up?
The problem here is the "backlog" or the rat-in-the-python: they just can't get the REO liquidated, REO inventory builds up, and therefore those advance balances keep growing because the liquidation process is stalled. It's not that the advances are "uncollectable," it's a cash-flow problem.
And once they run out of cash it's game over.
The problem here is the "backlog" or the rat-in-the-python | Tanta | Homepage | 01.10.08 - 9:34 am
ok, that made my day ( good thing there was nothing being sipped while reading )
You do want to distinguish between collections and liquidations. Most advances, historically, are recovered from collections (ultimately getting the payment out of the borrower in the form of a check).
We're running into yet another of those situations in which we're all "stunned and surprised" by the fact that historical assumptions didn't turn out right.
Historically, the overwhelming majority of 30-day DQs cure. That is, the payment is due on the 1st, the servicer doesn't have it by the 24th, it advances the payment to the trust on the 25th, and then the check comes in on the 30th. The advance is reimbursed by that check, therefore it was only a receivable for five days, plus the servicer gets the late fee. The advance only "rolls over" another month if the borrower "rolls over" to 60-days down.
Once you're 60-days down, your likelihood of curing drops sharply. Once you're 90-days down, it really drops. So at each stage of this, as the advance balance grows on a loan, the likelihood that you will get it back out of liquidation (foreclosure) rather than collections increases.
I'm thinking that we had a lot of models that used those "historical" assumptions for cure rates. Meaning nobody could have predicted these accumulated advance balances, you see.
I am an escrow administrator for a title company and read the blog daily. I don't always understand everything but I can tell you at this level we are seeing panic and desperation, both in loan servicers and the LOs.
Servicers are doing ANYTHING to collect one more penny, including charging outrageous fees to get a payoff, update a payoff....and God forbid if you happen to send in a pay off a little short.....they save it for a week...say that they have contacted you and not heard from you and snail mail it back.
LO's are asking us to close loans with HUGE glaring problems......just close ...fast!
Just a view from the trenches.
bacon -
I think CFC is the largest by UPB, but Wells is largest by number of loans. It's like O'hare is the biggest airport by passenger volume but Atlanta has more takeoffs and landings. All usually claim to be "the biggest".
operationally and Basel IIy.
I think more Baseltooey than operationally. I'll bet BofA would be all to happy to step up if letting CFC fail was deemed to be in the interest of National security.
i'm thinking about murdering haloscan. will any of you come visit me in jail?
I'll bet BofA would be all to happy to step up if letting CFC fail was deemed to be in the interest of National security.
I'd bet BOA would ONLY be happy to step up if the regulators decreed a National Security interest in the matter.
They've had plenty of opportunity to grow their own servicing operation that as far as I can see they've been passing up. My impression is that they always wanted to contract with CFC on servicing, not own the ops.
But if it gets cheap enough . . . and they get to sit up in front of the PPT bus right behind the driver . . .
"will any of you come visit me in jail?"[ bacon dreamz 10:40 am ]
Yes BD, you know we'll all give you a good alibi, much less come visit.
But what's this alleged problem with Haloscan. It seems normal to me.
But then, all these troubles for housing and banks and mortgage companies seem normal to me. I thought it had always been like this in real estate.
They've had plenty of opportunity to grow their own servicing operation
Yeah, but not for this cheap.
Ken Lewis ridin' shotgun? How much ego do you think that bus can fit?
But what's this alleged problem with Haloscan. It seems normal to me.
It recognizes the "psycho" part of your name and thinks you're its mother.
I like "Baseltooey." It's the same sound the cat makes when there's a hairball problem.
Tanta! STOP!!!!!
I almost lost my breakfast over you last two comments.
Just think of us with defective sphenters (sp?). Have a care.
Bless Google that lets me pretend to be one of the 'in' kids: 'Basel II' returns
Basel II: Revised international capital framework
And bless Tanta, of course, for 'splaining it all.