Prospectus. Giants of the Mortgage Industry, Amid The Gloom, Maybe Doom

Transcription

1 Prospectus Giants of the Mortgage Industry, 2011 Amid The Gloom, Maybe Doom New Federal Plan: A Huge Threat Under-Water Homes: Worse Than You Thought Loan Origination Productivity By City The Full 2010 Score Card By Company: Top 70 Originators; Top 100 Servicers Lending By Channel New: Dollars Of Bank Mortgage Repurchases New: Owned + Serviced Loans In Foreclosure Early & Late-Stage Delinquency Rates By Quarter Volume 2 Supplement: Under-Water Borrower Exposures By Lender Summary of the Study Page 2 Highlights Pages 3-4 Fundamental Change On The Horizon Under-Water Borrowers: A New Record High Marketing Info You Can Use New Data Series Outline of Contents Pages 5-7 Vol. 2: Under-Water Borrower Exposures By Lender Page 8 ORDER FORM INSERTED SMR Research Corporation 300 Valentine St. Hackettstown, NJ Phone Fax

2 SUMMARY OF THE STUDY Research vendors sometimes try to spur sales by hyping the headline. We wish that were the only reason that this year's Giants study is subtitled: Amid The Gloom, Maybe Doom. The new federal plan for housing finance, released in February, directly threatens the mortgage industry and home sales and home values, too. Fannie and Freddie gradually go away. Before that, they require a 10% minimum downpayment on every loan. FHA gets reduced. FHA and the GSEs revert to lower loan limits this year. FHA insurance fees go up again. Section II of this year's study analyzes these proposals in depth. We itemize six clear problems with the plan to dismantle Fannie and Freddie. As for the 10% downpayment requirement, it appears to lop more than onethird off total home sales. As if the new Fed plan weren't bad enough, a new SMR study done in January finds a record number of home owners under water. If you've read other reports on the under-water problem, take note: Things are even worse. For more than a year, SMR has taken a more bullish position than most about near-future home sales, home prices, and mortgage loan losses. Unhappily, new data suggest a darkening horizon. Ultimately, the housing and mortgage crises get straightened out. But not soon. The Volume 2 supplement to this year' s study ranks over 200 lenders by the under-water status of their outstanding loans. Some folks still have a lot of trouble coming. As always, the annual Giants study reveals all sorts of companyspecific mortgage data: 2010 origination volumes and shares, lending by channel, servicing, and early and late-stage delinquency rates. We've added three new items this year for banks: 1) total serviced loans in foreclosure, 2) mortgages returned and repurchased, and 3) mortgage banking noninterest income, with year-earlier comparisons. Another special section of this year's study looks at origination "pullthrough" rates on loan applicants in more than 200 U.S. metro areas. The findings are applicable to all sorts of marketing programs and especially for the purchase of Internet mortgage leads. This Prospectus has all the details. An Order Form is enclosed or available on our web site. Thanks. Page 2

3 HIGHLIGHTS Fundamental Change On The Horizon If you have not yet read the report called Reforming America's Housing Finance Market, you should. It was released in February by the Departments of the Treasury and Housing and Urban Development. It's a game-changer. For starters, it confirms that Fannie Mae, Freddie Mac, and FHA will soon revert to their prior, lower loan limits. It tells us, too, that the agencies will continue to increase their insurance or credit guaranty fees. That's the mellow part. Fannie and Freddie will be "wound down" and ultimately eliminated. Until then, they will gradually increase required loan downpayments to a 10% minimum a level that more than one-third of existing home owners were unable to achieve. FHA, too, will be reduced in size and scope. Sound like mortgages are about to get a lot more expensive? Or like fewer homes will get sold? We think so. We have a lot of problems with this plan, analyzed in full in Section II of the study. It's a must read. Under-Water Borrowers: A New Record High Not long ago, a major corporation announced that 23.1% of properties are now in the under-water position, an increase from prior quarters. But if you look only at owner-occupied homes, and only in geographies where recent loan data are available from local deed recorders, things look even worse. We now count 31.9% under water, owing more than their homes are worth. It's a new record by far, driven by weakening home prices. We lay out the national results in the optional Volume 2 supplement, which also looks at under-water customers for each major lender. As of December 31, 2010, our measures of early-stage and late-stage delinquency were generally showing slight improvement at banks, thrifts, and credit unions. Delinquency and chargeoff data for the industry appear in Section VI; bad loan data by company are in Section VII. But under-water status does forecast trouble ahead. The credit crisis, which we had hoped to see wind down sooner, is now going to take a longer time. Page 3

4 HIGHLIGHTS (continued) Marketing Info You Can Use The most recent data available tell us that in Dubuque, IA, 81.7% of all mortgage applicants were approved and funded over a full year. Some folks call this the "pull-through" rate on apps. In Miami, FL, only 41% of apps turned into closed loans the lowest percentage we have ever seen for a major city. You can blame the sharp decline in property values but actually, there are other things, as well, that impact the pull-through rate. That's why New York City also is among the worst cities. A special section of this study looks at loan origination productivity, measured by the pull-through rate, across 251 metro areas of the nation. What can you do with this information? Plenty. If your firm buys Internet-generated mortgage leads, you pay the same regardless of location. You shouldn't. Use the data as well in direct-to-consumer marketing, or even to change staffing by locale. New Data Series For the first time this year, we offer two new data items on named bank holding companies, which include nearly all the industry's top lenders. We show dollars of mortgages repurchased as a result of forced buybacks or insurance rescissions. We also show mortgage banking noninterest income from loan sales and servicing. For each, we compare 2010 to One of these measures got a lot better in 2010, and the other a lot worse. See the Profits section of the study. About Volume 2 See Page 8 of this prospectus for more information on Volume 2, which addresses under-water borrower exposures for each of the nation's 230 largest lenders. This volume is optional. You can get the Giants study without it. But this could be one time when the Volume 2 report is equally important. When we did this same kind of analysis in 2007, nearly all lenders at the top of the list subsequently went out of business. Page 4

5 Outline Of Contents I. Introduction: Return Of Gloom, Or Maybe Doom A. Gloom, Or Maybe Doom 1. Silver Linings With Clouds 2. One Bottom Line Problem: The Nature Of The Economic Recovery 3. Is The Mortgage Business A Good Business? B. Lender Self-Insured Mortgages: Making A Return? 1. History Of Self-Insurance 2. Table: Over-80s Reported By GSE's And MI Firms, Subtract HARP Loans: Things Still Look Suspicious C. The Originations Market Of 2009: Full Details From HMDA D. The Originations Market Of 2010: The SMR Data E. The Originations Market In 2011: SMR Forecast F. SMR Mortgage Industry Historical Tables 1. The U.S. Mortgage Originations Market, Total Dollar Value of Residential Mortgages Serviced, Refinance Volumes, Home Purchase Loan Volumes, ARM Share of Dollars Originated, FRM Share of Dollars Originated, II. Federal Home Finance Reform: New Plan Would Change Everything A. New Federal Proposals Could Change Mortgage Lending Forever 1. List Of Specific Plans Released In February B. Home Ownership: No Longer A Social Goal C. Falling Home Values: Let 'Em Drop. D. What's Behind The Anti-Housing Measures E. The 10% Minimum Downpayment: Likely Impact From The American Housing Survey 1. AHS Table: Downpayment Status Of All Existing Home Owners 2. Downpayment Impact On Foreclosures: Not Necessarily Good F. Will The Fannie/Freddie "Wind-Down" Work? 1. The Reinsurance Option 2. Problem #1: Private Investors & Their "Willingness" 3. Problem #2: Private Investors & Bond Yields 4. Problem #3: FRMs And Refinancings 5. Problem #4: Forcing Bank Compliance 6. Problem #5: Lack Of Capacity 7. Problem #6: The New Plans And Inflation Pressures III. Home Value Trends: Optimism Fades A. The Key Issue In The Mortgage Industry B. List Of Events Capable Of Pushing Values Up 1. Income Growth Blasts Past Home Price Growth 2. Table: 20 Years Of Home Affordability 3. Chart: Housing Bubble Now Inverted; Prices & Incomes Page 5

6 Outline Of Contents (continued) 4. Chart: Newly Constructed Homes Bubble, C. The Negative Trends 1. Homeownership Rate Skids To 66.9%; Impact On Sales, With Table D. Recent Home Sales: Mixed Picture 1. Charts: NAR Home Sales, Census Home Sales, NAR Pending Sales, Building Permits E. Recent Price Trends: Competing Views From Four Sources 1. Table On Competing Series Of National Price Trend Data, F. Ultimate Resolution: The Cheeseburger Scenario G. SMR's Changed Expectations IV. Giants Of The Mortgage Industry: Originations & Servicing Decline A. Originations Drop 11% In Refi "Boomlet" Of 2009 Didn't Repeat; Spike Came Late 2. Table: Quarterly Mortgage Originations By Banks And Thrifts B. FHA Fell, Too. Call It An Omen 1. Tables: FHA Single-Family Detailed Data: 2010, 2009, & 2008 C. Loans By Type Of Company D. Wells Fargo's Lead Increases Further; Three-Horse Race E. Big Declines: SunTrust, Met, PNC F. And, Some Production Increases G. Mortgage Servicing: Amid The Nightmare, Volume Keeps Falling 1. Why Servicing Is Declining H. Top Servicers: Turmoil Prevails; Change At The Top I. Lending By Channel: Not Much Change 1. Disparate Strategies J. Giants Tables 1. Top 70 Mortgage Originators, 2010, With % Change From Top Originator Market Shares 3. Top Originators Ranked By Dollar Change In Loan Production 4. Top Mortgage Servicers: 102 Depository Institutions, Bank Holding Companies: Lending By Channel In 2010 V. Origination Productivity A. The Local Market Productivity Dilemma B. Why Productivity Really Counts C. Geographic Patterns D. Actionable Steps To Take With Productivity Results E. Results In The 20 Largest Metro Loan Markets F. Winners, Losers, & Patterns In The Broader Universe 1. Upper Midwest 2. College Towns 3. Omaha, Cambridge, And Milwaukee 4. Florida Flops Page 6

7 Outline Of Contents (continued) 5. Vegas & Phoenix: Bad, Not Worst G. Tables: Loan Origination Productivity By City, 251 Largest Metro Areas VI. Credit Quality, Part 1 A. Aggregate Data, Trends, And Forecasts B. A Long, Slow Struggle Toward Normalcy C. Even Gradual Improvement Is A "Maybe" 1. Future Problem #1: Under-Water Borrowers Increasing 2. Future Problem #2: The New Government Proposals D. Offsetting Trends E. Net Forecast F. Signs Of (Slight) Improvement 1. Delinquency Data Results For Bank-Owned Mortgages, Thrift-Owned Mortgages, Bank Privately Securitized Mortgages 2. MBA Data On All Loans 3. Loans In Foreclosure: Aggregate Results For $8.04 Trillion Of Loans 4. Comparison Of Mortgages To Other Loan Types, 2010 & 2009 G. Chargeoff Implications: $236 Billion In Likely Net Credit Losses H. Huge Delinquency On FRMs Versus ARMs; The Credit Union Data 1. Credit Union Risk Strategy VII. Credit Quality, Part 2: Company Data A. Bad Numbers, But Not For Everyone B. Citigroup: Best Of The Big 4 C. Goldman & Morgan Stanley D. Thrift Results E. Early-Stage Delinquency F. Company-Specific Tables 1. Loans In Foreclosure, 12/31/2010, Big Bank Holding Companies 2. Bank-Owned Mortgages: 90-Day+ 4-Quarter Delinquency Trend 3. Banks' Privately Securitized 1st-Lien Mortgages 4. Thrift Owned Mortgages: 90-Day+ Delinquency Trend 5. Bank-Owned Mortgages: Day Delinquency Trend 6. Thrift-Owned Mortgages: Day Delinquency Trend VIII. Mortgage Profits A. Earnings & Loan Losses B. Fannie & Freddie: $41.5 Billion Net Loss Is A Huge Improvement C. New SMR Data For Named Banks 1. Mortgage Loan Repurchases in 2010 and Mortgage Banking Noninterest Income From Loan Sales & Servicing D. Repurchases Down, But So Was Income E. Thrift Profits In Table: Net Income, ROA, and ROE For Thrifts With $1 Billion+ Assets Page 7

8 Optional Volume 2: Under-Water Borrower Exposures By Lender As an optional supplement to the Giants study, we are offering a 280-page report called Under-Water Borrower Exposures By Lender. Clients get the report in print, plus an Excel spreadsheet version of the lender-specific data. This study covers 230 current lenders, and shows data as well for the customers of other lenders, now defunct. Back in 2007, SMR first did a study of this kind, utilizing our national property database. If only we had traded in the stock market based on what we published! We put together each lender's originated loan customers, provided they still had the loans outstanding. And, we used amortized mortgage and junior-lien loan amounts, divided by AVM home values, to estimate their combined loan-tovalue (CLTV) ratios. We then ranked each lender by the percentages of customers who had a CLTV problem. Within two years, nearly every firm toward the top of the list was gone: bankrupt, sold, closed, or liquidated. Today, of course, we are left with industry survivors. Or are we? Nothing forecasts future loan losses as well as the CLTV ratio. If nothing else, the new data may indicate which firms will face the most credit pain ahead, and which face the least. This study was done using January, 2011, data. There are caveats. SMR's coverage of loans does not include those a lender purchased from a funding correspondent. The data are limited to owner-occupied homeowners in a majority, but not 100%, of U.S. geographies. Still, we managed to find 3.99 million customers to review at Bank of America, and 3.6 million at Wells Fargo, to name two firms. We put each firm's customers into 10 CLTV ranges, starting with %, and ending with 150%-plus. In each category, we looked at customers as a percentage of borrowers and as a percentage of outstanding loan dollars. The study ranks lenders by their percentages of dollars over 100% CLTV, and separately, by over 120%. But clients can use the spreadsheet version of this study to re-rank lenders any way they please. SMR does not purport that these data are complete, and SMR does not recommend any firm as a long or short investment prospect. The data are based on estimation methods. Page 8