Take a look at these 2nd quarter production numbers. The figures are in millions:

  1. Wells Fargo ($82,996)
  2. Bank of America ($74,075)
  3. Chase ($33,687)
  4. Ally Bank/Residential Capital/GMAC ($13,160)
  5. CitiMortgage ($12,169)
  6. U.S. Bank Home Mortgage ($10,685)
  7. PHH ($10,057), SunTrust ($6,995)
  8. MetLife Home Loans ($5,517)
  9. BB&T ($5,394).

If one adds up the total production for lenders #3-10, it basically matches Wells Fargo's total (in spite of its back office backlog)! Figures from MortgageStats.com

HERE is a good read for anyone who is interested in  Bank of America's loan production: "Bank of America originated $73 billion in first mortgages in the third quarter, down 24.7% from a year ago. It is best to visit the website to see more production statistics, as it may be indicative of many other lenders.

A story out of Reuters is being greeted as good news for anyone owning stock in banks - but not just any banks. In a few weeks,  "The U.S. Federal Reserve is expected to soon allow some healthy banks with strong capital levels to increase dividend payments...It is expected to take a conservative approach in deciding which banks can increase dividends and assess each bank individually." "Banks have been pushing to boost dividends. But regulators have balked at giving them the green light, citing uncertainty about the economic outlook and new capital rules. With global capital rules and the U.S. financial regulatory system retooling farther down the track, the environment is more conducive to letting strong banks increase dividend payments. The Fed does not want to prevent banks that are viewed as particularly strong from boosting dividends."

Speaking of investment income, yes, lower rates have an impact.  Coca-Cola issued $4.5 billion in 3-year debt yesterday that pays investors 0.75%. Walmart issued similar debt last month. Remember that 3-yr US Treasury paper is only yielding 0.46% - but investors are apparently willing to accept those low levels of interest income. There has been heavy issuance of corporate bonds in the past two years and record amounts of inflows into corporate debt mutual funds. Colgate-Palmolive has sold five year debt with a coupon of 1.375 per cent while Johnson & Johnson issued 10-year debt paying just 2.95 per cent. Per Financial Times, Coca-Cola will use the proceeds to "restructure its debts after it acquired the North American business of Coca-Cola Enterprises, the bottler".)

The nation's homeownership rate is at the lowest level in more than a decade. But really, is this a bad thing? Many would argue that it isn't. Earlier this week the Census Bureau announced that the percentage of households that owned their homes was unchanged at about 67% last quarter, unchanged from the 2nd quarter and matching numbers from back in 1999. For several years prior to 1999 it was running around 64%, and hit its peak in 2004 at 69%. But get this: almost 19 million homes, or 14.4 percent of all houses and apartments, were vacant, according to the government survey. Holy smokes! READ MORE

What difference do prepayments make? If you're an investor counting on those servicing cash flows (like BofA with $2.2 trillion, and you're making a few dollars off of loan...), loans paying off more quickly than you thought they were tends to roil the market. And if investors begin to shy away from wanting to buy servicing, and the SRP's drop, well, it doesn't help rate-sheet pricing. But yesterday's monthly prepayment information was about as expected. Math and statistics majors at Wall Street firms and pension funds are all slicing and dicing the numbers in dozens of different ways (Fannie versus Freddie, FHA, coupons,  maturities, pool age, fixed versus ARM, etc.) but in general there were few surprises - which tends to make investors feel more comfortable with their servicing bets.

That being said, investment banks such as Barclays continue to believe that over the next few months lower coupons (4's through 5's) should continue to show higher early pay-offs, given the ability for recent borrowers to refinance again in a low rate environment. "Recent experience suggests that a refinancing wave is increasingly unlikely given a diminishing refinancing response to rates, increased refinancing costs, tight credit box, onerous underwriting requirements and persistent origination capacity constraints. Unless there comes a refinancing program that bypasses underwriting altogether (which seems very unlikely), we do not expect a lasting refinancing boom, even if mortgage rates drop to 4%."

BlackRock gave folks with non-agency mortgage interest some good news. Upwards of 90% of production is passing through the agencies right now, but apparently there are plans for the company to set up a $1 billion "Mortgage Investors Fund" to finance prime jumbo mortgages for a new version of a private-label residential mortgage-backed security. "But unlike the old RMBS issuance, BlackRock said this product will separate the originator of the loan and the servicer, a conflict of interest many investors feel have left them out in the cold as modifications and refinancing demand grew."  Its appetite is estimated to be about $100-$250 million in mortgages per quarter, per Reuters.

Beazer Homes (#8 in the USA operating in 16 states) posted a loss in the last quarter of about $60 million, much worse than expected. Total revenue fell 25 percent to $274.8 million. For the fourth quarter, net new home orders decreased 20.6 percent, while the number of homes closed decreased 30 percent. Homebuilding revenues from continuing operations decreased 25.5 percent, the company said.

CoreLogic, a provider of real estate services and analytics, and which was spun off from First American earlier this year, lost $93.4 million in the 3rd quarter versus income of $24 million in the second quarter. Until the end of the year, the company said it will repurchase up to $100 million in common stock, which is at about the same level it was when it first traded in early June. FULL SUMMARY

In the 3rd quarter Ocwen Financial lost about $9 million, including $33.9 million in costs related to the acquisition of HomEq and $20.1 million in litigation charges stemming from a judgment in a case with Cartel Asset Management. For the year earlier third quarter, Ocwen reported a loss of $42 million. Ocwen (Newco spelled backwards, which is where the name came from) reported its servicing portfolio rise to $76 billion from $40 billion a year ago, and servicing revenue for the quarter rose 51% to $95.3 million from about $63 million a year ago.

All of the news this week has, as expected, created a lot of volatility in the markets. Yesterday, for example, both stocks and bonds soared. Mortgages were better by .375-.50 in MBS-land, but with only $1.5 billion in production being sold and traders reporting pension funds, money managers, and "delta hedgers" buying positions. After the QE2 information from Wednesday was digested, the S&P500, a better indicator of the general stock market than the Dow (which only has 30 stocks), hit its highest level in 2 years. The yield on the 10-yr dropped to 2.48%.

But wait - we're not done yet! This morning we learned that Nonfarm Payrolls were up 151,000, the unemployment rate came in at 9.6%, and August and September numbers were revised higher. Private sector jobs jumped, and Hourly Earnings were up 0.2%. The headline number was more than twice as high as what was expected, and so far in 2009 874,000 jobs have been created. Do we really need QE2? Although we have Pending Home Sales ahead of us at 10AM EST, the unemployment data pretty much finished off the week. (There is no scheduled economic news of note Monday or Tuesday, by the way, and Thursday is a holiday. I'll be visiting Austin, TX, and the commentary will go out Friday.) This unemployment data really shocked the market, pushing stocks higher (so far) yet again, and driving rates higher. As I type this the 10-yr yield is sitting around 2.53%, and MBS prices are all over the board. Where rate sheets come out is anyone's guess, but will be based on whether or not they improved prices yesterday, combined with today's markets, and profit margins mixed with being conservative in a volatile environment. MBS prices are worse than the close of Thursday, but better than where they were Thursday morning.

You can retire to the Deep South where...

  1. You can rent a movie and buy bait in the same store.  
  2. "Y'all" is singular and "all y'all" is plural.  
  3. "He needed killin" is a valid defense.
  4. Everyone has 2 first names:  Billy Bob, Jimmy Bob, Mary Sue, Betty Jean, Mary Beth, etc.
  5. Everything is either "in yonder," "over yonder" or "out yonder." It's important to know the difference, too.