How about subservicing as a solution? GMAC & Warehouse lending; DU Refi Plus

April 21st, 2009 · 1 Comment



I am very happy that the markets have been rallying after the Treasury said it was going to help banks sell off their toxic assets. I’m no economist, but maybe you should stop calling them “toxic assets”. It makes me want to head off to K.F.C. and buy salmonella chicken and then head to GM to buy a lemon. Goldman Sachs is looking to sell billions of new shares of stock. The plan relies on finding a few billion investors who haven’t read the business news for the last 18 months.

As I mentioned last week, many companies are re-examining retaining servicing: the loans are good quality, will probably be on the books for quite some time, and it spins off a nice monthly cash flow. But many know little or nothing about that type of business, so one solution may be to contract with a large servicer to “subservice” their loans. For a fee, which is typically around $10 to board a loan, $10 to de-board if it is being transferred off the system and then a monthly fee of $4-6 a month for Agency servicing, a mid-sized mortgage company can outsource this to another company such as GMAC. Then there are higher fees if the loan goes 60 or 90 days delinquent, for doing a modification,  bankruptcy, foreclosure, REO, etc., based on the labor involved.

Subservicing gives smaller lenders access to the full resources of a large mortgage servicer: people, technology, process, data and compliance so the originator can focus on lending, which is typically their “core competency”. Smaller companies feel that they can trade fixed costs for variable costs while retaining the decision-making and control of how assets are serviced, specifically with customer care and default service levels. And, unless they’re in the servicing business, who the heck really wants to deal with the increased regulation and complexities of servicing plans such as the Home Affordable Modification Program? Let someone else mitigate compliance risk. Some companies, like GMAC, are actively looking for this type of business, others, such as Wells Fargo, may have offered it in the past but are not now seeking new clients, and still others don’t offer the service at all.

The good thing about conferences is that some news comes out of them. In this case, Freddie Mac, who has not yet combined with Fannie Mae, announced that they will not lower their fees for guaranteeing payments on mortgage bonds as the housing market remains in a “very fragile state”. Supposedly Fannie is evaluating its pricing policy but will make sure it is not taking excessive losses. The most obvious fee, of course, is the “guarantor/guarantee fee”, which, in the “old days” mortgage bankers used to compare with each others as a status symbol. A Fannie executive told the audience at the conference (is a conference different from a convention?) that credit risk has been priced too low for a long time, leading to the crisis from which the industry is trying to extricate itself today.

Speaking of the old days, like 5 years ago, mortgage originators used to comb through their pipelines to find loans that qualified for a CRA (Community Reinvestment Act) bonus. This could be well over a point, which companies would typically pocket as profit as opposed to passing on to the agent or broker. Effective with loans locked on and after April 6, 2009, Wells Fargo Wholesale Lending will no longer pay an incentive for Community Reinvestment Act business in California .

According to the CEO of GMAC’s ResCap LLC, a story on Bloomberg said, “The majority of GMAC mortgages are being originated via correspondent channels, and GMAC is joining Well Fargo in an effort to shore up warehouse lending. ResCap recently hired the former managing director of Bank of America’s investment portfolio, to head its warehouse lending operations.”

GMAC Bank Correspondent Funding also announced that they are originating the Fannie Mae DU Refi Plus program which Fannie updated earlier this month. AmTrust has rolled out the same program for their clients: Maximum 95% LTV for owner occupied (primary residence) 1-2 Unit conforming loan amount, maximum 90% LTV for owner occupied (primary residence) 1 Unit high-balance loan amount, etc.

(The program goes to 80% LTV for more units.) Chase, Flagstar, and others are offering the program.

Is that enough news? There are no scheduled economic releases today, so perhaps the bond market will take its cues from the equities market again. Stocks were down significantly yesterday, giving up some of the recent gains, which helped bonds and pushed prices higher/rates lower yesterday. Some investors had mid-day price improvements late in the day, whereas others did not and will probably make up for it this morning. So although Bank of America reported better-than-expected earnings, analysts quickly pointed to their loan loss reserves and their stock price slid over 21% as charge offs became a large concern. Leading Economic Indicators were lower than expected at -.3%, aiding to the equity sell-off. And the sell-off in stocks continued overnight in Asia and so far in Europe . Right now mortgages, and the 5-yr Treasury, are both a shade better than yesterday afternoon while the yield on the 10-yr yield is down to 2.80%,


(For archived commentaries, check,

or to subscribe write to [email protected])

Tags: Commentary · Mortgage Market · Rob Chrisman

1 response so far ↓

  • 1 Dick Nichols // Apr 21, 2009 at 9:45 am

    Good article. I retired from a captive automotive financing after some 33 years in various positions in field ops, audit staff and EO. I have watch events unfold at my old employer in amazement and dismay. I guess the crowning touch was getting money from the feds to reorganize so they would be eligible for more money from the feds….things that make you gag in your sleep!!! There are no such things as toxic assets, troubled assets, problem assets….they’re called losses. Either declare them as valid receivables or step up to the pump and take the loss.

Leave a Comment