Some would say that the winning bid for this website domain name represents the change in mortgage lending in the last 5 years: OPTIONARMS

And here is one quote that I received recently which also represents what many seem to feel. “I love my job but it’s really the industry I dislike right now.”

Companies in the mortgage industry have been reporting financial results lately. In the mortgage insurance sector, most MI company shares tumbled after MGIC Investment Corp. posted fourth-quarter results far below analysts’ expectations. MGIC’s shares plummeted 21% in one day after the company reported a loss of 93 cents a share. The largest MI company’s losses on mortgage default claims rose again after trending downward during the two previous quarters, and in fact MGIC has been posting quarterly losses for more than three straight years with the exception of second quarter 2010. On the good news side, Morgan Stanley’s earnings came out this morning at 43 cents per share (higher than the expected 35 cents per share) on revenue of $7.8 billion.

Looking back at Wells Fargo’s results, it made $3.4 billion over 3 months in the last quarter! Size aside, its production numbers are reflective of many mortgage banks. The #1 lender said applications for home mortgages fell to $158 billion in the fourth quarter, down over 19% from the prior quarter but up almost 10% from $144 billion a year earlier. The bank closed the quarter with a pipeline of first mortgages initiated yet unclosed of $73 billion, which is down from $101 billion on 9/30. Nonperforming loans dropped by $2.1 billion, which is the first drop since acquiring Wachovia, but Wells increased its provision for loan repurchase losses to $464m from $370m in the third quarter. Yesterday Wells Fargo’s stock dropped, as did shares of US Bancorp which declined nearly 3% in one day. USB showed a nice profit, but less than what was expected. It released $25 million of loan loss reserves in the quarter, but also grew loans by 2%.

January is scheduled to be a big month for Freddie and Fannie, in that the Treasury is expected to release plans for their future. Merrill Lynch released some conjecture about upcoming news, which will probably come out after the State of the Union address on 1/25. Merrill reminds us that “The GSEs are in two very different and distinct businesses. One is in the Guarantee (or “G” fee) business which is essentially an insurance business and where a big chunk of the losses came from in the 2008-09 period. The second business is the retained portfolio business where they own mortgage products on their balance sheets and do so because it is accretive and where the bulk of the profits come. Incoming Republicans have been very vocal about GSE reform and all of the commentary seems to be negative for the retained portfolio business at a minimum, and currently, under the Senior Preferred Stock Purchase Agreement, Fannie and Freddie must shrink their retained portfolio’s at a 10% per annum clip.”

The report continues to opine, “Regardless of the content, Republicans will dismiss it as spin and cry for immediate action on reform that includes, among other things, a much more rapid wind down of the retained portfolios. The market is very complacent on the topic of GSE reform and few have gone through the calculus of, for example, what something like a 4 year wind down of the GSEs would mean to absolute rates, Agency debt and mortgage valuations, spreads and volumes.  Or what an economic based mortgage insurance (or re-insurance) premium assessed by the government would do to housing prices and the macro economy in general.  The “White Paper” is important but represents merely the first salvo in what i am sure will prove to be an interesting public debate.  Ultimately, there will be meaningful change in the market place so be forewarned!”

HUD offered up a couple Mortgagee Letters yesterday, in what some would say are somewhat obscure topics. The first letter addressed “Claim Process for FHA Refinances of Borrowers in Negative Equity Positions (ADP Codes 821, 822, 831, or 832)”, and the second dealt with the “Elimination of the Master Appraisal Report (MAR).” Check them out HERE

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