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Meet the Biggest Mortgage Originators & Servicers in the U.S.

Jay Hammond — Tue, 12 May 2009 17:29:44 +0000

The mortgage industry changed in the last year. Most companies have found themselves under significant financial pressure. Some mortgage firms have disappeared. Others have grown and expanded their market share by acquiring struggling competitors.

The number of mortgage loan originations has also been on the rise, allowing lenders to add to the growth from mergers and acquisitions. First quarter 2009 production among American mortgage lenders increased by 73 percent over the fourth quarter 2008, based on earnings data analyzed by MortgageDaily.com. As a result, there have been some changes to the lists of top originators and top servicers helping consumers achieve the American dream of homeownership.

Wells Fargo is the nation’s biggest lender. First-quarter originations more than doubled from the fourth quarter level. Volume, including Wachovia Corp. was up 22 percent over the same quarter in 2008 – prior t the merger of the two banks. Well Fargo is the second largest servicer in the nation. Despite this, Market Intelligence Center reports that Wells Fargo shares are trading at or near a 52-week low, however, the recent offering of 341 million share of common Wells Fargo raised more than $8.6 billion.

“We’re known and admired for our conservative financial position, and a disciplined acquisition strategy that will not change,” said John Stumph, Wells Fargo President and CEO in October 2008. “In that regard, we look forward with great anticipation and confidence to completing our merger with Wachovia Corporation by year end. The union of of our two companies with provide compelling value for all our stakeholders, including Wachovia’s team members, combining the industry’s best in service and best in sales, an unbeatable combination that will create the nation’s premier coast-to-coast financial services company.”

More recently, Ed Terpening wrote on the Wells Fargo – Wachovia Blog (May 8, 2009) that “We knew from the start there’d be an awkward period between the time the merger started and the time you saw results. [....] As John said, we’re taking 2-3 years to complete this transition because we want to do what’s right for you, our customers. No sense in rushing this and making a mess in the process.”

The merger is apparently already yielding positive results, because the combined company is leading the nation in mortgage originations.

Another acquisition that has paid off in growth has been MetLife’s acquisition of most of First Horizon National Corp.’s mortgage operations. MetLife business more than doubled from the fourth quarter, landing the company at Number 8 in originations. First Horizon’s mortgage operations weren’t MetLife’s only acquisition during 2008. MetLife also acquired EverBank Reverse Mortgage LLC and selected assets from First Tennessee Bank in 2008.

Bank of America Corp. (BoA) topped the list of the biggest servicers. The company also saw originations rise by 79 percent, making it the second biggest originator in the country. BoA’s acquisition of Countrywide Financial Corp. last year has not paid off with originations from the most recent quarter down 20 percent from combined production a year ago.

JPMorgan Chase & Co., the third biggest originator and servicer, also declined despite improving activity by 30 percent over the fourth quarter. Fundings were 44 percent below the level JPMorgan and Washington Mutual Bank reported in the first quarter of 2008 before their merger.

The 10 biggest originators during the first quarter 2009 were:

With a total combined portfolio exceeding $140 billion, the 10 biggest servicers as of March 31, 2009 were:

JPMorgan Chase, MetLife and US Bancorp were among the banks recently identified by regulators as not needing any additional capital. Only MetLife had not previously received funds from the Troubled Asset Relief Program, or TARP, DailyFinance reports.

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A closer look at mortgage insurance

Jay Hammond — Thu, 12 Mar 2009 22:26:23 +0000

Did you know your mortgage insurance may be deductible? Under certain conditions, the Internal Revenue Service (IRS) reports that homeowners may deduct their mortgage insurance premiums when filing their federal tax returns.

Generally, mortgage insurance premiums paid to a government agency or program as well as private mortgage insurance (PMI) premiums connected to the purchase of a taxpayers primary residence is deductible as long as the taxpayer itemizes their deductions. Taxpayers who make monthly payments may deduct all or a portion of the amount paid depending on their income. Homeowners who made a lump sum mortgage insurance premium payment at the time of purchase may be eligible to deduct a portion of the premium provided the mortgage insurance covers the tax year for which they are filing a return. The amount of the deduction is limited if the taxpayer’s adjusted gross income exceeds $100,000 ($50,000 if married and filing separately). Taxpayers whose gross adjusted income exceed $109,000 or $54,500 if married and filing separately may not deduct mortgage insurance premiums. Taxpayers should follow the instructions and use the worksheet for Schedule A, Line 13 to figure their mortgage insurance deduction.

It is important that taxpayers understand that mortgage insurance is NOT the same as homeowners insurance. Mortgage insurance is taken out when a new mortgage is approved. The amount varies depending on the value of the house and the amount of the down payment. Unlike homeowners insurance, which protects the property and investment of the individual(s) owning and living in a residence, mortgage insurance or PMI protects the lender’s investment. Neither mortgage insurance nor homeowners insurance are required by law, however, either (or both) may be required by lenders as conditions of a loan. Homeowners need to read their loan documents carefully to determine and understand the requirements for their specific loan.

Mortgage insurance and PMI generate very few complaints, according to the National Association of Insurance Commissioners (NAIC). The Closed Confirmed Consumer Complaints by Coverage Type Report published by the NAIC at the end of February 2009 indicates that only a single complaint was lodged against PMI in 2008 and 2006. None were reported in 2007 and none have been filed so far in 2009. Complaints regarding mortgage guaranty insurance were also low with eight complaints recorded in 2008, 11 in 2007 and 13 in 2006. Only one mortgage guaranty complaint has been recorded so far in 2009. Homeowners insurance, however, generates an average of more than 1,000 complaints per month.

Some experts believe mortgage insurance and PMI have contributed to the current mortgage crisis. Lenders approved risky loans, and allowed those loans to go into foreclosure rather than modifying them because their investment was protected by mortgage insurance. As the number of foreclosures increased, so did the number of mortgage insurance claims. Insurance companies and others issuing mortgage insurance quickly found they were paying out as much or more mortgage insurance claims than they were bringing in through mortgage insurance premiums to the point that the losses threatened their viability as a commercial enterprise. For instance, in the case of AIG, the insurance giant needed the bailout funds in order to pay all the mortgage insurance claims being made while still remaining in business.

“I am not entirely against having the government secure loans or requiring homeowners to pay PMI on certain mortgage loans. Up to this point, these programs have helped more people achieve the American Dream of Homeownership,” said Ralph R. Roberts, a consumer advocate, host of KeepMyHouse.com, author and spokesperson for Federal Loan Modification Law Center, who calls for the elimination of PMI as a means of helping homeowners keep their homes and stimulate the economy. “However, when these same programs are working against homeowners during an unprecedented economic crisis, I think it is time to review the real purpose of these programs. Lenders need to start relying less on mortgage insurance and more on loan more on loan modification to mitigate their losses and help more Americans keep their homes.”

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Past Haunts AIG as Bailout Solution Announced

Jay Hammond — Tue, 11 Nov 2008 22:14:02 +0000

Is American International Group, Inc.’s (AIG) hosting of a conference for independent financial planners a sign that the company is rising from the ashes with the help of a newly announced bailout from the U.S. Treasury and Federal Reserve or just the latest in a string of high-profile and expensive mistakes?

Two months ago, the U.S. government and American taxpayers saved AIG from collapse by loaning the company a record $85 billion. AIG executives used the money to go on the now infamous hunting trip. Not long after that, the company paid more than $400,000 to send top-performing insurance agents on a week-long retreat. So it is understandable that people – the media, taxpayers, politicians, regulators – view AIG’s hosting of a $343,000 conference in Phoenix, Arizona with some skepticism.

The skepticism is deserved. Especially since the bailout increased to more than $150 billion on Monday. The solution, outlined in a public statement from AIG distributed to the media on Monday includes:

The purchase of $40 billion in newly issued AIG perpetual preferred shares and warrants to purchase the equivalent of 2 percent of outstanding AIG common stock by the U.S. Treasury Department. The perpetual preferred stock carries a 10 percent coupon with cumulative dividends. Proceeds from the sale of the preferred and common stock will be used to pay down the credit issued by the Federal Reserve Bank of New York (FRBNY).
The existing FRBNY credit will be revised to reflect a total commitment of $60 billion, an interest rate of LIBOR (London Interbank Offered Rate) plus 3 percent annually, a 0.75 percent fee on undrawn commitments and a 5-year loan term.
AIG will transfer mortgage-backed securities to a newly created financing entity capitalized with $1billion in subordinated funding from AIG and up to $22.5 bilion in senior funding from FRGNY.
The purchase of approximately $70 billion in Multi-Sector CDO exposure by a second financing entity created by AIG and FRBNY.

“Today’s actions send a strong signal to our policy holders, business partners and counterparties that AIG is on the road to recovery,” Edward M. Liddy, AIG Chairman and CEO said in a statement. “Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our structuring process successfully for the benefit of all our constituencies.”

Comparatively, the $23,000 that the Arizona Republic reports as the total cost AIG said it incurred for the Phoenix conference barely registers. Even if AIG picked up the full cost of the conference, it’s only slightly more than 0.2 percent of 1 percent of the total bailout cost so far. In addition, the company reports that financial planners like those attending the conference generated almost $200 million in revenues this year, as of September 30.

After being exposed by local then national media, Larry Roth told the Arizona Republic “Our success in enlisting product sponsors to pay for the vast majority of costs, while charging financial planners a registration fee and for their travel, has resulted in minimal cost to AIG.”

Liddy concurs, saying “We conducted a top-to-bottom review of all expenses of the Phoenix meeting in advance and found that it was consistent with my October 10th directive [to reduce expenses, conserve cash and cancel all nonessential conferences and meetings, unnecessary travel and excessive overhead]. This conference was approved because it provides the kind of communication we must conduct with the people who sell our products if we are to be successful and repay the U.S. taxpayer.”

Minimal cost is not free. The public is understandably skeptical of AIG’s explanations given their past behavior. There are some indications, however that this explanation has some truth to it.

Phoenix is the headquarters of AIG Financial Advisors (AIGFA) minimizing travel costs for AIG employees. Nearly 2,000 independent, fee-based financial advisers are affiliated with AIGFA, a registered broker-dealer and member of financial Industry Regulatory Authority (FINRA). On of the responsibilities of a registered-broker dealer under National Association of Securities Dealers (NASD) Rule 1120, Continuing Education Requirements, is providing registered covered persons with formal product- and regulatory-related training.

The goal of the bailout was to allow AIG to survive. Some conferences and formal training are part of doing business for a financial company. If AIG is to continue operations, let alone begin rebuilding itself or repaying taxapyers, they are going to have to spend some money to do it. but they have only themselves to blame if the public uses past experience to judge the company’s present and future actions for some time to come.

Update from Morgan:

AIG sent this email to us in response:

Good Evening,

I hope this note finds you well. I know you and your readers have been following AIG and I wanted to send you this note in case the news we issued today hasn’t already found its way to your readership.

Today, Edward M. Liddy, Chairman and Chief Executive Officer of American International Group, issued the following statement.

“Recent news reports have grossly mischaracterized an American International Group seminar for 150 independent financial planners held in Phoenix last week.

The financial planners are not AIG employees. In addition, the cost to AIG for this event was minimal. More than 90 percent of the costs were paid either by sponsors or by the independent financial planners themselves.

It is essential for AIG to conduct seminars of this kind to keep independent financial planners abreast of investment products and services including those offered by AIG. The financial planners are responsible for generating almost $200 million in revenue this year for AIG as of September 30th.

On October 10, I issued a directive to all AIG employees and subsidiaries to reduce expenses and conserve cash, including cancelling all nonessential conferences or meetings, unnecessary travel and excessive overhead. Since then, we have canceled more than 160 events. We conducted a top-to-bottom review of all expenses of the Phoenix meeting in advance and found that it was consistent with my October 10^thdirective.

This conference was approved because it provides the kind of communication we must conduct with the people who sell our products if we are to be successful and repay the U.S. taxpayer.”

I know your readers are following this story as it unfolds. We will continue to update you with more information in the days and weeks ahead.

Thank you for allowing us to share this information with your readers.

Best,

AIG Blog Relations

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What if Insurance Companies Don?t Pay?

Morgan — Mon, 27 Oct 2008 15:49:51 +0000

Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage.

Let?s hope your policy is with an insurance company that has ruinous trading losses and heavy exposure to derivatives. That?s what it took for AIG to be rewarded with a direct government bailout.

In something of a creative interpretation of the mandate given by Congress to continue funding the so-far-failed bailouts of banks, Bloomberg reports on Oct 24: ?The Treasury is considering taking stakes in insurers . . .? which ?would widen the scope of Secretary Paulson?s Troubled Asset Relief Program (TARP) as the credit crisis deepens. ?Capital adequacy has been a major concern among investors? in insurance companies, said Morgan Stanley analyst Nigel Dally. ?If the Treasury were to purchase preferred equity stakes in some insurers, it would help calm these concerns.”

Purportedly, insurance companies, primarily life so far, have approached the Treasury for direct investment, or in the vernacular, a bailout. As would be expected in their line of work where the welfare of others is a hallmark of their business model, they want all life insurers to be on the receiving end of the government?s largesse. The reason, the companies state, is to lessen the embarrassment, or to cover up*, or to fool the public, if you will, for the few that actually need an investment, or bailout, and have been turned down, or laughed at, or shunned by private investors. (*The actual term used was cover up. I?m not making this up, just ask Jeff Matthews.)

Insurance Company Watch List

Insurance company third-quarter results are starting to come out. One company that had been rumored to be on shaky ground, The Hartford, announced a $2.5bn capital investment by Allianz SE, the reduction of its dividend and pre-announced a third-quarter loss. Prudential also pre-announced third-quarter losses, as did a number of other life insurers.

MetLife, in a bit of a departure from the others, pre-announced third-quarter results in the Tehran Times. The Tehran Times also reported that ?the insurer . . . plans to offer 75 million common shares to supplement the company’s capital position. ? We?ll let you know how that goes; however, the Tehran stock market is doing quite well this year.

MetLife and The Hartford were put on negative watch by Standard & Poor?s earlier this month. The CDSs of both companies ?were trading upfront, a sign of distress and heightened worry of a potential default.? By way of explanation, Chairman, President and CEO Mr. C. Robert Henrikson said, ?MetLife continues to be a strong, stable leader in the financial services industry during a challenging environment.?

In agreement with Mr. Henrikson about the challenging part, Standard & Poor’s said it is revising its outlook on the US life insurance sector to ‘negative’ from ’stable.’ It expects higher-than-usual credit losses and lower fee-based revenues as a result of the current turmoil in financial markets.

Now?s the time to amend living wills and revoke those do-not-resuscitate clauses if you, or an insured loved one, anticipate death anytime soon. And by all means, don?t jump, at least not until this matter is resolved.

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