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An Extraordinary Week
---------------------
If you're in the mortgage industry, in the market for a mortgage,
or just an avid industry follower you've witnessed one of the most
eventful and frightening weeks in mortgage lending history.  Last
week saw an epic series of large lender closures that brought the
total industry job losses for the month to a cool 40,000.  One
month! Scary stuff.

The shutdowns and layoffs are really a result of two different
forces playing out in front of our eyes.  The first has to do with
liquidity, or lack thereof.  If banks don't have any one to sell
their loans to they can't make money.  These banks rely on using
short-term credit lines to fund loans.  In turn they sell those
loans to investors freeing up the credit to fund more loans. If they
aren't depository institutions (like Bank of America or Wells Fargo
to name two) they have no money of their own to lend.  So when
those credit lines get full, or get shut off by the banks issuing
them the whole machine grinds to a halt.  First Magnus is a good
example.

The second force is actually better-from a market perspective any
way.  And that is the winding down of unprofitable business units
to reduce overhead and increase profitability of the parent
companies.  This is exactly what happened with GreenPoint and BNC
Mortgage.  The parent companies chose to wind those companies down
to preserve the profitability of Capital One and Lehman Brothers
(respectively).  

This ends up being a good thing for the market because it reduces
excess capacity, while improving the financial health of the parent
companies.  It still sucks if you were an employee at one of these
firms however.

What It Means and What's Next
-----------------------------
If you're a home owner who is in the market for a home loan, now is
not the time to play around.  You need to get your loan locked,
docked (industry speak for signing final loan documents) and funded
so that you are not adversely affected by further market
tightening.  If you have questions about your lender's future try a
Google search and see if they're in trouble or not.  Of course
we'll humbly try to keep you properly informed. You can always
check out the Implode-O-Meter site for the latest news as well.

http://ml-implode.com/

If you're a loan officer or industry member and are wondering when
the next shoe will drop, it helps to take a look at the companies
that have the most exposure to risk.  One way to do that is to look
at the money set aside for loan loss provisions for each of the
major banks.  The banks with small loan loss reserves are those
that are most at risk of being adversely affected by credit
downgrades, early payment defaults and other repurchase events in
their loan-sale agreements with Wall Street.

You can view a great chart of the major banks and their loan loss
reserve here: http://tinyurl.com/yszupg  See anything alarming?
(cough...WaMu...cough)

-----------------------------

That's it for this wild week.  If you've got suggestions or
comments for next week's edition fire them off to
subscriptions@blownmortgage.com.  We love feedback, especially the
scathing, critical kind (not really).

Our best to you as always,
Your friends at Blownmortgage.com.

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