Mortgage Industry Trends

Credit difficulties and failures are often experienced by the markets and investors not just as a one-time event, but as a series of actions that arrive in loosely coupled groupings.  The credit unwindings and anomalies of 2007 were no exception. 

For the last six months of 2007, the mortgage industry headlines have screamed the bad news of layoffs, defaults, foreclosures, and “public floggings.”  The first six months of 2008 will be about foreign investments, industry consolidations, and grand statements of directions. 

If you have any reservations that the industry will be permanently alerted in 2008, just look at a few article headlines in the last 45 days:

·         “IndyMac Rating Cut to Junk,” Washington Post, December 2007

·         “Morgan Gets Infusion From China After Swinging to a Quarterly Loss,” Wall Street Journal, December 2007

·         “Countrywide Doubles Foreclosures,” Financial Times, December 2007

·         “Mortgage Losses Prompt WaMu to Cut More Jobs,” Los Angeles Times, December 2007

·         “UBS Unlocks Outside Capital to Absorb Losses,” Financial Times, December 2007

·         “Bond Insurer Cut to Junk,” New York Times, December 2007

·         “H&R Block Scraps Mortgage Arm,” Washington Post, December 2007

·         “Singapore Fund Targets Financial Groups,” Financial Times, December 2007

·          “New Home Prices Take Biggest Dive Since 1970,” Washington Post, December 2007

·         “Lehman Faces Legal Threat over CDO Deals,” Financial Times, December 2007

·          “Fannie, Freddie Shares Prices Hit 10-Year Lows,” Washington Post, November 2007

·         “Lehman Faces Legal Threat over CDO Deals,” Financial Times, November 2007

·         “Financial Firms, Capital Depleted, Hunt for Cash,” Wall Street Journal, November 2007

·         “Wave of Banking Consolidations Predicted,” Financial Times, November 2007

For the financial services industry (FSI) and its mortgage lending and processing segments, 2007 brought to the doorstep an unwelcome examination of prior deals done during a euphoric time of easy credit and a seemingly endless valuation of housing prices. 

Market risk taking was within a very short 90 days replaced by global risk aversion leading to some of the most publicized defaults, market interjections, and corporate humilities of recent memory.  The causalities included corporate balance sheets, market dominance, and numerous corporate executives and CEO’s who found their optimistic public statements coming back to haunt them.

With a week to go before 2008 ushers in a “new year,” it should be expected that the first six to nine months will usher in much more of the same.  The mortgage industry is not out of the woods and the final costs, ownership issues, and legal difficulties are just now being born.  Welcome 2008, you will surely go down as the turning point of the mortgage debacle.