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| Wachovia Corp.’s mortgage operation is thriving despite mortgage market turmoil. The company’s chief told analysts yesterday that the portfolio lender is well positioned to benefit from the current chaos.
Five of the top 40 mortgage lenders — representing 9 percent of 2006 production — have gone out of business, according to a presentation Monday made by Wachovia Chairman, President and Chief Executive Officer Ken Thompson at a Lehman Brothers Financial Services Conference. “Competitive ranks are thinning as companies go out of business. Many competitors who lack funding and the ability to fund mortgage growth have narrowed their product lines significantly,” he said. “Wachovia is well positioned to benefit from the turmoil that exists today’s mortgage market.” The company is a portfolio lender, he explained. It originates mostly for investment. The average FICO on its total consumer real estate portfolio was 699 on June 30, while the average loan-to-value was 70 percent. Just 5 percent of loans had an LTVÂ above 90 percent. “We’re in a situation where portfolio lenders … are in much more competitive position than in the last two to three years,” he said. And the mortgage market is beginning to improve, according to Thompson. Spreads are widening, prepayments are slowing and the yield curve appears headed for improvement. Total mortgages outstanding have increased by $1.2 billion so far during the third quarter at Wachovia. Originations of Pick-a-Payment, an option adjustable-rate mortgage program, are projected to be more than $1 billion this year. Thompson noted their option ARMs are much better than competitors’ because of factors including local underwriting at fully indexed rates, in-house appraisers and an average LTV of just 70 percent. In addition, originations are not dominated by mortgage brokers. “This conservative, consumer friendly underwriting was instituted by Golden West over 40 years ago, and its produced low credit losses throughout that period,” Thompson said. He added that much of the original workforce and management of Golden West are still with the company. In a scenario the company analyzed where home prices decline 5.5 percent this year and 6.5 percent in 2008, prepayments slow and loss severity rises, Thompson said projected charge offs would be less than 10 basis points. In addition, a slowdown in prepayments would offset the rise in credit losses. During the first quarter, Wachovia cut back significantly on commercial mortgage originations, he said. |
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Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com. e-mail:Â mtgsam@aol.com |
