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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (57186)	3/31/2006 2:33:50 PM
From: ild	Read Replies (1) \| Respond to of 110194

At CFC’s investor day yesterday (3/30), management gave an upbeat assessment of the company’s positioning and growth prospects during the current cyclical mortgage market downturn. CFC is expanding production and servicing market share by adding sales people (estimated 5,000 in 2006) and loan offices (estimated 150-200 in 2006), which should account for $35- 40 billion of loan originations and 100-200 bps of market share – helped by still-fragmented retail and wholesale production channels. CFC is adding product capabilities – in an effort of provide for all potential borrower needs, including reverse mortgages and more subprime. Recent industry change suits CFC’s strategy well, given ARM benefits – including new production opportunities from recaptured refis and less costly MSR risk management. While current production margins reflect competitive dynamics, CFC sees offsets in greater volumes and cost efficiencies. These include commissions, productivity, and profit and loss (P&L) based compensation, and moving more jobs to lower-cost markets such as India (with 2,000 employees currently and doubling to 4,000 in 2006). Meanwhile bank growth should continue to ramp up, given CFC’s relatively modest deposit market share, efficient non-traditional branching model (in less than 10% of Countrywide Home Loan [CHL] offices so far) and significant access to the best CHL loan generation. The upshot is that CFC looks likely to dominate a rationalizing industry, as small and midsized mortgage companies are less efficient, offer less product breadth, and are losing top salespeople to CFC. Thus, we expect the following: 1) further market share shift from weaker players to CFC; 2) possible consolidation of attractive CFC-like franchises; and 3) failure of one or more marginalized competitors over the near- to intermediate-term. ... Changes to Pay Option ARMs. CFC has already been implementing changes to its pay option ARMs. The changes include raising the minimum start rate across the board, introducing new risk-based pricing add-ons, and eliminating teaser rates (while still maintaining relative low rates for affordability). These changes should improve the bank’s NIM and lessen negative amortization. EDIT: That idea to buy poots on FRE was a good one.