Mortgage originations down drastically

The slowing housing market has affected just about every company associated with the real estate market. Mortgage origination companies are no exception as they have been enduring hard times for almost a year now.

With the market showing no signs of reversing this downturn in the immediate future, mortgage companies should expect the worst and go from there.

The August 29, 2006 article, “First Horizon forecasts $1 billion drop in mortgage originations,” posted on Inman News explains how the major origination losses of one mortgage conglomerate may reflect the industry’s worries as a whole.

“First Horizon National Corp. said it expects a $1 billion reduction in its mortgage originations in the third quarter, which will help drive earnings down $35 million compared to last quarter.”

In addition to reduced production, First Horizon National Corp. reported that earnings are substantially down because of lower gains on sales and increased costs to be cautious of the risk of servicing its loans.

“Margins, which were 122 basis points in the second quarter, are expected to range between 85 and 90 basis points this quarter. Hedging costs are up $5 million over the last quarter.”

First Horizon ranks among the top 25 originator companies in the U.S. as well the top 15 mortgage sevicers. The company also performs commercial banking and underwrites government securities.

“‘Although we currently expect some modest improvement in mortgage banking in the fourth quarter, the current operating environment suggests that mortgage banking operations will only be in the range of break-even in the fourth quarter while our other two businesses should continue to perform in line with expectations,’ the company said in a statement.”

As if loosing $1 billion didn’t damage the company enough, First Horizon has also announced it has agreed to pay up to $36 million to settle a class-action lawsuit concerning loan origination fees.

“The bank said the fees, charged on second-lien mortgage loans, by First Horizon Home Loans and its predecessor, McGuire Mortgage Co., are allowed under federal law and in Kansas. The lawsuit, which claimed the fees were not permitted in Missouri, was filed on behalf of borrowers in the Kansas City area, which straddles both states.”

“‘We continue to believe that neither our predecessor, McGuire Mortgage, nor we acted contrary to applicable law. However, we agreed to this settlement to avoid the risks, and to end the ongoing expense associated with this protracted litigation,’ Peter F. Makowiecki, president of mortgage banking for First Horizon, said in a statement.”

While the decline of mortgage originations may not be First Horizon’s primary concern, it is a major concern to many other origination companies, especially for the smaller companies. The concern is growing so large because there are no immediate signs of this trend reversing.

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