With originations continuing to soar, mortgage banking stocks have getting more attention from Wall Street. Analysts initiated coverage on three last week. The score: one "buy," one "neutral," one "sell."
Gordon Gray at PaineWebber Inc., New York, weighed in with opinions on Fleet Mortgage Group, a "buy," and Countrywide Credit, "neutral." He sees a buying opportunity in Fleet following its recent writedown of servicing rights. On Countrywide he is biding his time, waiting for the market to fully discount an expected slowdown in refinancings. He expects to make Countrywide a "buy" if that should happen.
A |Sell' Rating
At Mabon Securities in San Francisco, Gareth Plank kicked off coverage of Margaretten & Co. with a "sell."
Said Mr. Plank: "It's a fine company, but in retrospect the price on their acquisition of servicing from NationsBank was a bit too lofty. They bought $7 billion with a weighted average coupon of 9.5%. I see a tremendous refinancing drain coming. The premium paid will have to be adjusted downward."
And if rates rise? "Mortgage bank stocks will be shunned by investors in that environment, as they have been historically."
One mortgage company that took some lumps last week was Imperial Credit Industries, Santa Ana Heights, Calif. It was given a "sell" rating by Sy Jacobs, an analyst in New York with Alex. Brown & Sons, Baltimore. Mr. Jacobs had previously been neutral on the stock. The reason for the change: a rising stock price despite a decline in originations.
The shares were trading at about $14 at the end of the week, down from about $16.25 before Mr. Jacobs issued his report.
Some observers are scandalized and alarmed recently when the U.S. government decided to issue the 30-year bond only twice a year.
Thinking About the Long Bond
To understand why they were flustered, you have to understand that the "long bond" is to fixed-income fanciers what the Dow is to the equities crowd: the basic if imperfect shorthand for discussing the state of the market. And lately, the long bond has been on everybody's lips because its price has been rising inexorably.
But now, the talk is that the 10-year issue may become the new standard, and "long bond" may disappear from the argot.
Does anybody an old friend," says David Lareah, chief economist for the Mortgage Bankers Association. But he isn't shedding any tears. "The benchmark isn't really anything technical," he says. "And most mortgage people have been looking at the seven-year and the 10-year anyway."
John Prince, head trader at Freddie Mac, agrees:
"People tend to equate the 30-year bond in their minds with the 30-year mortgage. But the performance of mortgage securities on the yield curve is more related to the seven- or 10-year. If the 30 went away, we think we would be unscathed in terms of liquidity or performance on MBS issues."