Rate Cuts, Teaser Freeze and Underwriting Reform.

You can forgive the mortgage industry for feeling a little less merry than usual this holiday season. Just about everyone, from brokers to lenders to secondary market conduits to investors and servicers, is feeling some of the industrys pain.

On the bright side, its probably a better time to be working in the servicing end of the business than the origination end. Rising delinquencies may be a headache, but at least servicing operations are hiring rather than laying off employees.

And while portfolio runoff and servicing impairment havent been hot topics lately, they might rear its head again as big loan servicers start to compile their year-end financial reports.

And the tightening of underwriting standards has had a bit of a silver lining for servicing managers: loans are not running off as quickly as they once did, because fewer borrowers are able to refinance. Because of slower prepayment speeds, some lenders reported hedging outperformance in the third quarter, as financial instruments used to hedge interest rate risk rose in value more than servicing rights lost value.

Then again, that might be little consolation to lenders that had to report big increases in loss reserves due to the weak housing market.

Nonetheless, that underwriting-driven slowdown in prepay speeds could be good news going forward, because long-term interest rates have edged downward again, leaving some loans cuspy from a refinancing perspective. While most lenders enjoy historically low weighted-average coupons on their portfolios today, that doesnt mean the remaining chunk of loans carrying note rates ...