Compliance & Regulation

Genworth Financial Inc. has priced a $300 million seven-year senior note offering at an interest rate of 8.625% per year. Proceeds from the offering will be used by the Richmond, Va., life and mortgage insurer for "general corporate purposes." Deutsche Bank Securities Inc., Keefe, Bruyette & Woods Inc. and UBS Securities LLC are joint book-running managers for this offering, which is expected to close on Dec. 8, 2009.

Construction of multifamily housing weakened further in October, falling to the lowest number of starts on record. Apartment builders started just 48,000 properties with five or more units in October, the Commerce Department reported. The previous low was reached in July and again in September, when started five-plus apartments had an annual rate of 72,000. According to the National Association of Home Builders, while the government's monthly multifamily production figures tend to be volatile. But until this April, they had not dipped below 90,000 units on a seasonally adjusted basis since 1963. Since April, the multifamily starts rate has gone below 90,000 four times. Apartment completions also have fallen. There were just 200,000 of these in October.

If the Federal Housing Administration had raised its annual mortgage insurance premiums by a modest amount in September 2008, its capital reserves would not have fallen below its statutory 2% minimum, according to a former Freddie Mac economist. "We found that a 20 to 25 basis point increase in the premium would have allowed the [FHA mortgage insurance] fund to meet its statutory capital requirement in fiscal year 2009," economist Ann Schnare told a congressional committee. FHA officials have asked Congress to raise the 55 bp cap on the annual premium so they can replenish the FHA fund's capital reserves. However, these same officials have not told Congress how high they want to raise it. "While we have not updated our analysis, we believe that something around" a 20 bp to 25 bp increase "would be appropriate today," she testified. She noted such an increase would bring FHA's pricing in line with Fannie Mae and Freddie Mac pricing. Ms. Schnare is a partner at Empiris LLC, a Washington economic consulting firm. In the 1990s, she was vice president for housing economics and financial research at Freddie Mac.

The housing recovery is still at a fragile stage, but with inventories of unsold homes receding and home sales and prices rising "we may be finally seeing the light at the end of the tunnel," HUD secretary Shaun Donovan said. The Department of Housing and Urban Development secretary made his remarks at a Consumer Federation of America conference. He stressed to reporters afterwards that it is "far too early to say we are out of the woods." But he noted that completed foreclosures have declined three months in a row and the Obama administration's loan modification program is a contributing factor. Foreclosures are "still too high," he said, and the administration is considering several options to assist unemployed homeowners. "We will make an announcement relatively soon," he added. The HUD secretary noted that a Pennsylvania state mortgage assistance plan does not require lenders or private investors to absorb any of the principal reduction. "I would not support a process where there is no principal reduction by whoever owns the loan," he told reporters.

Lend America, which was banned from FHA lending on Monday, was refinancing certain customers without paying off their prior existing lien, according to veteran mortgage banking attorney Robert Lotstein. Mr. Lotstein, who has clients that did business with Long Island-based Lend America, said this has created a situation where customers received a new loan from the lender but without their existing lien being paid off. A managing attorney with Mortgage Banking Advisors PLLC, Mr. Lotstein said this has created a situation where some Lend America mortgagors "will get a call from their old lender asking where the payment is." The attorney said his mortgage banking and vendor clients informed him of the situation. He said he could not quantify how many Lend America refi customers might be having this problem. A spokesman for the company said the lender is trying to rectify the problem.

The mortgage industry continues to shrink in terms of full-time employees as companies rely more on temporary workers to deal with servicing and origination demand. The U.S. Bureau of Labor Statistics reported that mortgage companies cut 3,700 full-time workers from their payrolls in October, including 1,700 mortgage brokers. Overall employment in the mortgage banker/broker sector fell to 255,500 in October from 259,200 in September. "You have a lot of temps being hired," a Mortgage Bankers Association executive said, noting that those figures do not show up in the BLS mortgage sector data. MBA associate vice president of industry analysis Marina Walsh said that mortgage firms are definitely hiring servicing-related workers but it is hard for them to justify hiring full-timers given the volatility in the market. "To forecast what it going to happen with originations and interest rates is very difficult," she said. Meanwhile, Friday's jobs report provided some good news with the national unemployment rate falling to 10% from 10.2% previously. BLS also revised downward the job losses in October and September - by a combined 150,000. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Former New York mayor Rudolph Giuliani and some of his advisors attended talks between Lend America officials and the Department of Housing and Urban Development last week, hoping to find a solution to the lender's problems, according to sources familiar with the matter. A source close to Lend America told National Mortgage News that Mr. Giuliani "was there" at the meetings but at press time it was unclear whether he attended as a representative of his law firm, Bracewell & Giuliani, or in an outside capacity. A spokeswoman for Bracewell said to the best of her knowledge, Lend America and its 'dba,' Ideal Mortgage Bankers, are not clients of the law firm. Also in attendance was Lend America president Michael Primeau. Before going into politics, Mr. Giuliani was U.S. Attorney for the Southern District of New York and made his name by busting junk bond king Michael Milken. On Monday HUD ordered the New York-based Lend America to halt the origination of FHA-backed loans. The next day the company laid off most of its work force - roughly 550 workers. HUD fined the company $512,000, accusing it of underwriting fraud and other misrepresentations.

The House of Representatives is slated to debate and vote on a massive regulatory reform package next week that includes several bills addressing abusive mortgage lending practices and risk retention on sales and securitizations of mortgages. The House Financial Services Committee completed action on the reform package on Wednesday when it approved a bill to set up a resolution process for "too big to fail" institutions. The "systemic risk" bill also gives regulators the discretion to set risk retention requirements as high as 5% on Federal Housing Administration, Fannie Mae and Freddie Mac loans. The regulatory reform package also includes bills that create a Consumer Finance Protection Agency, regulates the trading of derivatives, and a bill (H.R. 1728) the House passed in May that curbs subprime lending practices. The mortgage industry prefers the risk retention provisions in H.R. 1728, which totally exempts lenders and securitizers from retaining a portion of the credit risk on FHA and GSE loans. Some industry lobbyists have been wondering how committee chairman Barney Frank, D-Mass., would deal with the different risk retention provisions. Rep. Frank told reporters he would drop the original provision in H.R. 1728. "The risk retention section of the subprime bill will conform to what we did in the systemic risk bill," the chairman said.

The Federal Housing Administration is asking for an increase in mortgage insurance premiums to replenish its diminishing capital reserves while hiking credit scores for applicants. Housing secretary Shaun Donovan will ask Congress Wednesday afternoon to raise the 55-basis point cap on annual government MI premiums. Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.) Even though it is hiking loan costs, HUD will allow the upfront premium to be priced into the interest rate. It also will allow home sellers to pay the premium. "The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a mortgage-banking consultant with Potomac Partners. As the health of the mortgage insurance fund improves, FHA can reduce the premiums and other restrictions, he added.

The Department of Housing and Urban Development is asking Congress for additional authority allowing FHA to require lenders to indemnify the insurer against losses on bad loans. In testimony before the House Financial Services Committee, housing secretary Shaun Donovan said, "We are asking for additional authority for our proposals to hold FHA lenders responsible for fraud and misrepresentations by indemnifying the FHA fund." In his prepared testimony, secretary Donovan also noted that FHA's enforcement actions are presently limited to sanctioning individual lender branches. "We will be asking Congress to expand FHA's ability to hold lenders accountable nationally" across their entire branch network, the HUD secretary said. HUD is developing a "Lender Scorecard" that will summarize each FHA lender's performance. "This scorecard will be posted on our website to ensure transparency and accountability for lenders, borrowers and the market," Mr. Donovan testified.