Servicing

House prices got a push from the homebuyer tax credit and rose 0.8% in April -- the first month-to-month price increase in seven months, according to the Standard & Poor's/Case-Shiller house price index. The non-adjusted 20-city HPI released Tuesday shows that prices are up 3.8% from April 2009. However, S&P index committee chairman David M. Blitzer said the increase in prices is mainly concentrated in California and gains in other markets are modest. He is concerned the April 30 expiration of the tax credit will lead to a "near-future pullback" in the housing market. "Consistent and sustained boosts in economic growth from housing may have to wait til next year," Blitzer said. IHS Global Insight economist Patrick Newport said the tax credit "pumped" up home sales and it will lead to a decline in prices later this year. The Case Shiller HPI is "likely to rise for another two-three months, but then start to decline. In our view, the housing glut and foreclosures will drive the national Case-Shiller index down another 6% - 8% with prices bottoming in 2011," Newport said. The April S&P Case Shiller 20-city HPI is down 30% from the peak in July 2006.

Small mortgage companies benefited from higher loan production in 2009 and posted healthy profits for the year, according to a Mortgage Bankers Association report. The annual report shows that 216 independent mortgage banks and subsidiaries of banks and thrifts on average originated $933 million loans in 2009, compared to $500 million in the prior year. These mortgage banking firms on average posted $4.9 million in pre-tax profits, compared to $700,000 in 2008. "Production profits increased in 2009 over 2008 as higher origination volumes, particularly in refinancing, reduced per-loan production expenses," said Marina Walsh, MBA's associate vice president of industry analysis. During 2009, MBA economists noticed the difference in profitability between the 41 bank subsidiaries and the independent mortgage companies widened. Historically, bank subs have lower overhead and compensation expenses, while independents generally had higher revenues. But now the independents' net production income is lower than their bank and thrift peers. Profits for the bank mortgage subsidiaries averaged 79.5 basis points per loan, compared to 54.9 bp for independents. "It was also clear bank and thrift subsidiaries had an advantage over independent mortgage companies because of lower loan officer compensation per loan and higher net interest spread due to lower warehouse funding costs and the ability to keep loans in warehouse longer," Walsh said.

The $1.3 billion refinancing this week of One Bryant Park, a Midtown Manhattan office tower, may be the first deal of its kind.

The PMI Mortgage Insurance Co. has promoted Chris Hovey to senior vice president of servicing operations and loss management. In his new role, Hovey is responsible for three groups: claims and loss management; homeownership preservation initiatives and loss mitigation; and policy servicing and business intelligence. He will report to executive vice president, chief business officer, Joanne Berkowitz. Prior to his promotion, Hovey served as vice president of policy servicing and business intelligence. He began his career with PMI in 2002, and has held various positions in portfolio analytics and IT operations for PMI's U.S. mortgage insurance business. Prior to joining PMI, Hovey spent over a decade in the software industry where his experience included founding an eCommerce company, which he sold in 1999.

Struggling homeowners in Florida will have limited ability to face any additional economic challenges brought on by the Gulf oil spill, according to Fitch Ratings. A recently completed study by Fitch shows that half of all securitized nonagency mortgage loans in Florida are 60 days or more delinquent. Also among the study's more notable findings, "Florida already ranks the worst among all states in mortgage delinquencies across all product types,'" said managing director Roelof Slump. "The state contains a disproportionate amount of nonprime loans, with 85% of loans being categorized as Alt-A or subprime." On an aggregate basis, 81% of all loans in the state are "underwater", and the average mark-to-market loan-to-value ratio of Florida loans is 138%. Nearly 40% of all Florida borrowers owe more than 150% of the value of their homes, said Slump. Although half of all borrowers in the state are current on their mortgage payments, they owe 120% of their home values. "Given the significant negative equity, further economic stress brought on by the Gulf oil spill and declines in the tourism and fishing industries would be likely to further increase default rates," said Slump. Fitch said it is monitoring Gulf Coast areas for possible after-effects of the oil spill on MSAs dependent on the fishing and tourism industries. Following a trough of 3% in the summer of 2006, the state's unemployment rates steadily rose to a peak of 12.3% in February 2010 before recovering to the current rate of 11.2%.

According to updated findings from Experian and Oliver Wyman, strategic defaulters, who are defined as remaining delinquent for six months after the initial date of delinquency, continued as a high percentage of all mortgage delinquencies at 19% in the second quarter of 2009. While, overall, the broad trends observed in the first Experian-Oliver Wyman Market Intelligence Report on strategic defaults have continued into 2009, there is reason to believe the phenomenon may have peaked, or be close to peaking. The first Experian-Oliver Wyman Market Intelligence Report demonstrated that strategic default occurs more in areas where home price declines have been the steepest. The refreshed report shows this trend continued into 2009, with strategic defaults running 80 times higher in California than in 2005 and 53 times higher in Florida. Data from the first half of 2009 may contain the first signs of a decline in strategic defaults, the report says. The report shows that the absolute number of strategic defaults for the first half of the year, 355,000, as well as first-time mortgage delinquencies in general, declined in successive quarters in 2009, suggesting they may have peaked in Q4 2008.

PennyMac Mortgage Investment Trust, a mortgage vulture fund that also is working on a new conduit, has signed up Impac Mortgage Holdings as a correspondent lender, according to industry officials. At press time both companies had not responded to telephone calls about the matter. The publicly traded PennyMac, a REIT based in Calabasas, is reportedly gathering product for a future securitization but has not released details about its plans. Impac, a former alt-A lender, has managed to survive the financial crisis and is acting as both a servicer and broker of loans, in addition to other side businesses. The company is based in Irvine.

Freddie Mac acquired $25 billion of home mortgages in May, its weakest purchase month of the year, and yet another sign that originations in the primary market are slowing. In the same month a year ago the GSE bought $50 billion, or twice as much product. Its portfolio continued to run off. At May 30 it had $748 billion of product on its balance sheet, a 9% decline from the same period a year ago. There was some good news in Freddie's numbers: its single-family delinquency rate was unchanged at 4.06% and remains below the February high of 4.2%. However, multifamily delinquencies reached a new high: 0.32% compared to 0.25% in April. Freddie and its sister company, Fannie Mae, have been operating under a government conservatorship since September 2008. Fannie has yet to release its May activity report.

Mortgage bankers are mostly happy with details of the financial regulatory reform bill but it all depends on which faction of the industry you belong to. Lenders that specialize in FHA, VA and high quality GSE loans appear to be the big winners because the legislation will not require MBS issuers to maintain 5% of the credit risk on their deals as long as they produce high quality loans. "It's nice to win one," said Lewis Ranieri, co-inventor of the mortgage-backed security. Ranieri, who pioneered securitization of plain vanilla residential loans 30 years ago, has been a frequent critic of Wall Street firms that took his invention and used it for subprime. Ranieri, who considers himself "pro-housing," is concerned that financial conditions in the industry could deteriorate rapidly without a viable securitization plan. The measure agreed to by House and Senate conferees could also provide a huge boost to the Federal Housing Administration which already accounts for 30% of all loan production today (compared to just 3% five years ago). Some believe FHA could be the biggest winner of them all because the agency gets a 'pass' on the qualified mortgage test. One lobbyist working on the bill predicted the measure could cause the agency's insurance volumes to boom. "We could be looking at a $500 billion year [eventually] for them," he said, requesting his name not be published because he is still lobbying. Then again, it's unclear what underwriting standards will fall into the qualified mortgage bucket. Balloon, negative amortization, and most interest-only notes will be excluded from the definition but debt-to-income ratios and verification practices must be defined by regulators and could change over time. The bill, as expected, gives little boost to a revival of the private label market, especially subprime loans. "I'm sorry, this is bad juju," said one specialty servicer and non-conforming lender based on the West Coast. "They are trying to baby proof everything. As far as I'm concerned this bill has bombed out the mortgage industry." Meanwhile, loan brokers are unhappy with the bill because it caps yield spread premiums payment at 3% though it allows for certain vendor fees to be excluded from the calculation.

Mortgage bankers will be allowed to securitize FHA and VA guaranteed loans without a risk retention requirement and certain GSE loans will be exempt as well, according to final provisions of the regulatory reform bill worked out late Thursday night. As a technical matter, mortgages backed by Fannie Mae, Freddie Mac and other issuers will be required to retain up to 5% of the credit risk if the loans are not eligible for a total exemption under a "qualified mortgage" test. "I believe chances are very good that in the future almost every mortgage that Fannie and Freddie either buys or securitizes will be qualified mortgages under the risk retention provision," said Glen Corso, managing director of the Community Mortgage Banking Project. Under the agreed final bill, federal banking agencies, the Securities and Exchange Commission, and the Federal Housing Finance Agency will draft rules establishing underwriting standards and allowable product features for these very safe, fully documented "qualified" mortgages. Qualified mortgages also have to meet a new and tougher "ability to repay" standard in the bill along with a 3% limit on points and fees and a separate 2% limit on bona fide discount points. Regulators have the flexibility to set risk retention percentage lower than 5% for residential mortgages that don't meet the qualified mortgage test. Meanwhile, securitizations of mortgages guaranteed or insured by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service and other federal or state entities are totally exempt from risk retention. "We commend the House and Senate Conferees for adoption of the qualified mortgage provision that exempts soundly underwritten, stable, consumer friendly mortgages from the risk retention requirements in the final version of the financial reform bill," Corso said.