Servicing

The Federal Housing Administration is playing a larger role in the origination market and could end the year with a 30% market share, according to FHA commissioner David Stevens. FHA currently has a 23% market share, he said, and is no longer just a "countercyclical agency." FHA has become a "significant source of primary capital to fund the needs of homeownership," Mr. Stevens told a National Association of Federal Credit Unions conference. Meanwhile, the origination of mortgages has become very concentrated among several large banks, he said. He encouraged credit union executives to become more involved in mortgage lending to serve their members. He noted that FHA is increasing its net worth requirements, tightening credit standards, and taking other steps to control risks, such as hiring FHA's first credit risk officer. "FHA will never be able to fulfill its mission long-term or short-term if it is under scrutiny for not being well managed from a risk management standpoint," he said. The CRO candidate has already been picked and should be on board by year-end, he added.

Reverse mortgage lenders are learning that the Federal Housing Administration is moving quickly to implement a reduction in the loan proceeds that seniors can receive from a FHA-insured Home Equity Conversion Mortgage. National Reverse Mortgage Lenders Association president Peter Bell said FHA is expected to issue a mortgagee letter soon — possibly this week — on the HECM cut that could go into effect Oct. 1, the beginning of FHA's fiscal year. The reverse mortgage program faces an estimated $800 million shortfall due to declining house prices and it appears that congressional appropriators are not going to cover this credit subsidy shortfall. As an alternative (suggested by Congress), FHA is moving to cut HECM loan proceeds by 10%, according to sources. An analysis by NRMLA of the loan production by three large HECM lenders shows 21% of seniors would not be able to pay off their existing mortgage if their loans proceeds were cut by 10%. For seniors that need a HECM to remain in their home, the reduction in loan proceeds means they might have to sell or face possible foreclosure. "This is highly disruptive for the reverse mortgage industry, but more importantly to seniors' ability to access the equity in their homes to pay off their current mortgage," Mr. Bell said. FHA declined to comment.

Just over one in four existing homes sold in Orange County last month had been through foreclosure some time in the past year, according to MDA DataQuick. According to a report in The Orange County Register, it's the smallest percentage of total home resales in 18 months. It's believed that most of the homes (685) were repossessed houses and condos being resold as real estate-owned (REO) by banks and other lenders. Others may be homes being resold by investors who picked up the homes at foreclosure auctions. Previously foreclosed homes have accounted for a dwindling share of Orange County home sales since January, when almost one out of every two homes sold had been through foreclosure, DataQuick figures show.

Home prices rose 0.3% in July from the previous month, according to a Federal Housing Finance Agency price index that has registered three straight monthly increases in values. The home price index rose 0.1% on a seasonally adjusted basis in June and 0.6% in May. FHFA previously reported a 0.5% increase in June and revised it downward. The index is based on the purchase price of homes backed by mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. Overall, the July HPI is roughly at the same level as the March 2005 index.

The chairman of a key subcommittee is predicting that the House of Representatives will pass a regulatory reform bill this year, including new standards for securitizing mortgages and other assets. Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and GSEs, said, "We're coordinating our efforts with the European Community and the United Kingdom to try and come up with similar responsibilities when it comes to securitization." Speaking to reporters at a National Association of Federal Credit Unions conference, he said securitization became too speculative during the subprime crisis. He thinks the business can be rebuilt with less risk and more security. "I think having skin in the game is a good principle," he said, adding that this is particularly true when it comes to mortgage makers. Separate from regulatory reform, Rep. Kanjorski said there are discussions going on within his subcommittee about how to restructure Fannie Mae and Freddie Mac and "how we can better use the Federal Home Loan Bank System."

Final bids are due later this week on a $1 billion portfolio of mortgage servicing rights that once belonged to Franklin Bank of Texas, Houston. The receivables are being offered by Interactive Mortgage Advisors, Denver, on behalf of the Federal Deposit Insurance Corp. The loans that are being serviced include both performing and delinquent notes. Franklin was taken over by the FDIC in November 2008.

Envoy Mortgage of Houston, a nondepository, expects its loan origination volume will increase to $2 billion this year, a growth rate of almost 200%. The firm, formerly known as First Houston Mortgage, underwent a change of control about 18 months ago. Its CEO and owner is industry veteran Rick Thompson who during his long career in mortgages has managed such nonbanks as Troy & Nichols and Aegis Mortgage. Envoy - which depends on warehouse lines of credit - is in the process of obtaining its Freddie Mac and Government National Mortgage Association servicing approvals. It already has Fannie Mae approvals, said Mr. Thompson in an interview with National Mortgage News.

The mortgage insurance division of Genworth Financial has knocked nine states off its list of declining/distressed markets, leaving its troubled list to just five: Arizona, California, Florida, Michigan and Nevada. Genworth, the nation's fourth largest MI, on Monday liberalized some of its underwriting guidelines, telling its mortgage banking customers that it will insure cash-out refis and second homes in non-declining markets. However, the cash-out refi rule changes apply to loans with maximum LTVs of 85% and minimum credit scores of 700.

The Federal Deposit Insurance Corp. is auctioning off a $2.6 billion pool of performing and nonperforming acquisition, development and construction loans through Keefe, Bruyette & Woods. Offered as a structured transaction, the bid deadline is Nov. 12. The package has been stratified into three different geographic pools: western ($652 million), central ($545 million), and eastern ($1.4 billion). Bidder due diligence starts this week, but final bids are due in mid-November. KBW notes that investors can purchase "sole membership interest in a newly-formed limited liability company" to which the loans are pledged.

Federal Housing Administration chief David Stevens has confirmed that the government's mortgage insurer will see its reserves fall below the 2% minimum level set by Congress but said the agency is tightening its credit standards to bolster the fund. "To be clear, the fund's reserves are sufficient to cover our future losses, so FHA will not require taxpayer assistance or new congressional action," Mr. Stevens said. The commissioner told reporters there is no plan or need to increase FHA mortgage insurance premiums. FHA's auditors see the "capital reserves getting above 2% within a couple of years with absolutely no changes" in FHA policies or underwriting standards, Mr. Stevens said. But the new commissioner wants to accelerate that timetable and he outlined several changes, involving appraisals, refinancings and lender net worth requirements to reduce FHA's risks and defaults going forward. "These are the first steps in what will be an on-going increasing look at risk management within FHA," he said.