Origination

The Federal Reserve has no intention in the "near term" of selling off its $1.1 trillion portfolio of GSE-guaranteed mortgage-backed securities, according to Fed governor Kevin Warsh. But when the time comes, the Fed should take a gradual approach that is "communicated well in advance" in selling its Fannie Mae, Freddie Mac and Ginnie Mae MBS, he told the Atlanta Rotary Club on Monday. "Ultimately, in my view, gradual, predictable asset sales by the Fed should facilitate improvements in mortgage finance and financial markets," the Fed governor said. He also noted that sales of MBS or other assets would not necessarily signal that the Fed is going to raise interest rates. "Our [monetary] policy tools can indeed be used independently," Warsh said. The Federal Reserve began purchasing agency MBS in December 2008 to provide liquidity for the mortgage market during the financial crisis. The Fed stopped its purchases at the end of March 2010. However, the Fed said it engaged in a limited amount of coupon swaps on Tuesday to complete the final settlement of $9.2 billion in agency MBS. The Federal Reserve's latest report on its portfolio shows the central bank earned $11 billion in interest income during the first quarter on its agency MBS holdings.

Fannie Mae issued $36.2 billion in mortgage-backed securities in May, only slightly above Ginnie Mae's MBS issuance for the month. Ginnie Mae MBS issuance has been higher than Freddie Mac's for some time. But now it looks as if Ginnie Mae may be catching up to Fannie. Ginnie recently reported that its issuers securitized $33.9 billion in FHA and VA guaranteed loans in May. Meanwhile, the serious delinquency rate on Fannie Mae guaranteed single-family mortgages fell for the second consecutive month. The secondary market agency reported that 5.3% of its loans are 90 days or more past due in April, down 29 basis points since February. Fannie has a one-month delay in its reporting delinquency rates.

Continuing its pattern of alternating between upward and downward movements, the Mortgage Bankers Association's Market Composite Index for the week ended June 25 rose as lower rates drove an increase in refinance applications. The MCI increased by 8.8% on a seasonally adjusted basis and by 8.3% on an unadjusted basis when compared with the previous week. The Refinance Index increased 12.6% to its highest point since May 22, 2009. However, the low rates had little impact on home purchase volume as the seasonally adjusted Purchase Index decreased 3.3%. Michael Fratantoni, MBA vice president of research and economics, commented that even though the 15-year fixed rate mortgage hit its lowest point ever in the group's survey, refis are at only half the level seen in Spring 2009. He added the decline in purchase applications, the seventh in eight weeks, is keeping that index near a 13-year low. The refinance share of mortgage activity increased to 76.8% this week from 73.8% of total applications last week, reaching its highest point since April 2009. The adjustable-rate mortgage share of activity fell to 4.7% from 4.9%. The average contract interest rate for the 30-year fixed rate mortgage fell to 4.67% (its lowest point since April 24 last year) from 4.75% for the preceding week with points decreasing to 0.96 from 1.07 (including the origination fee) for loans with an 80% percent loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs fell 13 bps during the week to 4.06%, its lowest point since MBA started tracking this rate. The average contract interest rate for one-year ARMs was unchanged at 7.05%.

The House has passed a bill to extend a closing deadline for the homebuyer tax credit to Sept. 30, but similar action in the Senate is uncertain. By a 409-5 vote, the House passed a stand-alone bill (H.R. 5623) to ensure homebuyers who are expecting to receive the tax credit are not disqualified because delays have pushed their closing past a June 30 deadline. Under the homebuyer tax credit that expired April 30, first-time buyers had until today (June 30) to close and qualify for the $8,000 tax credit. Repeat buyers are in line for a $6,500 tax credit. The National Association of Realtors estimates that 75,000 buyers won't meet the closing deadline due to loan processing delays and lapses in the National Flood Insurance Program and Rural Housing Service single-family loan program. "We are strongly urging the Senate to act quickly to pass their legislation and ease the minds and pocketbooks of these homebuyers," said NAR president Vicki Cox. Senate Democrats' leaders have inserted the homebuyer closing extension in a larger bill that extends benefits for unemployed workers through November. But a Republican filibuster has blocked passage of the $34 billion unemployed benefit package for several weeks. A House-passed bill (H.R. 5569) to re-start the National Flood Insurance Program also is pending in the Senate.

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The death of Sen. Robert Byrd, D-W.Va., is likely to postpone a final vote on the sweeping regulation reform bill until the governor of West Virginia appoints a new Democratic senator. The 92- year senator had been ill for some time. But Democratic leaders were counting on Sen. Byrd and a few Republicans to muster the necessary 60 votes to pass the bill. Some key Republicans are having second thoughts about the bill because it includes an assessment on large banks and hedge funds to raise an estimated $19 billion. The bill creates a new resolution process to deal with the failure of large financial institutions, imposes risk retention on mortgage securitizations and creates a consumer protection agency. The assessments would cover the costs of implementing the legislation and two multi-year programs to prevent foreclosures and help municipalities deal with abandoned homes. One program, modeled after a Pennsylvania state program, would receive $1 billion annually to make loans to unemployed homeowners so they can make their mortgage payments. The other $1 billion program would renovate foreclosed homes so they can be rented. The House may vote on final passage of the bill on Tuesday.

Kinecta Federal Credit Union has named Dennis Kuncas vice president, mortgage lending operations. He will be responsible for overseeing all aspects of the Manhattan Beach, Calif., credit union's wholesale and retail mortgage operations, including broker approvals, lock desk, processing, underwriting and funding. Kuncas most recently held the position of branch operations and sales manager at Deutsche Bank/MortgageIT in Irvine.

DartAppraisal.com is offering a warranty that guarantees mortgage lenders and investors against potential loss for default and disclosure due to valuation inaccuracy. The product, DartAssurance, is being offered in partnership with an "A" rated insurance company and will provide up to $100,000 in coverage. The warranty covers the appraisal for 60 months and it is fully transferable. To be eligible for coverage, the maximum loan amount is $750,000, the loan-to-value ratio or combined LTV cannot exceed 100% and the minimum credit score is 620. First and second lien mortgages are covered. Darton Case, president of DartAppraisal.com, said the company understands the need for all types of risk mitigation for its clients. "We believe that our product will help stimulate the much needed private investors back into the mortgage market," he said.

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.