Origination

The American Securitization Forum called for the Senate to "seriously consider and accept the House offer on covered bonds." The ASF said it believes the amendment would "facilitate...a covered bond market as it includes important provisions for default and insolvency of covered bond issuers. The group, which represents both buyers and sellers of securitizations, also noted that it feels the House offer "subjects covered bonds to appropriate securities regulation by federal regulators."

House and Senate conferees shaping the final regulatory reform bill tentatively accepted an amendment by Rep. Scott Garrett, R-N.J., that would create a new legal and regulatory framework for the development of a covered bond market in the United States. Bank issuance of covered bonds backed by residential and commercial mortgages is more common in Europe. Foreign banks service and keep the mortgages on their books in a manner unlike the mortgage-backed securities used more commonly in U.S. where the underlying mortgages have traditionally been placed in separate, off-balance-sheet trusts. "Covered bond legislation offers a way for the government to provide some certainty for private enterprises to find a way to generate liquidity through innovation of a new marketplace," Rep. Garrett said. The New Jersey congressman also stressed that covered bonds would open the door for lenders to originate mortgages that are not guaranteed by the government. Under the Garrett amendment, the Treasury Department would be the primary regulator of covered bonds, and set standards and reporting requirements for issuers. But for the market to move forward, the Federal Deposit Insurance Corp. must continue its policy of not seizing mortgages that are backing covered bonds when the sponsor bank fails. House Financial Services Committee chairman Barney Frank, D-Mass., noted that Treasury and FDIC officials have raised some questions about the covered bond proposal. Rep. Frank said the conferees would not formally approve the Garrett amendment until Thursday, giving regulators time to refine their concerns and "tell us what they are," Frank said. Sen. Bob Corker, R-Tenn., was prepared to offer a similar covered bond amendment on the Senate side but House members offered their amendments to the regulatory reform bill first.

Treasury secretary Timothy Geithner early next year plans to present a proposal for "fundamental reform" of Fannie Mae and Freddie Mac along with other facets of the housing finance system. He told a TARP Congressional oversight panel that Treasury officials are examining options for restructuring the GSEs which have been in conservatorship for almost 20 months and could wind up costing taxpayers $400 billion. Together, the two account for about 70% of all originations in the nation. FHA accounts for most of the balance with portfolio lending (mostly jumbo) making up a sliver of all originations. The secretary said the agency will not stop with its study of Fannie and Freddie. "The range of things that contributed to this mess went well beyond the basic incentive problems and moral hazard problems that prevailed at the GSEs," he said. He told the Troubled Asset Relief Program panel that today Fannie and Freddie are being managed more conservatively. "At our insistence, they have put in place much more conservative underwriting standards. They are charging more for their guarantees to remedy some of the mistakes they made earlier," he said.

It is unlikely that purchase mortgage origination volume will top $530 billion this year, as the negatives in the economy far outweigh the positives, said market research firm iEmergent. The company is basing its latest forecast of $528 billion (a cut of over 5% from its previous projections) in purchase loans on increasingly wary customers, the shift forward in purchase patterns caused by the tax credit, a projected rise in interest rates by the end of the year, falling home prices and a slight decrease in average loan size. In the first quarter of the year, the firm projected $557 billion in purchase volume for 2010. It has also cut its refinance forecast by 5% from between $531 billion and $643 billion down to a range of $504 billion to $610 billion. This brings the total volume projection to between $1.03 trillion to $1.14 trillion. Dennis Hedlund, president of iEmergent, said "The second half of this year looks to be a continued struggle for U.S. households, and by default-no pun intended-for the home financing industry. There are not enough positives to fuel a big upswing in the housing market, because the demand-side-U.S. households and homeowners-remain stuck in big negatives. Job anxieties, extended under- and unemployment, the existence of too much debt, no savings, tougher credit, foreclosures, and mistrust of banks are just a few of the negatives that will smother consumer confidence for the rest of the year and likely into 2011."

The Mortgage Bankers Association's Market Composite Index over the past few weeks has been moving in a zigzag pattern and the latest week's decline was no exception. During the week ended June 18, the MCI once again "zagged" downward, this time decreasing 5.9% on a seasonally adjusted basis and by 6.0% on an unadjusted basis when compared with the previous week. The Refinance Index decreased 7.3% and the seasonally adjusted Purchase Index decreased 1.2%. MBA said the decline in total purchase applications is driven by a 4.4% decrease in government applications, while conventional purchase applications increased by 1.0%. The refinance share of mortgage activity decreased to 73.8% of total applications from 74.8% the previous week, while the adjustable-rate mortgage share of activity fell to 4.9% from 5.2%. The decline in application volume occurred even as the average contract interest rate for the 30-year fixed-rate mortgage fell to 4.75% from 4.82% for the current week with points increasing to 1.07% from 0.89 (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 4 basis points during the week to 4.19%, and the average contract interest rate for one-year ARMs showed a 2 bps decline to 7.05%.

New home sales plunged 33% in May after the expiring homebuyer tax credit pushed sales in April to the highest level since August 2008. Most housing analysts expected a decline but not one this significant. "We all knew there would be a housing hangover from the expiration of the tax credit," said Mike Larson of Weiss Research, "but this decline takes your breath away." According to the U.S. Census Bureau, sales of newly constructed single-family homes dropped to a seasonally adjusted annual rate of 300,000 in May from a 446,000 rate in April. The 300,000 sales rate is the lowest rate since September 1981. April sales were revised downward by 58,000 units. The April 30 expiration of the federal homebuyer tax credit hit sales on new homes harder than existing homes because builders have low inventories and the construction must be completed in time to close by June 30. "Today's report was below expectations, but the underlying level of demand will not be apparent until the distortionary effects coming from the tax credit fade," said a report from Barclays Capital. "We expect new home sales to bottom over the next couple of months and to return to a gradual upward trend thereafter." National Association of Home Builders senior economist Bernard Markstein noted that the tax credit pulled sales forward, adding that it will be difficult to get a true reading of where the market is headed until sales settle out in July and August.

The House has passed a stand-alone bill to re-authorize the National Flood Insurance Program, which has not been able to issue new policies for the past three weeks. The bill (H.R. 5569) extends the NFIP until Sept. 30 and makes the re-authorization retroactive to May 31 when the Federal Emergency Management Agency had to stop issuing new flood insurance policies. "This is the third time this year that the flood insurance program has expired, causing disruption in the housing market in cases where individuals are trying to purchase a home located in a flood plain," said Rep. Gary Miller, R-Calif. The House passed the September extension Wednesday morning by a voice vote. The National Association of Realtors and other housing groups want the Senate to act quickly. The Senate is currently deadlocked over a $100 billion jobs bill passed by the House several weeks ago that includes an extension of the flood insurance program.

It's that time of the year. We're halfway there. That's right, hard as it is to believe we are halfway through 2010 already. Have you hit your goals? I read just recently that reverse mortgage applications are increasing in number. What about your own business? This is a good time to take stock and assess what you have done so far and decide if you need to make adjustments.

Banco Santander of Spain is trying to resurrect talks to combine its U.S. business with M&T Bank Corp. after negotiations collapsed last month, according to combined news reports. Both banks are mid-sized players in the U.S. mortgage market. Santander owns Sovereign Bank of Pennsylvania, which is also a top ranked warehouse provider. The two firms recently scheduled a meeting between executives to discuss combining operations but there's still disagreement on who would control the resulting bank franchise. The same issue hampered talks that collapsed in May.

Home prices rose just under 1% in April for the second consecutive month following declines during the first two months of this year, according to the CoreLogic housing price index. The CoreLogic HPI posted a 0.1% increase in March after dropping 2% in February and 1.6% in January. "The monthly increase in the HPI shows the lingering effects of the homebuyer tax credit," said Mark Fleming, chief economist for CoreLogic. The tax credit expired April 30. "We expect that we will see home prices remain strong through early summer, but in the second half of the year we expect price growth to soften and possibly decline moderately," Fleming said. The CoreLogic HPI is not seasonally adjusted and includes distressed sales. House prices have risen 2.6% during the 12-month period ending April 30. Excluding distressed sales, the HPI is up 2.3% during the same 12-month period.