Origination

Mortgage bankers originated $16.3 billion of jumbo loans in the first quarter, a 2% decline from the same period last year but a much stronger performance than the overall market, according to figures compiled by National Mortgage News. The slight drop in these 'non-GSE jumbos' came during a quarter when all residential fundings fell dramatically, by 32%. On the surface it appears that jumbo production is gaining an even bigger piece of the origination pie—but not because there is now a securitization market supporting the sector. The largest originators of jumbo loans—non-Fannie Mae/Freddie Mac jumbo loans, that is—are placing the mortgages on their balance sheets. "There's not much of an incentive to sell them at this time," said Mike McMahon, an executive at the Mill Valley, Calif.-based Redwood Trust. Also, some lenders note that they are beginning to see new entrants to the market. (For a complete ranking of jumbo lenders and additional analysis see the Monday weekly edition of NMN.)

It appears that House/Senate conferees are leaning toward adopting risk retention language requiring issuers of residential MBS to hold a "vertical" slice of securitized assets, which means mortgage bankers will be affected by losses on all tranches, not just one. According to interviews with lobbyists working the issue, the details will not be hammered out until next Tuesday, at the earliest. "We think we're going to be okay on the issue but you never know," one MBS investor told National Mortgage News. It appears that language stipulating 5% risk retention for "qualified" mortgage assets (Fannie Mae, Freddie Mac, FHA and other government products) will survive, though there was even talk of cutting that down to 3% for certain loans. If issuers are required to take on vertical risk they suffer losses on all MBS tranches that are created. Under a "horizontal" model only the most subordinated bond is first in line to absorb credit losses. None of the executives interviewed wanted to be identified because of the sensitive nature of the talks. The House and Senate are trying to shape a compromise bill on overhauling regulation of financial services, including many facets of mortgage banking.

Willis North America, a subsidiary of insurance broker Willis Group Holding, has started a distressed assets practice to advise clients on how they can manage the risks associated with distressed, foreclosed or abandoned properties. The new unit will be headed by Brian Ruane, national real estate and hotel practice leader, who founded the group in 2005. It will bring together resources from Willis' real estate and hotel, construction, environmental, executive risks, financial services and mergers and acquisitions practices, and its loan protector unit. The distressed assets practice coordinates capabilities from across Willis' practice areas to structure insurance programs that respond to a range of risk management and insurance issues related to distressed assets. Major areas of focus include property, liability and environmental insurance; forced-placed coverage; insurance for real estate-owned assets; professional liability insurance and construction insurance for incomplete projects.

Gramercy Capital Corp., New York, has redeemed $52.5 million of junior subordinated notes due June 30, 2035 issued by its operating partnership subsidiary. Gramercy completed the transaction by transferring to the noteholders an equivalent par value amount of various classes of bonds issued by affiliates Gramercy Real Estate CDO 2005-1, Gramercy Real Estate CDO 2006-1 and Gramercy Real Estate CDO 2007-1, which had been previously purchased by the company in the open market, and $5 million in cash equivalents. In October 2009, the company settled an exchange of $97.5 million of junior subordinated notes for an equivalent par amount of CDO bonds. This redemption eliminates Gramercy's junior subordinated notes from its consolidated financial statements, which had an original balance of $150 million.

FelCor Lodging Trust Inc., Irving, Texas, priced its public offering of 27.5 million shares of its common stock at $5.50 per share, giving the company estimated net proceeds of $145 million. The REIT granted the underwriters a 30-day option to purchase up to 4.125 million additional shares of common stock, which if exercised, will up the net proceeds to approximately $167 million. JPMorgan Securities Inc., Goldman Sachs & Co., B of A Merrill Lynch and Deutsche Bank Securities Inc. acted as joint book-running managers for the offering. Citi and FBR Capital Markets acted as senior co-managers. JMP Securities and Keefe, Bruyette & Woods acted as co-managers. FelCor intends to use the net proceeds from the offering, together with cash on hand, to repay or repurchase certain of its mortgage debt at substantial discounts and for acquisition opportunities. It may invest the proceeds in short-term, interest-bearing investments until it elects to use them for the above purposes. The offering is expected to close on June 22.

The Senate has approved a plan to give those already in contract to purchase a home an extra three months to be able to use federal homebuyer tax credits. The language, pushed through the chamber by Senate Majority Leader Harry Reid gives homebuyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The proposal was approved by a 60-37 vote but only applies to consumers who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.

Associated Banc-Corp., Green Bay, Wis., plans to become a national warehouse lender, breaking out of its two-state only business model. At press time details were not available but advisors close to the company confirmed the news about its plans. Currently, the bank will extend warehouse credit to nondepositories in Illinois and Wisconsin. Matt Wolfe, an officer at the bank's office in Chicago, has been put in charge of the effort. The move into national lending is being extended into other product sectors as well, including the insurance sector.

The average interest rate for the 30-year fixed-rate mortgage loan gained three basis points from last week, the Freddie Mac Primary Mortgage Market Survey found. For the week ending June 17, the 30-year FRM averaged 4.75%; one week prior, it averaged 4.72%. Last year at this time, the 30-year FRM averaged 5.38%. "Mortgage rates were little changed this week amid preliminary signs that the expiration of the homebuyer tax credit in April may have led to a slowdown in new construction," said Frank Nothaft, Freddie Mac vice president and chief economist. "Nonetheless, household balance sheets have been improving over the past four quarters. In aggregate, households gained $6.3 trillion in net worth in the first quarter from a year ago, according to the Federal Reserve. In addition, homeowners have regained $1.1 trillion in home equity over the same time period." The 15-year FRM also gained 3 bps during the week to 4.2%. The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.89% this week, a drop of 3 bps, to its lowest point since Freddie Mac started tracking this rate in January 2005. The one-year Treasury-indexed ARM averaged 3.82% this week, down 9 bps to its lowest level since the week ending May 6, 2004 when it averaged 3.76%. Average points for all loans were at 0.7, except for the one-year ARM at 0.6.

The United Kingdom's first-time homebuyer share of the purchase loan market hit a low not seen since September 2007 in the latest reported month, according to the Council of Mortgage Lenders, London. First-time buyers represented 35% of purchase mortgages made in April, down from 39% in March and from 38% during April 2009. The CML said this likely reflects high downpayment hurdles imposed by lenders and first-time buyers general lack of downpayment resources. There were 40,000 purchase loans in total during April 2010, down from 45,000 the previous month but up from 35,000 during April 2009. There were 24,000 refinance loans during April 2010, down 16% from March and 26% from April 2010.

Origination technology provider Calyx Software has launched MyCalyx.com, a self-service Web portal for users. MyCalyx was designed to simplify Calyx account management with Web access and greater administrative control over Calyx accounts. With MyCalyx customers can install upgrades to Calyx online. Each user is assigned a login and password to download new products and updates. Customers also now have greater control over seat assignments and can make changes online instead of uninstalling and reinstalling CD applications.