Origination

The former regulator of Fannie Mae and Freddie Mac said nationalizing the troubled GSEs is a bad idea, declaring that all government insurance programs are slated to fail. Speaking at a National Mortgage News conference on distressed assets, James Lockhart said the "right answer" to the Fannie/Freddie conundrum is to privatize the two, but admitted accomplishing such a task is near impossible right now since the government controls nearly 100% of the residential market and 80% of the multifamily sector. Lockhart, who left the Federal Housing Finance Agency about a year ago, suggested breaking up the GSEs into two separate companies, but not on a good bank/bad bank model, but what he called a new company/old company model. He noted that Democrats in Congress were correct in not including the resolution of the GSEs in the financial services regulatory reform bill. Lockhart said it would have made negotiations "messier" and that it's smarter to wait for a "calmer day." The two have been in conservatorship since September 2008.

Freddie Mac is trying to prevent Bank of America from investigating its business relationship with the failed Taylor Bean & Whitaker, noting that the cost of the probe could cost the GSE $10 million or more. According to a report by Dow Jones, Freddie is urging the Federal Bankruptcy Court in Jacksonville, Fla., not to allow Bank of America to carry out the investigation. TBW, a nondepository mortgage banker, was a larger seller/servicer to Freddie. The GSE seized control of some of TBW's servicing rights when the lender failed last year. B of A is owed money by TBW. "The breadth of the discovery sought by B of A is so vast that Freddie Mac estimates that it will cost at a minimum $10 million to provide the discovery sought," the GSE says in a recent court filing. "B of A seeks to unfairly shift the cost of compiling and providing such records to Freddie Mac by means of a broad 'fishing expedition.'" Bank of America is seeking access to Freddie Mac's books and to question its officials about the mortgage finance company's "extensive business relationship" with Ocala, Fla.-based TBW.

The Government National Mortgage Association late this week unveiled a new MBS program for Title 1 manufactured housing loans but to play servicers need a minimum net worth of $10 million. Also, mortgage bankers that issue MH MBS must re-apply if they want to participate in the new program. Only "eligible" MH loans will be considered which means the applicant must also own the underlying real estate. Ginnie has set a 30 basis point guarantee fee. The minimum pool balance is $1 million. Two years ago MH units accounted for 12% of the new housing market, but that number has fallen significantly since then. At press time GNMA did not have an updated number.

Economists at the Federal Reserve Bank of New York are counting underwater borrowers as renters rather than homeowners, to calculate future homeownership rates. Unless house prices increase substantially in the next few years, many homeowners with negative equity will default and exit their homes, become renters and homeownership rates will drop substantially, according to economists Andrew Haughwout, Richard Peach and Joseph Tracy at the New York Fed. This effect will be especially notable in hard-hit markets like Detroit, Las Vegas and Miami. The national homeownership rate fell to 67.2% in the fourth quarter from a high of 69% in 2006, but is likely to drop even further in the next few years to levels last seen in the 1990s, they said. The economists contend that there is a significant "homeownership gap" that could be as high as 5.6% nationally between the official homeownership rate and what they call the "effective" rate, which excludes underwater borrowers.

Broward Bank of Commerce, Fort Lauderdale, said it has launched a new residential lending division, giving its customers access to the purchase and refinancing markets. The Florida bank, which has been in business for less than two years, named Regina Blanz senior vice president in charge of the effort. During her career she has worked at Minto Communities and Pointe Federal Savings Bank. Broward Bank, which boasts no delinquent loans, has $77 million in assets. The launch of the new residential unit "reflects the bank's mission to be responsive to our customers' needs and fits our vision for strategic growth," said Broward president Keith Costello.

While large public builders have a "tremendous advantage" over their smaller competitors because they can go directly to Wall Street for the construction money, they are so burdened with disadvantages that smaller firms can run rings around them, an Atlanta-based management consultant said at the PCBC. The so-called publics have so honed the manufacturing process that they cannot react quickly when something like the Chinese drywall fiasco strikes, said Martin Freedland, CEO of the Berke Group. Because management is centralized, he also explained, it is difficult for big builders to change their overall strategy or solve problems. "Problem solvers and creativity are stifled at the local level," according to the consultant. Furthermore, although housing is a highly entrepreneurial business, the big builders are now run largely by people with legal and finance degrees, Freedland said. And because their products are so much alike—and often right across the street from one another—that they compete largely on price. Private companies have some disadvantages, too, but at least they are run by entrepreneurs, many of whom grew up in the business, Freedland said. They're also flexible, he added, receptive to change, know their local markets, can attract the best people and build strong cultures, among customers as well as employees. "There is more to this business than just price," Freedland reminded the conference.

Neighborhood Housing Services of America said it is planning an "orderly wind down" of its affordable housing programs due to "extraordinary liquidity demands" resulting from the housing downturn and is ceasing its purchases of new loans. "The financial demands of the current market and expected continuing challenges have contributed to NHSA's inability to secure its annual grant from NeighborWorks America," NHSA said in a press release. "The lack of grant funding has left the nonprofit organization with liquidity levels that will not allow it to continue operations." However, a spokesman for NeighborWorks America told this publication it was "surprised" by NHSA's announcement as it had been in talks with NHSA for some time about what NHSA might be able to do to continuing meeting the terms of its grant and had been "hopeful" that it would. "We hoped that we could come to an agreement that [would keep] NHSA doing the work its done for years for nonprofit organizations but apparently it couldn't find a way to make that happen," the spokesman said. NHSA said in its press release it had made several changes over the past year and negotiated concessions in loan terms and interest rates from its lenders/investors "in anticipation of obtaining the grant funding." While NHSA will no longer purchase new loans, it plans to continue to collect payments and service existing mortgages "until arrangements can be made to transfer these responsibilities to other parties." NHSA also said it "may seek to sell mortgage loans, mortgage servicing rights, its interest in intellectual technology rights and other assets, as appropriate." It added, "Should other opportunities emerge, the board will evaluate the feasibility of others outcomes." NHSA said the wind-down would take place "over the next several months."

Applicants hoping to tap lucrative tax credits for buying a home could get a closing extension to Sept. 30 under a measure introduced in the Senate. Sen. Harry Reid, D-Nev., co-authored a proposal giving eligible homebuyers 90 extra days to reach the closing table. The way things stand now, homebuyers must close by June 30 but lenders say they are now swamped with applications and are having trouble getting appraisals done under rules promulgated by the Home Valuation Code of Conduct. The National Association of Realtors estimates that up to 180,000 borrowers who signed a contract by April 30 may not meet the June 30 closing deadline. Two different homebuyer tax credits are at stake: $8,000 for first-time purchasers and $6,500 for certain "move up" buyers. Reid—whose state has been one of the hardest hit in terms of home price declines—hopes to attach the language to a bill that extends unemployment benefits.

The House of Representatives Thursday afternoon overwhelmingly passed an FHA reform bill allowing the agency to triple annual premium payments to 150 basis points, a move designed to bolster the insurer's wobbly finances. The measure also mandates that seller/servicers repay the government for any losses on mortgages funded using delegated underwriting. If fraud is discovered on an FHA loan, the agency could hold the lender liable in full. Among other things, the legislation gives a break to FHA homebuyers who purchase properties with a downpayment of 10% or greater. "For any mortgage involving an original principal obligation that is less than 90% of the appraised value of the property, this premium may be required to be paid for the first 11 years of the mortgage." If the downpayment is less than 10%, the premium will be assessed over 30 years. (The values are subject to appraisal confirmation.) The final tally on the vote for the FHA Reform Act (H.R. 5072) was 406-4. In a statement, HUD secretary Shaun Donovan said the bill would enable the Federal Housing Administration to "reform its current mortgage insurance premium structure by shifting some of the upfront cost to the annual premium—a move that will increase FHA's capital reserves and reduce risks" to the government insurance fund. With the House bill passed, the Senate must come up with its version of the measure.

It's safe for distressed commercial real estate investors "to go in the water" again, according to a top analyst that covers the market for Ernst & Young. "Yes, enjoy the swim," said Mark Grinis, a partner in the real estate distressed services group at E&Y. But he also cautioned that buyers need to have a reasonable outlook about their returns. Speaking at a National Mortgage News conference on "Buying and Selling Distressed Mortgage Portfolios," he gave this sobering assessment: "You will need to earn your returns." Buyers of distressed assets, he said, need to come up with a strategy that dovetails with where the distressed assets actually are. For example, notice of defaults on land loans peaked last year. Another asset class where NODs have peaked is in hotels. Grinis said those are areas where buyers will be seeing plenty of action. Everyone expected to see a flood of distressed assets on the market, he said. But each lender is making an individual decision on when to sell and take a hit, he said, adding that there is "no rush for the exits," which has helped to keep prices up.