Origination

Old Republic International Corp., the Chicago-based holding company of mortgage guaranty and title insurance operations, has agreed to buy PMA Capital Corp., Blue Bell, Pa., in a deal valued at $365 million. ORI will issue 0.55 shares of its common stock for each share of PMA, a premium of 15% to PMA's closing price on June 8, 2010. The stock portion of the deal is valued at $228 million, while ORI will also assume $137 million of PMA debt. In a statement, ORI chairman and chief executive Al Zucaro said the deal was consistent with his company's "long-term strategic plan to grow our general insurance business." Data from the American Land Title Association lists ORI's title insurance units as fourth (and smallest) among the national companies, in terms of market share at 9.3% for the fourth quarter and 7.9% for the full year 2009. Its Republic Mortgage Insurance Co. subsidiary is the smallest private mortgage insurer by market share, at 10.4% by policies in force and 11.6% for new policies written in the first quarter 2010, according to the National Mortgage News Quarterly Data Report. PMA's insurance products include workers' compensation and other property/casualty lines.

Bank of Internet USA, San Diego, said it has launched a new jumbo lending effort in California using loan brokers and correspondent funders. The depository will originate its first loan next week, said a top official at the company. Heading the initiative for the Internet-only depository is Jerry Konzen, a former regional manager for Thornburg Mortgage, Santa Fe, N.M. Konzen, who was based in San Diego for Thornburg, told National Mortgage News that BoI would like to gear up jumbo (and super jumbo) production to a rate of at least $300 million a year but isn't ready to make any solid predictions at this time. He also hopes to eventually expand out the effort to other states. BoI is concentrating its effort on what it calls "affluent sophisticated borrowers," adding that it wants "the upper-end client." Konzen said the minimum downpayment on any jumbo or super jumbo mortgage is 20%, but it will go as low as 10% if the borrower keeps marketable securities or a certain amount of deposits in the bank.

Wells Fargo Home Mortgage is "very aggressively" looking to back multifamily properties, an executive with the Des Moines-based lender said at the Pacific Coast Builders Conference in San Francisco. "We can do just about any kind of deal, but it has to make sense," said Eric Smith, a senior vice president who works out of Wells Fargo's San Francisco office. Smith said lending on income-producing properties has been a "core product" for his company for a dozen years, and the acquisition of Wachovia Bank has made Wells' commitment to multifamily "even stronger." Currently, Smith confided during PCBC's Multifamily Trends day, Wells has a particular appetite for student housing, which Smith called "a pretty good opportunity." With colleges looking to expand by bringing in out-of-state students who pay a higher tuition, he noted, there is "a built-in demand" for apartments on and near many campuses. Freddie Mac also is looking for deals, but Steve Griffin, managing director of multifamily in its Los Angeles office, said good properties are "hard to find." The apartment sector may no longer be "in a free fall," he said, but "it is not stable just yet." And noting that Freddie Mac has reverted to underwriting guidelines that were in place before the housing sector went haywire, he said 70% of Freddie Mac's apartment loans represents "repeat business with good quality sponsors."

The seasonally adjusted annual rate of housing north of the border was 189,1000 units in May, down from a revised 201,800 units in April, according to Canada Mortgage and Housing Corp. Chief economist Bob Dugan said starts dropped in both the single-family and multifamily markets during the month and the current start rate is considered in line with projections that the start rate for this year will be 182,000 units. The seasonally adjusted annual rate of urban starts fell 9.5% during the month to 165,200 units during May with multifamily starts that category down 5.6% at 92,800 units and single-family start in that category down 14.1% at 72,400 units.

With securitized private-label mortgage product in short supply in the United States, investors are showing an interest in international product, according to one speaker at the American Securitization Forum's annual meeting. Sixty percent of an international residential mortgage-backed securities deal done a month ago was sold to U.S. investors, said David Jacob, executive managing director at Standard & Poor's, speaking as part of a mid-year securitization market review panel. Bob Behal, vice president and co-head of asset- and mortgage-backed securities research at investor The Vanguard Group Inc., confirmed that investors have an appetite for product that has sent them on a search for it. "We're trying to find other sources of loans to...feed the machine," he said.

Gateway Funding Diversified Mortgage Services has launched a correspondent lending division, offering to buy residential loans — including renovation products — from depositories and nonbanks in the Mid-Atlantic region. At press time officials of the Horsham, Pa.-based company had not returned telephone calls about the new effort, but according to statements made by company CEO Bruno Pasceri, FHA's 203(k) program will be one product it offers. Gateway is a nonbank that in past years has ranked 140th or so among residential funders, according to figures compiled by National Mortgage News. Pasceri said, "Demand for renovation products is likely to continue increasing over the next several years." Two years ago Gateway made headlines in the industry when it agreed to pay $200,000 to the Federal Trade Commission, settling charges that it engaged in discriminatory lending practices. While setting with the government, it denied the allegations. The FTC's original judgment against Gateway was for $2.9 million.

Paul Peters, the former president of Hibernia Bank's mortgage division, has joined residential mortgage advisory firm KLS Consulting LLC, dba Mortgage Banking Solutions. Peters, who will be a senior mortgage consultant at MBS, will run a national practice focused primarily on bank and credit union-owned mortgage operations. He will advise banks and credit unions on cross selling, risk mitigation, and regulatory compliance issues, among others. In addition to being the former president of Hibernia's mortgage division, Peters also was president of Capital One Mortgage N.A. for two years after the latter company acquired the former.

The American Securitization Forum is planning to issue a paper on risk retention proposals and related amendments. The paper was not immediately available at press time but executive director Tom Deutsch told this publication at the group's annual meeting Tuesday that it would weigh in with suggestions that the proposal allow for different treatment of different asset classes. It also would address a proposal to allow strict underwriting requirement to serve as a form of risk retention. Deutsch said the group is unified in calling for different forms of risk retention for different asset classes given differences in the way they are affected by regulatory capital requirements and recently-changed accounting standards. For example, while mortgage deals might be able to accomplish the 5% risk retention through a "vertical" slice of all the asset classes in a deal without triggering certain onerous accounting requirements, another type of securitized assets may not. Some issuers of non-mortgage assets would prefer the option of using a horizontal slice of the deal to accommodate this, he said. The group —which sometimes issues separate "educational" positions split between investor and issuer contingents when they cannot immediately agree on an issue —is currently divided when it comes to the underwriting issue, Deutsch said.

Federal Reserve chairman Ben Bernanke Wednesday blamed a weak housing market for restraining the pace of the economic recovery, saying residential real estate conditions have "firmed only a little" since mid-2009, despite homebuyer tax credits. The central banker also called the private label MBS market "nonfunctional," saying the "status quo" of using Fannie Mae and Freddie Mac to provide liquidity via securitizations is not sustainable. The Fed chairman told the House Budget Committee the economy would nevertheless continue its slow expansion with the nation's gross domestic product growing at a 3.5% this year and 4% in 2011. He noted that housing "activity is being weighed down, in part, by a large, inventory of distressed or vacant existing houses and by the difficulty of many builders in obtaining credit." At the last meeting of the Federal Reserve's monetary policy committee, members expressed concerns that the recovery in housing had "stalled," according to the minutes of the April 28 meeting. Federal Open Market Committee members noted that house prices have stabilized in many parts of the U.S. However, some members see "elevated foreclosures as posing a downside risk to home prices," according to the minutes of the meeting. The next FOMC gathering is June 22. Bernanke did have some good news, noting that there is a "glimmer of hope" in the commercial real estate market. He said the Fed, as a regulator, is working with lenders to restructure troubled CRE loans.

The Mortgage Bankers Association's Market Composite Index ended a streak of four consecutive weeks of gains as it fell by 12.2% on a seasonally adjusted basis for the week ended June 4, 2010. On an unadjusted basis, the Index decreased 21.1% from the previous week. The most recent results were adjusted for the Memorial Day holiday. The Refinance Index ended its streak of gains as it fell by 14.3% from the previous week while the seasonally adjusted Purchase Index decreased 5.7%. "Purchase applications are now 35% below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April," said Michael Fratantoni, MBA's VP of Research and Economics. Pointing out that refi applications fell even though rates were flat compared with the previous week, Fratantoni added that "many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance." The market share of refi applications decreased to 72.2% of total applications from 73.8% the previous week, while the share of adjustable-rate mortgage applications fell from 5.2% to 5.1%. The average contract interest rate for a 30-year fixed rate mortgage decreased by 2 basis points to 4.81% from 4.83% for the most recent week with points decreasing from 1.05 to 1.02 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs increased by 2 bps during the week to 4.26%. The average contract interest rate for one-year ARMs declined 2 bps from the previous week, to 6.94%.