Origination

It would be a "mistake" to blame the housing crisis on the government's home ownership push, a former housing secretary during the Clinton Administration said at a conference in Texas. Henry Cisneros, now executive chairman of CityView, a $2 billion urban institutional investment firm which finances commercial and residential developers, told reporters attending the National Association of Real Estate Editors' meeting that while it's clear some renters should never have been given loans, the heart of the downturn must be laid at the feet of "unscrupulous" companies "like Ameriquest and others" which "hijacked" the Clinton and later Bush housing strategies "to make money pushing mortgages" to borrowers who otherwise couldn't qualify. Cisneros, citing the fact that persons of color lag far behind whites in terms of home ownership, also said it "would be a mistake to walk away from the goal of homeownership because of this crisis." The nation's 10th Secretary of the Department of Housing and Urban Development, who served from 1993 to 1997, and the former mayor of San Antonio said current HUD Secretary Shaun Donovan "will be graded on one thing: How well he addresses the foreclosure problem." But he wasn't so sure Sec. Donovan will get high marks, no matter how hard he tries, because the Federal Housing Administration, the agency that has been asked to deal with the assignment, is simply not equipped to take it on. "You can't give a mission to an agency that does not have the capability to handle it," Cisneros told the conference. "The (foreclosure) numbers are too far off the scale" for the FHA to do any amount of meaningful loan modifications. After he left HUD, Cisneros became a director at Countrywide Financial Corp., once a top player in subprime and payment option ARMs. He sold most of his stock in the lender before it collapsed and eventually was sold to Bank of America.

Bob Howard, an industry veteran who has worked in both the prime and nonprime sectors, is working with a nonbank lender to enter the jumbo market. Howard, who last summer sold his stake in Safe Harbor Mortgage of Oregon to his partner, said he could not identify the nonbank lender at this time but is trying to secure warehouse financing for the company. He is finding the task difficult. "We have a take-out and the capital," he said, "but finding a warehouse lender to fund jumbos is taking some time." Howard is a member of the lender's board. Even though liquidity has returned to the warehouse sector, most of the banks in the space are only financing mortgages that are slated for sale to Fannie Mae, Freddie Mac, or carry guarantees from the Government National Mortgage Association. During his career, Howard has worked for Southern Pacific Funding, and Sunset Direct Lending, both nonprime non-depositories. (For the full story, see the current weekly edition of National Mortgage News.)

The mortgage market is entering a period of "retrenchment" and a recovery will depend on the growth of the U.S. economy and employment, according to Fannie Mae economists. "Clearly we are entering a period of retrenchment with the expiration of the [homebuyer] tax credits," said Richard Koss, director of mortgage market analysis at Fannie Mae. "It is still a very open question as to how deep and how long that retrenchment is going to be," he added. Fannie's latest forecast shows single-family originations peaking at $361 billion in the second quarter, which will serve as the high point for 2010. For the third and fourth quarters, the GSE predicts that fundings will fall 10% and 9%, respectively. Koss noted the tax credits have drawn sales from the future which will take the wind out of activity for the balance of the year. But he hopes to see a recovery in mortgage applications in the fourth quarter. Over the past five months, private job growth has averaged 125,000 a month, including the May report which shows a disappointing 41,000 increase in private sector jobs. Koss expects to see "modest" job growth going forward and into next year. In the coming months, he believes job growth could average 250,000 to 275,000 new positions a month, which would help the mortgage market.

The Department of Housing and Urban Development is taking another stab at preventing abuses by builders and others that entice consumers with bogus discounts that require them to use affiliated title and mortgage companies. HUD issued a proposal to address the issue of "required use" under its Real Estate Settlement Procedures Act rulemaking authority. The comment period ends September 1. "It is our intent to keep an open mind on how to approach this vexing question over what is, and what is not, required use," said HUD assistant secretary David Stevens. In early 2009, the National Association of Home Builders sued to block HUD from enforcing a newly adopted RESPA rule that banned builders from offering discounts to homebuyers that use affiliated settlement service providers. It is not uncommon for builders to offer borrowers cash discounts or upgrades on a house if the buyer agrees to use affiliated vendors. RESPA issues occur when the builder charges the consumer higher settlement costs (including the rate) than other non-affiliated providers. "HUD has received complaints that some homebuyers are committing to use a builder's affiliated mortgage lender without sufficient time to research their contracts or to comparison shop," HUD says in its proposal.

Residential mortgage companies cut 5,500 full-time workers in April despite rising home sales and low mortgage rates. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 247,900 positions in April from 253,400 in March. The poor showing came amid reports of hiring by servicers in their loan modification units. But although the servicing sides of many firms are hiring (or at least not laying people off), production jobs are being cut because of weak loan demand, which could get even weaker now that two federal homebuyer tax credits have expired. Friday's job report also revealed that employment in the construction industry and commercial banking fell in May. (There is a one-month lag in BLS' reporting of mortgage banker/broker sector employment.) Construction jobs fell by 35,000 in May, offsetting gains in the prior two months. Commercial banks reduced their payrolls by 500 workers. Overall, Friday's jobs report was disappointing to analysts. Most of the 431,000 increase in jobs reflected the hiring of temporary government census workers. Only 41,000 of the new hires involved private sector jobs. The nation's unemployment rate edged down to 9.7% in May from 9.9% in April. Meanwhile, stocks tumbled early in the morning and the yield on the 10-year Treasury fell to 3.26%, once again nearing its 52-week low of 3.1%.

According to data from the National Association of Real Estate Investment Trusts, REITS are outperforming the broader equities market. The trade group said the FTSE NAREIT Equity REIT Index delivered an 11.13% total return for the year through May, while the FTSE NAREIT All REITs Index was up 10.58%. Meanwhile, the S&P 500's total return for the year through May was negative 1.50, the Dow Jones Industrial Index had a negative 2.79% return and the NASDAQ Composite's return for the period was a negative 0.53%. The apartment sector at 23.91%, the lodging/resorts sector at 19.05%, and the self-storage sector at 15% led the REIT industry's gains in the first five months of 2010.

Zacks Equity Research, Chicago, designated Santa Monica, Calif.-based real estate investment trust Macerich as its Bear of the Day. Zacks said its long-term recommendation for the company's stock is underperform as it anticipates Macerich, which specialized in regional and community shopping centers, to perform well below the broader market. "The prolonged recession has led to increased tenant bankruptcies, reduction in disposable income, and lower consumer discretionary spending. In addition, Macerich has an active development pipeline, which increases operational risks in the current credit-constrained market," Zacks said. On the positive side, Macerich is one of the largest operators in its segment with assets in high barrier-to-entry markets, which has enabled it to hold rents fairly stable. Zacks said Macerich's stock is trading at a premium to the peer group, based on forward funds for operations estimates and gives it a target price of $38.00.

Digital Realty Trust Inc., a real estate investment trust based in San Francisco, has priced a 6 million share public offering of its common stock at $57 per share This will result in net proceeds of approximately $327.8 million after underwriting discounts and commissions and estimated offering expenses (or approximately $377.1 million if the underwriters' over-allotment option is exercised in full). Digital Realty Trust has granted the underwriters the option to purchase up to an additional 900,000 shares of common stock to cover over-allotments, if any. The offering is expected to close on June 8, 2010. The proceeds are intended to be used to fund a portion of the acquisition of a five-property data center portfolio located in California, Arizona and Virginia, as well as possibly to acquire additional properties, to fund development and redevelopment opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or preferred securities. Credit Suisse Securities (USA) LLC, Citi and BofA Merrill Lynch served as book running managers. Morgan Stanley, Deutsche Bank Securities and Raymond James, served as lead managers, and JMP Securities, J.P. Morgan, RBC Capital Markets and RBS served as co-managers, for the offering.

The latest well-known actor to become a spokesman for a reverse mortgage lender is Henry Winkler, whose best known role to members of the Baby Boomer generation was as "the Fonz" in the television sitcom Happy Days. He will be the public face of One Reverse Mortgage, whose parent company, Rock Holdings, also owns Quicken Loans. Jay Farner, chief executive of One Reverse Mortgage, describes Winkler as an actor with "integrity" he feels will be helpful in extending the company's reach with retirees and seniors. Happy Days aired from 1974 through 1984. Winkler played Arthur Fonzarelli, whose age during the show ranged from his late teens through early 20s. But today, Winkler is eligible to apply for a reverse mortgage, as he will turn 65 in October. A video featuring Winkler promoting One Reverse Mortgage can be found on the company's website at www.onereversemortgage.com.

A group of Hudson Valley Federal Credit Union borrowers filed a class action lawsuit against the lender, claiming it illegally collected thousands of dollars in mortgage recording taxes from them at closing, ratcheting up the stakes in the CU's own legal fight with New York over the same levy. The suit was filed in federal court, as opposed to state court, which just two weeks ago rejected HVFCU's challenge to the recording tax, an assessment of one-half percent, or 50 basis points, on every mortgage, amounting to thousands of dollars on each home loan. "Because of the pass-through nature of it, the person who bears the loss is the person who is paying the mortgage," said Mark Kindall, a lawyer with the Hartford, Conn., firm of Izard Nobel LLP. In its challenge in state court, the credit union asserted that the Federal Credit Union Act, which defines federally chartered (but not state chartered) credit unions as "instrumentalities of the federal government" exempts all federal credit unions from state taxes. In an odd way, the borrowers' lawsuit may end up aiding the credit union's own case, which asserts that a federal charter exempts Hudson Valley FCU from paying the tax. (In CU parlance, customers of a credit union are often referred to as members.) Two weeks ago, in the CU's case, a state court ruled that the tax is not assessed on the federal entity, but on the act of the transfer of property. Potential members of the class include not only the thousands of members of Hudson Valley FCU who paid the tax, but millions of New Yorkers who took out mortgages through a federally chartered credit union.