Origination

There are plenty of things you can do which will allow your business to stay running in the near term.

The Federal Housing Finance Agency has released proposed requirements for Fannie Mae and Freddie Mac to provide liquidity to underserved housing markets. Under the proposal, each GSE would have to present a plan to serve such markets. FHFA will then rate their performance against the plans. The proposed rule, announced Tuesday morning, was required by a 2008 housing law. There will be a 45-day period for FHFA to collect public comments before finalizing the rule. Both have been wards of the government since the fall of 2008.

A Maine investment group has agreed to inject $60 million into Savings Bank of Maine, Gardiner, as part of the thrift's recapitalization plan. In March the $929 million-asset savings bank received a prompt-corrective-action directive from the Federal Deposit Insurance Corp., ordering it to become adequately capitalized by June 30, sell itself or merge with another institution. The $60 million investment from SMB Financial will boost the thrift's capital ratios above the required levels, the company said. Under the recapitalization plan, SMB also will absorb the thrift's two holding companies, restructure its debt and acquire all of its common stock. SMB Financial, also based in Gardiner and led by a group of local investors, is replacing several Savings Bank of Maine executives.

By mid-week issuers and rating agencies must comply with a Securities and Exchange Commission rule designed to encourage more unsolicited opinions on asset-backed securities. The regulator wants to remove the conflicts of interest in the ratings process that led to inflated ratings in the past and contributed to the financial crisis. Among the new requirements, when a firm is hired to rate an asset-backed security, it must notify rivals that did not get the job. The arranger of a security must give all raters - even those it has not tapped - detailed information on the underlying loans, something that previously only the agencies that got the assignment could see. And the agencies will have to rate at least 10% of all deals they inspect, whether or not they are paid to rate them. Government-sanctioned kibitzing could complicate the gradual recovery in the asset-backed market that began last year. "Issuers are not really crazy about getting unsolicited ratings that are going to be lower ones than they obtain," said Steve Kudenholdt, partner and co-chair of the capital markets practice at Sonnenschein Nath & Rosenthal LLP. For one thing, the new requirements may prolong the time it takes to bring deals to market. "It's definitely going to slow things up," said Michael Buttner, Wells Fargo & Co.'s head of residential mortgage-backed securities. "Until you've got all the rules laid out and have worked it through a few times, it's new and it's not going to be as smooth."

Mortgage Services III LLC, Bloomington, Ill., is expanding into the Greater Milwaukee area through its acquisition of Complete Mortgage Inc., of Sussex, Wis. The newly acquired team will be located in an office in Waukesha, Wis. Mark Young, president and chief executive of MSI, said that Complete Mortgage has been a valued wholesale lending partner of his company for years. MSI has offices in Oakbrook Terrace, Ill., Urbandale, Iowa, Warrenville, Ill., and St. Charles, Ill., plus two downtown Chicago locations. It is a subsidiary of First State Bank, Mendota, Ill.

The Government National Mortgage Association says a recent change it made to its Ginnie II MBS program will help mortgage bankers with their warehouse lines of credit. "Lenders will be able to better utilize warehouse lending lines and reduce interest costs associated with carrying loans until they can be securitized and settled," said Ginnie Mae president Theodore Tozer. Beginning this fall, issuance for Ginnie II multiple issuer pools can occur daily, rather than once a month. Also, mortgage bankers can submit just one loan for securitization, eliminating the current three-loan minimum. Another wrinkle to the program will allow seller/servicers to submit "orphan loans" which are individual mortgagees that normally may not fit into a certain pool because the note rate differs significantly (at least 50 basis points) from other loans in the pool. In general, banks have been more willing to extend warehouse credit to nonbanks over the past six months, but only on Fannie Mae, Freddie Mac, and FHA/VA products.

It's no secret that the GSEs have been demanding billions of dollars in loan buybacks over the past year, but now Freddie Mac is warning that some of its seller/servicers may not meet their repurchase obligations. "Some of our seller/servicers failed to perform their repurchase obligations due to lack of financial capacity, while many of our larger seller/servicers have not fully performed their repurchase obligations," the GSE says in a public filing. As of March 31, Freddie had $4.8 billion in outstanding buyback requests pending. Roughly 34% of those requests were outstanding more than 90 days. The secondary market agency warned that its credit losses may increase if customers do not fulfill their buyback obligations. Freddie executives also are concerned that collection efforts could "negatively impact" their relationships with seller/servicers who have the financial capacity to perform buybacks but chafe at such requests for one reason or another. In the first quarter, seller/servicers reimbursed Freddie $1.3 billion for breaches of representations and warranties, compared to $789 million in the same period in 2009. Fannie Mae reported $1.8 billion of buybacks in the first quarter, compared to $1.1 billion a year ago. Fannie expects its buyback requests will remain high for the rest of this year.

Passage of a jobs bill in the next few weeks could provide the first $1 billion of seed money for the National Housing Trust Fund. Supporters estimate the trust fund could spark the construction of 10,000 affordable rental units while creating 15,000 new construction jobs. After a multi-year lobbying campaign led by the National Low-Income Housing Coalition, Congress passed legislation in 2008 to create the NHTF that would be funded by Fannie Mae and Freddie Mac. But low-income housing advocates lost that funding source when the GSEs were placed in conservatorships. Housing supporters are hopeful the Senate will pass the jobs bill (H.R. 4213) with the one-time funding for the start up of the trust fund. The House passed the bill May 28 by a 215-204 vote. "We are hopeful and it couldn't come a better time. States are eager to build affordable housing," said NLIHC vice president Linda Couch. The Senate is expected to begin consideration of the jobs bill when it returns from the Memorial Day recess.

Fannie Mae, Freddie Mac and GNMA had a combined "purchase" market share of 98% in the first quarter, according to new figures compiled by National Mortgage News. The share number represents a slight decline from the near monopoly (99%) they had on the business last year. NMN derived its market share numbers by taking the loan purchases of the GSEs (and the bond issue of GNMA, which reflects FHA/VA production) and dividing it by industry-wide originations in a given time frame. It's no secret to seller/servicers that these three entities dominate the secondary market, setting loan standards for 60 million borrowers. The numbers also indicate that very few lenders actually keep whole loans on their balance sheets except for jumbo mortgages, and, perhaps, conventional ARMs. Ten years ago Fannie and Freddie had a combined purchase market share of about 50% with GNMA at a meager 5%. (For the full story see this week's paper edition of NMN.)

Fidelity National Information Services' board this week authorized a $2.5 billion stock repurchase program, offering to buy back its common for between $29 and $31 each. The stock has risen more than 40% this year. The firm, a top vendor to the mortgage industry, now has a market capitalization of roughly $9.8 billion. The news about the stock split comes a week after a leveraged buyout of the company fell apart. Last month, FIS reported that its 1Q profit nearly tripled, thanks to a big jump in processing and service revenue.