Origination

Expectations are sinking that big banks can continue to capitalize on their balance-sheet spreads. Net interest margins expanded at most of the nation's biggest banking companies -- all major players in mortgages -- in the first quarter compared with the previous quarter, suggesting banks have found another way to counter continued credit losses. But banks will be hard-pressed to hold on to these healthier spreads amid sluggish loan demand and potentially higher interest rates. "The best they can do over the rest of this year is maintain" margins, said William Fitzpatrick, an analyst at Optique Capital Management, Racine, Wis. He said most of the expansion that took place last quarter likely resulted from aggressive balance-sheet management in recent periods. "Banks will be thrilled if they can keep the margins they have now," he said.

GMAC Inc. may be close to naming a chief financial officer and has considered appointing Barbara Yastine, the former CFO for investment banking at Credit Suisse Group AG and Citigroup Inc., according to a report by Bloomberg. The news service cited "three people with knowledge of the search" but a GMAC spokesman called the story "speculative," adding that it is not making "any management announcements at this time. Jim Mackey continues to serve as interim CFO, and the company continues to move forward with its strategic priorities." Yastine, 50, is considered a prospect because she worked at Citigroup with Michael Carpenter, GMAC's new chief executive. GMAC and its mortgage affiliate both posted a profit in the first quarter. The company is considering its options on Residential Capital Corp., including a possible sale of stock to the public.

CUSO Prime Alliance, Tukwila, Wash., has acquired Dexma, a provider of online mortgage lending technology to more than 1,400 institutions. The combined company will be known as Prime Alliance Solutions. Joe Brancucci, CEO of Prime Alliance, noted that Dexma, Edina, Minn., helped create Prime Alliance, lending a certain amount of irony to the deal. "It is like a child is swallowing up one of its parents," he told Credit Union Journal, a sister publication to National Mortgage News. "I think it's a good move for a lot of reasons. We were ahead of our time in 2001, but today there are lots of opportunities." Financial terms of the deal were not disclosed. According to Brancucci, Prime Alliance has worked closely with Dexma over the past decade in creating new solutions for mortgage lending, especially to credit unions. He said the acquisition will allow the CUSO to take ownership of the technology Dexma produces. "We've always been part of the dialog, and have driven the development of a lot of aspects, but this takes the relationship to a new level." Prime Alliance and Dexma co-developed the Mortgage Lending Suite, which includes retail lending, third-party lending, loan fulfillment and secondary market centers. The two said they combine to handle 35% of credit union mortgage originations. Dexma's clients include U.S. Bank Home Mortgage, Weichert Financial Services and MetLife Home Loans. Since inception, more than 6 million loans have been processed on the Dexma platform, totaling approximately $1.1 trillion in loan volume.

Senate Democrats have defeated efforts by Republicans to curb the power and independence of a new consumer protection agency by a 61-38 vote. The defeat of an amendment offered by Sen. Richard Shelby, R-Ala., paves the way for creation of the Consumer Financial Protection Bureau which will be funded by and housed at the Federal Reserve Board. The CFPB will be totally independent of the central bank and free of the congressional appropriations process. In defeat, Sen. Shelby claimed the measure ushered through the Senate by Sen. Chris Dodd, D-Conn., would create an out-of-control agency with no accountability to Congress. Shelby offered a substitute amendment to create a consumer protection division at the Federal Deposit Insurance Corp. that would have consumer oversight of large non-bank mortgage originators. The FDIC unit also would have authority over other financial providers that repeatedly violate consumer protection laws. "This will give the FDIC board authority to clamp down on the worst offenders of our consumer protection laws without needlessly subjecting law-abiding business to expensive regulation," Shelby said. If the Shelby amendment had passed, it would have been a step "backwards," Dodd argued, claiming the new division could not prevent abuses by finance companies, payday lenders, check cashers, credit card companies, debt collectors and car dealers involved in the finance business. "It is a stimulus package for unscrupulous lenders," Dodd added.

It appears there will be full Senate debate on placing a time limit on how long Fannie Mae and Freddie Mac can remain in conservatorship while placing a $400 billion limit on the government's financial support of the two GSEs. The amendment by Sen. John McCain, R-Ariz., gives Fannie and Freddie two years to become "viable" entities and emerge from conservatorship. Over the next three years, the government sponsored enterprises would operate under new restrictions, including a minimum 5% downpayment requirement and a $417,000 loan limit before they lose their government charter. Thursday evening, the manager of the "Wall Street Reform" bill, Sen. Christopher Dodd, D-Conn., said he would allow a vote on the McCain amendment some time after the Senate resumes consideration of the bill on Tuesday (May 11). "Let me say to my friend from Arizona, I have no intention of tabling anyone's amendment," Dodd said. Currently, the Treasury Department is providing unlimited backing for the GSEs. It hopes to unveil a plan next year concerning the future of the GSEs and the housing finance system in general. "We have not taken a position at this time" on the McCain amendment, a Treasury spokeswoman told NMN.

Industry veteran Rudy Orman has resigned as vice president of Marathon Asset Management, a New York-based private equity fund that invests in distressed residential whole loans and mortgage-backed securities. At press time Orman and officials at Marathon declined to comment on the situation. His departure became official on Friday. Two weeks ago National Mortgage News reported that an affiliate of Marathon was selling about $90 million in distressed whole loans. During his career in mortgages Orman has worked as a vice president at Goldman Sachs & Co. and at lending firms as well. In a statement Orman would only say that he will become a director and senior vice president of business development at Residential Credit Solutions.

The mortgage insurance subsidiary of American International Group earned $73 million in the first quarter -- its first quarterly profit in three years. AIG's United Guaranty Corp. affiliate reported improving levels of delinquencies and defaults. In the first quarter of 2009, UGC lost $483 million. Despite the good news on the MI unit, AIG's residential finance division, American General Finance, posted a 1Q operating loss of $132 million. In the same period a year earlier AGF lost $203 million. AIG said the improvement resulted from a decline in provisions for loan losses resulting from improved delinquency rates, lower interest expense due to lower average debt balances, and lower operating expenses. Meanwhile, AIG itself reported a profit of $809 million for the quarter, compared with a loss of $2.1 billion the prior year. The giant insurer's financial products unit, which piled up huge losses on credit default swaps during the financial crisis, had a $298 million operating loss -- an improvement over the $1.1 billion lost in 1Q09. AIG Financial Products also reduced the notional amount of its derivatives portfolio during the first quarter to $755.4 billion.

Residential lenders originated $384 billion of new one- to four-family loans in the first quarter, a 20% decline from the same period a year earlier, according to preliminary survey figures compiled by National Mortgage News and the Quarterly Data Report. Almost every single funder reporting to NMN showed a double digit percentage decline in production. Based on the current run-rate, originations will total $1.5 trillion this year, compared to $1.9 trillion in 2009. But some housing analysts, such as David Olson of Access Research, Columbia, Md., believe fundings could be as paltry as $1.2 trillion, maybe lower. However, with Thursday's stock market crash (and subsequent, partial recovery), bond yields fell, dragging down mortgage rates and spurring talk of more refinancings. (For the full story see the Monday print edition of NMN.)

Mortgage companies cut 1,500 full-time workers from their payrolls in March after adding 4,400 full-time employees the previous month. The U.S. Bureau of Labor Statistics reported Friday that employment in the mortgage banker/broker sector fell to 252,500 full time positions in March from 254,000 in February. Mortgage industry employment is down only 6.7% from March 2009, compared to a 21.6% drop during the previous 12-month period. Meanwhile, loan production slowed in the first quarter, which could explain some of the layoffs in March. (See story below.) On the positive side, Friday's nationwide jobs report paints a much improved employment picture with 290,000 new hires in April -- more than analysts expected. March's job additions were revised upward to 230,000 from 162,000. For mortgage lenders and servicers the anticipation is that these workers will be able to make their loan payments or perhaps buy a new or existing home.

Beginning June 1, lenders originating mortgages being sold to Fannie Mae will have to pull a second credit report just before the loan closes. The new quality control requirement is designed to prevent a type of mortgage fraud called "shotgunning," but the guidelines could occasionally send lenders on wild goose chases. By pulling a second credit report, lenders can find out whether other creditors have recently requested information about the mortgage applicant-a red flag indicating someone might be trying to obtain several loans (from multiple, unwitting lenders) on the same property. Typically, a shotgun fraudster skips town with the proceeds of all his loans. Most of the lenders do not recoup a cent because their mortgages are subordinate to the first one recorded and the home will not fetch enough in a sale to cover the junior liens. Will Dillard, a vice president of operations at SettlementOne Credit Corp., a San Diego reseller of credit data, told American Banker that pulling a second credit report would help stop such frauds but that lenders might also waste time checking out false alarms. "If they see another inquiry, Fannie would like to see lenders query those creditors," Dillard said. "If you're at the funding table ready to fund and you see a new inquiry popping up, the question is, do you send your underwriter out...to track down Honda Motor if the borrower is also trying to buy a new car?"