Origination

The Obama administration's bank tax proposal could curtail borrowings from the Federal Home Loan Bank system by large depositories and reduce mortgage liquidity for member institutions, according to the American Bankers Association. The administration's proposal would impose a tax on financial institutions with more than $50 billion in assets --but only for firms that were eligible for emergency assistance programs such as the Troubled Asset Relief Program. ABA chief economist James Chessen told the Senate Finance Committee the 15 basis point tax on non-deposit liabilities (including FHLBank advances) would increase the costs of large banks borrowing from the system, and reduce demand for FHLB advances. This has "important implications for the financial stability" of the 12 regional banks and "could lead to a downward spiral" with fewer advances being made, he warned. The trade group is concerned that members will reduce their holdings of the FHLB stock required to borrow, thus shrinking the system and its ability to provide liquidity to all members. Treasury secretary Timothy Geithner said the bank tax could raise $117 billion over 10 years to cover the government's cost of the financial crisis. He stressed the tax will not affect 99% of depository institutions.

The National Association of Realtors anticipates a surge in home sales during the second quarter as buyers rushed to sign sales contracts in March to take advantage of expiring federal tax credits. Tuesday morning NAR reported that its index of pending home sales -- which is based on contract signings -- rose 5.3% in March after rising 8.3% in February. The index serves as a leading indicator of home sales over the next month or two. The tax credit officially expired April 30, but buyers have until June 30 to close and still qualify for two different tax credits -- one for $8,000 and another for $6,000. (In California, a state tax credit for $10,000 is still available but only for buyers of newly constructed homes.) NAR economists believe existing home sales will jump more than 10% from the first to second quarter to a seasonally adjusted annual rate of 5.68 million before falling back to 5.17 million in the third quarter. "Later in the second half of the year and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home prices stabilizing," said NAR chief economist Lawrence Yun.

HRPT Properties Trust, Newton, Mass., has agreed to purchase an Australian real estate investment trust to create a platform for further purchases of Australian properties. The U.S. company plans to buy MacarthurCook Industrial Property Fund and make it a subsidiary. Under part of the agreement, HRPT will buy all of the fund's equity units outstanding at A$0.40 a unit, or about A$39.4 million ($36.5 million) in total. It also will assume or prepay approximately A$46.4 million ($43.0 million) of the Australian REIT's debt. In total, HRPT plans to pay a total consideration of about A$85.8 million ($79.5 million) for the fund. The Sydney-based MacarthurCook Ltd., a subsidiary of AIMS Financial Group, currently owns the fund. Under the terms of the agreement it would continue to manage the fund's properties after the acquisition, with HRP and its manager planning to work together to expand HRP's investments in Australia. HRP said it believes "that Australian properties and the Australian economy generally are well positioned by geography and natural resources to benefit from the economic growth in the Asia Pacific region in the future." But the purchase of the Australian REIT is conditioned upon approvals from the fund's unitholders and other conditions related to cross-border transactions such as Foreign Investment Review Board approval in Australia. If approved, HRPT plans to fund the acquisition with cash on hand and available drawing capacity under its unsecured credit facilities. It said the acquisition could close in the second half of this year.

A quarterly survey by two Chicago professors shows a dramatic increase in the number of "strategic defaults" where an underwater homeowner willingly defaults on his mortgage even though he can afford to make the payments. An estimated 31% of foreclosures involved strategic defaults in March, compared to 22% a year ago, according to the Chicago Booth/Kellogg School Financial Trust Index. The survey is conducted by professors Paolo Sapienza of the Kellogg School of Management, and Luigi Zingales of the University of Chicago Booth School of Business. They said the likelihood of strategic default increases by 23% if a homeowner discovers that a neighbor with negative equity received loan forgiveness from their servicer. The likelihood increases to 29% if homeowners can find alternative financing for a new home. The survey found that 56% of homeowners do not believe that lenders will come after them if they walk away from their home. "With more and more homeowners believing that lenders are failing to pursue those who default on their mortgage, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford the payments," Sapienza said.

Fannie Mae has set new standards for purchasing and securitizing adjustable-rate mortgage products with the aim of ensuring consumers who hold them can sustain their payments beyond the loans' initial interest rate periods. The new standards require ARMs with initial interest rate periods of five years or less to be qualified at the greater of the note rate plus 2% or the fully indexed rate (index plus margin). In addition, qualification criteria for interest-only loans will change such that the maximum loan-to-value ratio cannot exceed 70%, the borrower's credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after closing. Balloon loans, which generally are characterized by lower initial interest rates and a significant balance due at maturity, will no longer be eligible unless they receive special approval. All loans not meeting the new guidelines have to be purchased as whole loans on or before Aug. 31 or delivered into mortgage-backed securities pools with issue dates on or before Aug. 1.

The Rural Housing Service has enough remaining loan commitment authority to continue guaranteeing single-family loans through May 6, according to the Department of Agriculture. "We anticipate funding likely will be exhausted by May 7," the agency said. It was understood RHS would run out of loan authority on April 30 and the House quickly passed a bill (H.R. 5017) last Tuesday to extend the program through Sept. 30. Sen. Michael Bennett, D-Colo., has introduced a similar bill, but the Senate adjourned on Friday without passing it. The Senate resumes legislative activities on Monday. "Depending upon Congressional activity with the proposed legislation, it is possible that the agency may consider issuing conditional commitments," RHS said. The House-passed bill makes the RHS single-family program self-funding by raising the 2% upfront guarantee fee to 4%. RHS is expected to set the fee at 3.44%. The increase means Congress will not need to approve additional funding to keep the RHS guarantee program running.

The Eleventh Federal Home Loan District Cost of Funds Index increased 24.5 basis points between February and March to 1.859%. With the exception of the run-up in the Index caused by the Federal Home Loan Bank of San Francisco removing Wachovia Mortgage FSB from the calculations back in November and December 2009, this is the highest COFI has been since May 2009. For March 22 eligible institutions reported data that FHLB-SF used to determine COFI. Average total funds in March were $38.5 billion and total interest expense $59.6 million. In February, COFI was 1.614% and in March 2009, it was 1.627%.

For the second consecutive month, members of the Mortgage Insurance Cos. of America reported more primary insurance cures than defaults for March 2010. Mortgage insurers had 77,909 cures and 63,126 defaults for a ratio of 123.4%. This compares with 80,758 cures and 68,675 defaults in February for a ratio of 117.6% and 69,931 cures and 84,042 defaults for a ratio of 83.2% in March 2009. March was also the best month of the first quarter 2010 in terms of both applications received and dollar volume of primary new insurance written. Including policies written for loans refinanced in the HARP program, MICA members had $4.5 billion written in the traditional channel and $400,000 in the bulk channel, vs. $3.6 billion total in February and $9.8 billion in the traditional channel and $9.7 million in the bulk channel in March 2009. Primary insurance in force continues to decline, going from $844.4 billion in February to $828.6 billion in March. There was $1.8 million of new pool risk written in March; total pool risk in force at the end of the first quarter was $7.4 billion.

Federal Housing Administration veteran Meg Burns has departed HUD to manage the Federal Housing Finance Agency's newly restructured Office of Congressional Affairs and Communications. A career FHA official, Burns was senior advisor to former FHA commissioner Brian Montgomery and was generally considered the second in command there. The new FHA commissioner brought in Vicki Bott, a Wells Fargo Home Loan executive, to fill that role. On May 10, Burns will join FHFA, as the senior associate director for congressional affairs and communications. FHFA oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks-which Congress will move to restructure next year. Peter Brereton will continue to be responsible for congressional affairs and Mary Ellen Taylor will be responsible for interagency relations and media communications. During her career at the Department of Housing and Urban Development, Burns worked at the former HUD Office of GSE Oversight.

After several quarters of horrendous losses, GMAC's residential mortgage division posted a small profit in the first quarter, attributing the turnaround to improved servicing revenue and lower loan losses and buyback costs. Residential Capital Corp., the nation's fourth largest funder of home mortgages, earned $110 million compared to a loss of almost $1 billion in the same period a year ago. The mortgage division is continuing to dispose of delinquent assets, though like most sellers, is not revealing much information about the buyers of such loans. During a conference call on Monday the company said it is contemplating an initial public offering to help the car and home lender repay some of its $17.3 billion of federal bailout funds. GMAC chief executive, Michael Carpenter, said he plans to meet with Treasury Department officials Tuesday to discuss several matters "which may well include an IPO [to] allow us to repay [the] Treasury in a reasonable period of time." The government has a 56% stake in GMAC. ResCap originated $13.3 billion of home mortgages during 1Q, a 26% decline from 4Q. Compared to 1Q 09, production was relatively flat. GMAC has retained Goldman Sachs & Co. as its advisor.