Origination

Purchase mortgage applications were up last week as the homebuyer tax credit program moved toward its month-end deadline, but overall applications were down from the preceding week as refinancings declined, according to the Mortgage Bankers Association. The MBA's Market Composite Index for the week ended April 23 fell 2.9% on a seasonally adjusted basis compared with one week earlier. On an unadjusted basis, the Index decreased 1.9% compared with the previous week. According to Michael Fratantoni, MBA's vice president of research and economics, "Purchase applications were up almost 9% from a month ago, with a disproportionate share of the increase due to government purchase applications. Government applications for purchasing a home accounted for almost 49% of all purchase applications last week." The seasonally adjusted Purchase Index increased 7.4% from one week earlier and reached its highest level since October 2009. The government purchase index increased 11.9% from last week on a seasonally adjusted basis, while the conventional purchase index increased 3.5%. The Refinance Index declined by 8.8% from the previous week. The market share of refi applications fell to 55.7%, its lowest point since August 2009. This was down from 60% for the previous week. The market share of adjustable-rate mortgage applications was unchanged at 6.0%. The average contract interest rate for the 30-year fixed rate mortgage rose four basis points from 5.04% to 5.08% for the current week with points decreasing to 0.91 from 0.98 (including the origination fee) for loans with an 80% percent loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs also had a 4 bps increase to 4.38%. The average contract interest rate for one-year ARMs increased 8 bps to 7.03%.

The House of Representatives Tuesday afternoon passed a bill that reforms the Rural Housing Service's single-family program, extending it through Sept. 30 to prevent a shutdown. Supporters of the bill (H.R. 5017) hope the Senate acts quickly to approve the measure this week. The chief sponsor of the legislation, Rep. Paul Kanjorski, D-Pa., said RHS could run out of loan guarantee authority by the end of April. The bill makes RHS self-funding by increasing the upfront guarantee fee to 4% from the current 2% requirement. The Agriculture Department, which administers the program, is expected to impose a 3.44% fee on borrowers. The original bill allowed the Agriculture secretary to assess a 0.5% annual fee on the loan balance, but the measure was dropped during a committee markup. Congress originally granted RHS $13.1 billion for loan guarantee authority for fiscal 2010, but thanks to the program's popularity, the allocation is nearly gone. The bill increases that authority to $30 billion, but it expires Sept. 30 when the fiscal year ends. Congress will have to renew RHS's loan guarantee authority as part of the FY 2011 appropriations process. Rep. Shelley Moore Capito, R-W.Va., said the short-term extension is needed to foster a return of private lenders.

The House Financial Services Committee has approved a bill that will give the Federal Housing Administration more flexibility in adjusting its mortgage insurance premiums. The committee passed the bill (H.R. 5072) on a voice vote after amendments by Rep. Scott Garrett, R-N.J., to raise the FHA downpayment requirement, prohibit financing of upfront premiums and limit the FHA guarantee to 95% of the loan amount were voted down. Garrett's amendment to raise the FHA downpayment to 5% from the current 3.5% minimum failed on a 52-12 vote. FHA recently increased its upfront premium 50 basis points to 2.25% of the loan amount to help recapitalize the FHA insurance fund. But the agency would prefer to raise its 55 basis point annual premium instead. If passed by the Senate, H.R. 5072 would allow FHA to reduce the upfront premium to 1% and raise the annual premium to 90 bps on single-family mortgages with loan-to-value ratios above 95%. Raising the annual premium would be "safer for homeowners and better for the health of the FHA fund," according to Housing and Urban Development secretary Shaun Donovan. The FHA reform bill also strengthens FHA enforcement powers to hold lenders accountable for bad loans. "Further, the bill provides that a lender's improper or imprudent activities at the regional level may now yield enforcement actions that restrict their nationwide activities," the HUD secretary said.

A Republican alternative to Sen. Chris Dodd's massive financial services bill gives the mortgage banking industry hope that Congress understands the dire need for an exemption on MBS risk retention. According to an outline prepared by Sen. Richard Shelby's staff, an exemption on the 5% risk retention rule would be granted for loans that "meet minimum underwriting standards" established by bank regulators. However, no details are provided in the outline. All factions of the mortgage industry are lobbying furiously for a risk retention exception for issuers of bonds backed by Fannie Mae, Freddie Mac, and FHA loans. Language in the Shelby outline regarding risk retention is more specific than what is in the Dodd bill. However, lobbyists say Dodd has been open to more specific language on risk retention. Some industry participations believe that if no "carve out" is granted, a new round of consolidation will result in large players having even more control over the industry than they do now.

For the next couple of weeks, I'll be providing updates from the NRMLA Philadelphia Roadshow which I attended last week. For those who are interested, I suggest you consider becoming a member of the National Reverse Mortgage Lenders Association if you are not already.

Mortgage broker usage in Canada has remained stable during the past year, according to Canada Mortgage and Housing Corp.'s annual online consumer survey. The use of mortgage brokers by first-time buyers remains at about 45% and approximately one-third of repeat buyers continue to use brokers. Use of brokers to refinance remains stable at roughly 23%, where it has been since 2006. The survey also shows Canadians' confidence that homeownership is a good long-term investment has remained stable to slightly higher, with 92% agreeing with this statement in 2010 compared to 90% in 2009. The online survey polled more than 2,500 active mortgage borrowers.

Fannie Mae has extended its seller assistance incentive on all company-owned HomePath properties. Buyers will receive 3.5% of the final sales price to be used toward closing cost assistance or their choice of selected appliances. The offer is available to any owner/occupant who closes on the purchase of a property listed on www.HomePath.com by June 30. "We are happy with the results of the program, which has helped us to sell properties quickly, thereby stabilizing neighborhoods and property values," said Terry Edwards, Fannie Mae executive vice president of credit portfolio management.

The PMI Group Inc., Walnut Creek, Calif., has priced its common stock offering at $6.15 per share, paving the way for a capital raise of more than $700 million. Its convertible senior note offering will carry an interest rate of 4.5%. PMI estimates the aggregate net proceeds from the concurrent offerings to be approximately $706 million, which is an increase from an initial offering of $400 million in common stock and $200 million in notes. PMI, which closed Monday at $6.46 per share, was selling for $5.87 per share in early afternoon trading.

As anticipated, Senate Republicans stood together and blocked the Senate from starting debate on a game changing financial services reform bill. The Democrats needed 60 votes to bring the bill-crafted by Senate Banking Committee chairman Christopher Dodd-to the floor to start the amendment process. But early Monday evening the final vote fell short, 57-41. One Democrat, Sen. Ben Nelson of Nebraska, voted against the bill. Nelson was concerned that the treatment of derivatives in the Dodd bill would force Nebraska-based Berkshire Hathaway to post additional collateral against its $63 billion derivative portfolio. The vote is a setback for Democrats who were betting adverse publicity about Goldman Sachs and their role in the mortgage crisis would compel some Republicans to vote for a motion to proceed with the bill and start debate. Democratic leaders plan to have more votes this week, showing that its party wants to reform the way Wall Street works and protect consumers. "We will not tolerate efforts to slow-walk this process or water down this reform because it is too important to middle-class families in Nevada and across American," said Senate Majority Leader Harry, D-Nev. Meanwhile Sens. Dodd and Richard Shelby, R-Ala., are expected to continue working on a compromise. After the vote, Sen. Sherrod Brown, D-Ohio, said Dodd has been involved in negotiations with Republicans for months. The Ohio Democrat said the GOP initially intended to stall the bill for months. They want "to delay and kill the bill," Brown said.

As the Federal Reserve begins looking for ways to reduce its $1.1 trillion of agency MBS holdings, a group of private sector policy analysts are advancing a proposal that would finance the transfer of agency MBS back to the GSEs. The move, the Shadow Financial Regulatory Committee argues, would allow Fannie Mae and Freddie Mac to manage and liquidate the assets. "It would place housing debt on the books of Fannie and Freddie where it belongs and remove the Fed from financing U.S. housing policy," according to the group which laid out its ideas at a meeting sponsored by the American Enterprise Institute. Under the proposal, the Treasury Department would issue Treasury debt to Fannie and Freddie and the GSEs would swap the debt for the MBS. As MBS are sold or the mortgages run off, the GSEs would pay Treasury back. Financial consultant Bert Ely said Fannie and Freddie might do a better job of managing the MBS than the Fed-if the GSEs do not overspend on hedging interest rates and prepayment risk. The Treasury note should be structured as a pass-through, he said, "so they don't feel compelled to go out and waste money on Wall Street on hedging." Fed staff estimates the agency MBS portfolio will have a run-off rate of $200 billion a year, according to the Shadow Regulators. Credit Suisse mortgage analysts view the annual run-off rate as too high. They estimate the Fed experienced close to $50 billion in runoff in 2009 mostly due to prepayments. "This year we estimate $100 billion in run-off," said Mahesh Swaminathan, a mortgage strategist at Credit Suisse. During 2009, the Fed was buying agency MBS on a weekly basis, eventually accumulating $1.1 trillion in MBS. The Fed stopped its buying spree in March.