Origination

Bank of America has expanded its residential underwriting guidelines for mortgage applicants that run their own businesses, which could loosen up credit to an underserved segment of the industry. Previously, the nation's second largest originator allowed the use of "business funds" to be considered by sole proprietors when applying for a mortgage. A spokesman for the lender said it has expanded those guidelines to include an applicant's partnerships and corporations. The change is for both retail and broker-sourced loans, the spokesman told National Mortgage News. With the crash in the alt-A and stated-income markets, self employed consumers and small business owners have found it tougher to get loans.

The Senate is moving closer to voting on a financial services regulatory reform bill and industry groups are pressing hard on the risk retention issue to get a qualified mortgage exemption. The current version of the bill requires securitizers to retain up to 5% of the credit risk with some of that risk shared with lenders. Industry groups are urging Senate Banking Committee leaders to give regulators more flexibility in determining risk retention requirements on different mortgage types. But they also want certain loans to be totally exempt from risk retention. "To ensure a liquid and efficient market for core mortgages, we think it is imperative that a mandatory 'zero' risk category be created for 'qualified mortgages' -- those that meet minimum standards for safely underwritten residential mortgages," says a letter penned by five trade groups: The Financial Services Roundtable, Mortgage Bankers Association, National Association of Home Builders, Community Mortgage Lenders of America and Community Mortgage Banking Project. In a separate letter, the MBA warned that the future of small independent mortgage bankers would be threatened if they are forced to retain a percentage of the loan amount on their books. Without a qualified mortgage exemption, these small local lenders might have to shut their doors and between 45,000 to 50,000 jobs could be at risk, MBA senior vice president Steve O'Connor told National Mortgage News. Final changes to the bill are expected to be worked out this weekend as the Senate prepares for a test vote on Monday evening.

Two Harbors Investment Corp., a Minnetonka, Minn.-based real estate investment trust that invests in mortgage-backed securities, has priced a public offering of 11,500,000 shares of its common stock at a price of $8.90 per share, for gross proceeds of approximately $102.4 million. In addition, the company has granted the underwriters a 30-day option to purchase up to an additional 1,725,000 shares of the company's common stock to cover over-allotments, if any. The offering is expected to close on or about April 26, 2010. Credit Suisse Securities LLC is acting as sole book-runner for the offering. Barclays Capital Inc. and JMP Securities LLC are acting as joint lead managers. Ladenburg Thalmann & Co., Inc. is serving as a co-manager in the transaction. At the end of the session on Wednesday, Two Harbors was trading at $8.85 per share, down $0.13 on the day.

A.M. Best Co. has affirmed the issuer credit rating of Genworth Financial Inc., as well as those of its life/health insurance subsidiaries. "Over the last year, Genworth has strengthened its balance sheet by completing several capital raising initiatives, de-risking its product and investment portfolios and implementing improved risk management practices within its U.S. mortgage insurance business," the statement from Best said. However, while Genworth's operating profile is now improving, it is being hurt by recent losses within the U.S. mortgage insurance business, as well as the underperformance of its international lifestyle protection business and moderately negative results within its legacy long-term care business. "Specific areas of concern include Genworth's exposure to commercial real estate, residential mortgage-backed securities and below investment grade bonds, which have experienced credit migration over the last year. A.M. Best notes that Genworth's commercial real estate portfolio has had limited losses to date, with an average loan-to-value around 65% and a debt service coverage ratio at 2.3 times," the rating agency said.

While as a company, Old Republic International Corp., Chicago, was profitable in the first quarter 2010, both its mortgage guaranty and title insurance segments had pre-tax operating losses. Still the results for the mortgage guaranty segment improved more than 76% when compared with the first quarter 2009. ORI had net income of $25 million for the first quarter 2010 compared to a net loss of $54 million for the same period in 2009. The mortgage insurance segment benefited from the termination of two captive reinsurance agreements and the cancellation of certain pool insurance contracts. The transactions reduced the incurred claim ratio for the quarter by approximately 27.4 percentage points, increased the paid claim ratio by 128.8 percentage points, and decreased the pretax operating loss by approximately $35.6 million. As a further consequence, these non-recurring transactions resulted in a reduction of operating cash flow of $167.1 million. The mortgage insurance segment had a pre-tax operating loss of $34.1 million, an improvement from the pre-tax operating loss of $144.6 million for the first quarter 2009. New insurance written went from $2.2 billion for the first quarter 2009 down to $784 million for the most recent period. The title insurance segment had a pre-tax operating loss of $8.6 million, a slight improvement over the year-ago period pre-tax operating loss of $9 million. Still net premiums and fees earned in the first quarter were up 65% over the previous year as Old Republic Title benefited from industry dislocations and consolidation. This segment also benefited from the consolidation of accounts from a joint venture formed with a Florida title underwriter in mid-year 2009. ORI holds investment stakes in competitors MGIC Investment Corp. and The PMI Group. The company had an original cost $416.4 million, which it wrote down to $106.8 million in 2008. As of March 31, 2010, the investment stakes had a fair value of $254 million or 61% of the original cost; as of Dec. 31, 2009, the fair value was $130.7 million.

The title insurance business at Fidelity National Financial Inc., Jacksonville, Fla., proved able to generate pre-tax earnings of nearly $23 million in a challenging first quarter, up from $7.3 million for the first quarter of 2009. Even though it had negative cash flow of $88 million during the period, the company as a whole posted first quarter 2010 earnings of $16.5 million, compared with a loss of $12.4 million one-year prior. Direct orders opened declined from 746,000 one year ago to 511,100 for the most recent period. Still, said William P. Foley II, FNF chairman, "Open order counts were relatively stable during the quarter, after the first two weeks of January, as we averaged between 8,500 and 8,800 open orders per day from the second half of January through March. Closed order counts were seasonally soft during the first quarter and were further impacted by new RESPA closing requirements. We also continued to aggressively manage our cost structure in the first quarter, eliminating nearly 600 additional positions during those three months. The two and a half months of consistent open order activity, the first quarter seasonal delay in order closings and the continued cost reductions should allow us to produce stronger results in the title business during the second quarter."

The average rate for a 30-year fixed rate mortgage remained at 5.07% during the week ended April 22, according to Freddie Mac. The 30-year rate was the same last week and 4.80% a year ago. "Mortgage rates on fixed-loans were relatively unchanged this week while ARM rates were mixed," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 15-year FRM fell to 4.39% from 4.40% the previous week and from 4.48% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 4.03%, down from 4.08% the previous week and 4.85% a year ago. The average one-year Treasury ARM rate was 4.22%, up from 4.13% the previous week but down from 4.82% a year ago. Average points were 0.7 for 30-year FRMs, 0.6 for 15-year FRMs and five-year Treasury hybrids, and 0.5 for one-year Treasury ARMs.

House prices fell 0.2% in February on a seasonally adjusted basis after a 0.6% drop in January, according to the Federal Housing Finance Agency house price index. "For the 12 months ending in February, U.S. prices fell 3.4%," the GSE regulator said. FHFA economists use Fannie Mae and Freddie Mac purchase mortgage transactions to compile the index. House prices rose in three of the nine regional areas. Prices rose 0.8% in the Pacific region (Calif., Oregon and Wash.), 0.6% in the West South Central region (Okla., Ark., Tex. and La.) and 1.9% in the Middle Atlantic region (N.Y., N.J. and Penn.) The FHFA HPI is 13.3% below its April 2007 peak.

Sales of existing homes rose moderately in March to 5.35 million units annualized as consumers rushed into purchase contracts to take advantage of expiring tax credits for first-time and move-up buyers. According to figures released by the National Association of Realtors, sales of one- to four-family homes, including condos and co-ops, rose almost 7% from the previous month, and 16% from the same month a year ago. NAR called the surge in sales "expected" but the news wasn't all good: home prices remained almost flat with the national median at $170,700, and the inventory of existing homes for sale rose 1.5% to 3.58 million units. "Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably," said NAR chief economist Lawrence Yun. When condos and co-ops are excluded, sales rose sequentially by 7.3% to 4.68 million units. Year-over-year the increase was 13.3%. Mortgage lenders fear that once the $8,000 FTHB tax credit expires home sales-and therefore loan applications-will suffer.

The House Financial Services Committee Thursday morning approved a bill that could make the Rural Housing Service single-family program self-funding by imposing higher loan guarantees fees and prevent a shutdown of the program in the next few weeks. The House is expected to pass the RHS bill (H.R. 5017) next week, sending it over to the Senate. The committee approved the bill by a voice vote. The measure, sponsored by Rep. Paul Kanjorski, D-Pa., doubles the upfront guarantee fee to 4% from 2% and allows the Agricultural Department to assess a 0.5% annual fee on the loan balance. Rep. Kanjorski said the Agriculture secretary plans to impose a 3.44% upfront fee, which can be rolled into the loan amount. (The program is administered by the U.S. Department of Agriculture.) It is estimated the increase would require borrowers to pay an extra $11 a month on a $120,000 loan. As of April 15, the RHS loan guarantee program had used $11.6 billion of its $13.1 billion in loan commitment authority for fiscal year 2010, which ends Sept. 30. The Kanjorski bill increases RHS' commitment authority to $30 billion.