Origination

Sterling Bancorp of New York is dipping its toe in the warehouse lending business, concentrating-not surprisingly- on Fannie Mae, Freddie Mac, and FHA-backed loans. The publicly traded commercial bank said it will focus on making lines of credit to only "established mortgage banking firms." Warehouse industry veteran Gary Timmerman has been hired to head the effort for Sterling. "Warehouse lending has historically been a successful product for a number of banks," said Sterling Bancorp CEO Louis Cappelli. "As the housing market has now begun to show signs of stabilizing, we see an opportunity to apply Sterling's capital, experience and market knowledge to fill this financing need and generate solid returns on our investment in the warehouse business." Over the past two quarters a handful of medium sized banks has entered the warehouse market, but at least one large player-PNC's National City warehouse group-is preparing to leave the business by this summer.

A proper reading of the Standard & Poor's/Case-Shiller 20-city house price index shows that home prices have declined by 0.7% over the past 12 months ending in January. The S&P index committee is advising users of the Case-Shiller HPI not to rely on the seasonally adjusted numbers. "After reviewing the data, the S&P Case-Shiller HPI committee believes that at the present time the unadjusted series is the more reliable indictor of U.S. housing trends," the committee said. In the last 20-city HPI report, prices fell by 0.4% in January, following a decline of 0.2% in December. Prices were up 0.3% in November. On a seasonally adjusted basis, values rose 0.3% in January and then a similar amount in December, which has been highlighted in many news reports. One independent economist said that large inventories of foreclosures and unsold and vacant houses on the market outweighs any seasonal effects. Few housing and mortgage analysts believe there will be any significant improvement in home prices until next year at the earliest.

First American CoreLogic, a provider of advanced property and ownership information, analytics and services, is partnering with The Prieston Group to offer a comprehensive fraud prevention and insurance solution to mortgage lenders. The solution combines First American CoreLogic's pattern-recognition fraud tool with TPG's risk management services, indemnity programs and training. Through this partnership, TPG will help lenders establish business rules and guidelines and employ the First American CoreLogic LoanSafe Fraud Manager tool to enforce those policies in the lender's daily operations. Lenders who use this joint solution will be insured against fraud losses by Lloyd's of London, which has a special relationship with TPG. The anti-fraud tool integrates patented pattern-recognition technology with a national property and fraud database. Tim Grace, senior vice president of fraud solutions at First American CoreLogic, said fraud is a $13 billion problem for the lending and investor communities. "This partnership will help lenders focus on best practices, products and processes and provide enterprise- and loan-level metrics to measure results. Our new joint effort will improve loan quality and rebuild confidence levels among lenders and investors," added Arthur Prieston, TPG's chairman.

Pennsylvania is cracking down on misleading marketing tactics from residential lenders that are hunting for refinancing opportunities. The Department of Banking's Office of Consumer Services said that some homeowners are receiving letters that look like they come from their lender or the federal government. In some cases, the company that sent the letter only has its name mentioned in fine print. Consumers call the number on the solicitation thinking they are talking with their lender or the federal government, but discover they are actually speaking with a competing lender. "These communications are brazenly misleading and intended to frighten and confuse consumers," said secretary of banking Steve Kaplan. "We are contacting the offending institutions as well as their marketing companies and ordering them to put an end to this practice."

Loan defaults will continue to escalate for United States commercial mortgage-backed securities, with the overall rate to exceed 11% among Fitch-rated deals by the end of the year, according to Fitch Ratings. New CMBS loan defaults increased more than five-fold last year (1,464 conduit loans totaling $17.75 billion), with 34% taking place in the fourth quarter alone. "Fourth-quarter default rates reached their highest ever levels both in principal balance and number of loans with no clear signs of stabilization," said managing director Mary MacNeill. In fact, 2009 defaults on their own surpassed the cumulative number from the inception of the CMBS market through 2008 ($17.74 billion). Another area of concern is large loan defaults, which increased dramatically last year. In 2009, 56 loans over $50 million in size defaulted compared to just five in 2008. Not surprisingly, most of the defaulted loans came from 2006-2008 vintages. Retail was the property type with the most new defaults at 32.3% last year. It was followed by former category leader multifamily at 22.1% new defaults, office (20.2%) and hotel (17.8%). Fitch projects sizeable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans. "Office defaults spiked in the fourth quarter last year, with further rental and net operating income declines likely through next year before a rebound takes place," said senior director Richard Carlson. "Larger concentrations of hotel loans in recent vintages will translate to higher defaults, particularly among luxury properties, resort destinations and those hotels heavily reliant on group and convention business."

Wells Fargo & Co. on Wednesday promised that it soon would begin modifying second mortgages under a new wrinkle to the government's Home Affordable Modification Program. Wells noted that it would modify second liens when the corresponding first mortgage also is modified. During a conference call regarding the bank's earnings, chief financial officer Howard Atkins said the HAMP second lien program (2MP) would be up and running before the end of the second quarter. "We expect to begin offering the second lien program to customers who have both a Wells Fargo first and second lien in the next couple of weeks," Atkins said. Wells will offer 2MP to "other customers later in the second quarter," he said. The CFO told analysts and investors that the bank's $125 billion home equity loan portfolio "demonstrated some positive credit trends in the first quarter." The 60-day or more delinquency rate declined to 3.4% down from 3.58% in the fourth quarter. For HELs with LTV's above 100%, only 5.2% are delinquent. "The vast majority of customers with negative equity continue to make their payments," Atkins said.

Wells Fargo & Co. earned $2.5 billion from its residential mortgage business in the first quarter-a 26% decline from the prior period-due to lower originations and a reduction in hedging results. The nation's largest residential funder originated $76 billion in single-family loans, down 19% from the fourth quarter of 2009. Mortgage hedging results fell $983 million in the first quarter due to a change in the composition of hedge instruments to "maintain ongoing hedge effectiveness," the company said. Chief financial officer Howard Atkins said the performance of credit card, auto and commercial real estate has turned up, but it will take a "little longer" for residential real estate loans. The first quarter report shows the early delinquency rates on prime mortgages, home equity loans, and pick-a-pay loans crested in the first quarter. But one- to four-family loans in the non-accrual category-including charge-offs and foreclosures-increased significantly.

MGIC Investment Corp. has priced the sale of 65.1 million shares of its common stock at $10.75 per share, for gross proceeds of approximately $700 million. The Milwaukee-based company also priced a $300 million offering of 5% convertible senior notes. Goldman Sachs & Co. is the sole book-running manager for both offerings. A report by FBR Capital Markets analysts Steve Stelmach and Amy DeBone commented, "We generally view the capital raise as a positive as it will bolster capital ratios and should remove liquidity risk at the holding company. Nonetheless, it does limit the potential upside in shares had MGIC been able to manage the current crisis and reach a point where it could have harvested future premiums on the existing book without the added share count." They added the new funds would allow MGIC to write more business and to withstand expected losses. FBR said it expected $700 million to be allocated to writing new business, giving MGIC $900 million for this purpose when adding in the $200 million set aside to write business at MGIC Indemnity Corp. As of midday on Wednesday, MGIC's common stock was trading at $11.58 per share, up $0.52 from the previous close.

A second week of interest rate declines finally brought consumers back to their mortgage originator, as the Mortgage Bankers Association's Market Composite Index for the week ended April 16, 2010 saw an increase in loan application volume. The MCI increased 13.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 13.9% compared with the previous week. According to Michael Fratantoni, MBA's vice president of research and economics, "Treasury rates fell last week causing a decline in mortgage rates. As a result, refinance applications picked up over the week, as some borrowers took advantage of this recent rate volatility to lock in a low fixed-rate loan. Purchase applications continued to increase coming out of the Easter holiday, as we approach the end of the homebuyer tax credit, and are up modestly over last month." The Refinance Index ended a five week long slide, increasing 15.8% from the previous week. The market share of refi applications increased slightly to 60% for the survey period, up from 58.9% during the previous week. The market share of adjustable rate mortgage applications fell to 6.0%, from 6.3% for the previous week. The decline in average contract interest rate for the 30-year fixed rate mortgage wiped out the remainder of the whopping 27 basis points rise two weeks ago to 5.31%. It is now at 5.04% for the current week with points increasing to 0.98 from 0.91 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs fell by 11 bps to 4.34%. The average contract interest rate for one-year ARMs fell 7 bps to 6.95%.

The Justice Department is seeking a permanent injunction against Lend America and a top executive who controlled the company, Michael Ashley-but no monetary penalties-for defrauding the Federal Housing Administration. A privately held nonbank based in Melville, N.Y., Lend America closed its doors in December, though it has not filed for bankruptcy protection, an event expected by many vendors and third parties that once did business with the company. "Rather than seeking monetary relief, the United States seeks equitable relief barring Lend America from engaging in conduct to defraud the United States," said assistant U.S. attorney John Vagelatos of the Eastern District of New York in a new "notice of motion for default judgment." In a civil suit filed last October, Vagelatos' office won a preliminary injunction to stop Lend America from originating FHA-insured loans. The U.S. Attorney's office is now seeking a default judgment because Lend America and its principals have not appeared for hearings or hired attorneys to represent them. If Lend America does not contest the default judgment by April 30, Vagelatos will ask the judge to impose a permanent injunction on Lend America, its agents and employees from originating, underwriting or endorsing FHA-insured loans. (However, for all intents and purposes, Lend America has no employees left and is out of business.) The AUSA also will ask the court to permanently enjoin those individuals from "advertising, marketing to the public or otherwise soliciting business to originate or otherwise make federally related loans or federally-insured home loans, including but not limited to, those loans defined in the Real Estate Settlement Procedures Act." Vagelatos filed the motion for default judgment on April 19 with the U.S. District Court for the Eastern District of New York.