Origination

Lenders would be exempt from risk retention ratios on MBS issuance if they originate low-risk, fully documented mortgages under an amendment Senator Johnny Isakson, R-Ga., plans to offer when the Senate takes up the regulatory reform bill. Under the amendment, "qualified mortgages" would be exempt from a 5% risk retention requirement when a lender sells loans in the secondary market. Qualified mortgages could not have interest-only payments, balloon payments or negative amortization. In addition, any mortgages with loan-to-value ratios exceeding 80% must have private mortgage insurance. The subprime mortgage crisis resulted from "shoddy underwriting," Sen. Isakson said. Qualified mortgages would mark a return to the "gold standard" and the "good old days" when mortgages were well underwritten, he added. Mortgage funders and investment bankers would have to retain 5% of the credit risk on riskier mortgages, however. Borrowers that take out safer loans "should not have to pay the higher interest rates that would result from across-the-board risk retention," said Glen Corso, managing director of the Community Mortgage Banking Project. Industry groups are concerned that risk retention will increase the cost, and reduce the availability of credit to homebuyers. For over a year the industry has been seeking support for a qualified mortgage exemption.

Reverse mortgage production fell to below 6,000 loans per month as of March 31, according to figures released in Philadelphia at the National Reverse Mortgage Lenders Association's 2010 Road Show conference. The industry is coming off its best year ever in fiscal 2009, when originations topped 114,600, according to the Department of Housing and Urban Development's figures. But production started tailing off in November, reported Erica Jessup, a housing program policy specialist in HUD's Office of Single-Family Program Development, and has fallen 'considerably' since then. In March, the Federal Housing Administration endorsed policies for only 5,800 for government-insured reverse loans, she told the meeting. Officials at the conference offered several reasons for the drop in production. Some said the Oct. 1 HUD deadline that changed the formulas for how much of their equity seniors could tap with reverse mortgages caused many borrowers to move up their decisions, essentially robbing lenders of production in fiscal 2010. Others said that with lower home values, borrowers don't have as much equity as they believed, so they are postponing their decisions. And still others said the business is being haunted by negative publicity that is not justified. NRMLA President Peter Bell called them the "three misses: misunderstanding, mischaracterization and misperception." According to HUD's Jessup, California is the top state in terms of traditional HECMs so far this year, with 5,377 loans, followed by Florida (4,214) and Texas (3,405). At the midway point in the government's fiscal year, California also leads in refinancings (1,020) followed by Maryland (381) and New York (350).

The first private-label security backed by "new" originations seen since 2008 marks the start of the residential mortgage-backed securities market's comeback, but pending regulation and other challenges mean its full return is likely to take some time, according to the American Securitization Forum. The $222 million Redwood Trust Inc. deal backed by "extremely high quality" jumbo loans "signals that the private RMBS market is beginning to return, but it does not signal that RMBS has returned," said Tom Deutsch, executive director of the American Securitization Forum. "The market is extremely fragile and we need to be very careful, especially as policymakers consider new regulation, that we act thoughtfully to ensure vitally needed private credit starts flowing again to American consumers."

Editor's note: Today we are rerunning one of our favorite Sue Haviland columns. We hope you enjoy it.

Fidelity National Financial Inc. is selling its 32% stake in Sedgwick Claims Management Services Inc. to Stone Point Capital LLC and Hellman & Friedman LLC. The other owners of Sedgwick -- Thomas H. Lee Partners and Evercore Capital Partners -- also are selling their stakes in the company. The total cash price for Sedgwick will be $1.1 billion, of which FNF expects to receive $220 million for a net gain of $95 million. The deal is expected to close during the second quarter of 2010. William P. Foley II, chairman of FNF, said the deal meets the company's goal of creating significant value for its shareholders. He added it was "a very successful four-year investment for FNF."

Mortgage brokers will no longer have to go through the expense of an audit to originate Federal Housing Administration loans. For the rest of this year, they can coast without paying a certified public accountant to verify their net worth. "Mortgage brokers already approved by FHA will be authorized to continue to originate FHA-insured loans through the end of the calendar year." Starting January 1, brokers will have to team up with FHA-approved direct endorsement lenders to originate FHA-insured single-family loans. These changes are all part of a long-awaited final rule that eliminates Federal Housing Administration's approval process for mortgage brokers. After three years, HUD will raise the net worth requirements again. Beginning May 20, 2013, "approved lenders and applicants to FHA single-family program must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million," the final rule says. The final rule caps the maximum worth requirement at $2.5 million. HUD originally proposed a $2.5 million net worth for all FHA-approved lenders. (See related story.)

The Department of Housing and Urban Development Tuesday morning published its final rule that sets higher net worth requirements for Federal Housing Administration-approved lenders. Starting May 20, 2011, most FHA-approved lenders must have a minimum net worth of $1 million, four-times the current requirement of $250,000. Non-supervised FHA-approved lenders that qualify as small businesses have to meet a $500,000 net worth standard. HUD estimates there are 260 small-business non-supervised approved lenders with net worth less than $500,000. In three years, HUD plans to raise the net worth requirements again. Beginning May 20, 2013, "approved lenders and applicants to FHA single-family program must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million," the final rule says. HUD capped the maximum worth requirement at $2.5 million. The department originally proposed a $2.5 million net worth for all FHA-approved lenders.

First California Mortgage of Petaluma said it began originating loans under a new Fannie Mae warehouse pilot program last week -- 90% of it coming from loan brokers. Over the past two years several warehouse lenders have trimmed their menus to limit the financing of mortgages sourced through loan brokers. The commitment is for $50 million, which will allow the privately hold nonbank to fund an additional 5,000 mortgages this year. The lender is Natty Mac. Christopher Hart, president of FCM, said his firm continues to use the wholesale channel even though other firms have exited the sector. "There's hope out there for brokers," he told National Mortgage News. "We don't like just any broker. We like the 'right' broker." In 2009 FCM, a nonbank, originated $1.1 billion, which is about what it funded the year before. It currently has three warehouse providers. Its product menu includes Fannie Mae and Freddie Mac loans, including what he called "conforming jumbos." Under the pilot program with Fannie, the GSE commits to buying the loans in a shorter time frame, which means they stay on the Natty Mac warehouse line for a shorter period of time. Freddie has a similar program.

The nation's GSE regulator wants more information about the Federal Home Loan Bank of Seattle's capital restoration plan before it lifts the bank's "undercapitalized" designation. The Federal Housing Finance Agency is giving the Seattle bank 120 days to develop and submit the requested material. "During this period, FHFA will maintain the Bank's 'undercapitalized' classification absent further developments, and the accompanying restrictions will remain in place," said the GSE regulator. Under the restrictions, the Federal Home Loan Bank cannot pay dividends to member institutions or redeem or repurchase member stock. FHFA reaffirmed the Seattle bank's 'undercapitalized' status in November 2009 even though the FHLB met all statutory and regulatory minimum capital requirements in the third quarter. Acting director Edward DeMarco noted the institution's earnings have been hurt by its investments in private-label MBS and expects those losses could continue. The Seattle FHLB reported a $162 million loss in the fourth quarter.

MGIC Investment Corp., the nation's largest mortgage insurer, saw a slight improvement in its first quarter results, losing $150 million compared to a loss of $185 million for the same period last year. However its volume of new business continues to slide, with only $1.8 billion of new insurance written in the first quarter versus $6.4 billion for the first quarter of 2009. (The 1Q10 total, however, does not include nearly $685 million of insurance written on loans modified under the Home Affordable Refinance Program.) MGIC had total loan delinquencies of 18.14% compared to 13.51% a year ago. In the safe harbor portion of its earnings release, MGIC said it expects to incur substantial losses for this year and cannot assure investors when it will return to profitability. During the first quarter, rescissions mitigated MGIC's paid losses by $373 million. (For the full year 2009, rescissions mitigated paid losses by $1.2 billion.) The lawsuit Bank of America filed over the rescission policy has been moved back to California Superior Court in San Francisco from the U.S. District Court for the Northern District of California. MGIC also started an arbitration action against B of A and Countrywide on the rescission matter. Countrywide filed a response objecting to the arbitrator's jurisdiction over the matter. In its response, the lender said it is seeking damages of at least $150 million. MGIC also has commenced a public offering of $700 million of common stock and $300 million of convertible senior notes due 2017. Proceeds will be used to pay off at maturity or purchase prior to maturity $78.4 million in debt due in 2011 and for general corporate purposes, including increasing capital at its mortgage insurance subsidiary.