Origination

In recent weeks mortgage lenders have experienced a flurry of new applications from prospective homebuyers who see the April 30 federal tax credit expiration fast approaching and want their $8,000 "gift" from Uncle Sam. "We're getting calls from people who are frantic and want to get their contracts in," said John Walsh, the chief executive of Total Mortgage Services, a Milford, Conn., nonbank that funds loans in 21 states. Like many mortgage companies, Walsh has had decent volumes this year, but he said he fears that once the $8,000 tax credit for first-time homebuyers and a related one for move-up purchasers sunset at month's end, loan officers might be hard pressed for business. "I could be wrong," Walsh said, "but a lot of customers know the timing of this thing and they realize the end is near." He said he fears the second half of 2010 could be deadly quiet for new originations. Brian Benjamin, a loan broker based in the northern New Jersey suburbs, said he too has seen a pickup in applications. "To be eligible" for the tax credit, "they need to get the contract signed by April 30," he said. (For the full story see the weekly edition of National Mortgage News.)

The Securities Industry and Financial Markets Association has appointed a former Federal Home Loan Bank president with extensive mortgage experience as the head of its securitization group. The new SIFMA appointee, Richard A. Dorfman, resigned Friday as president and chief executive officer of the Federal Home Loan Bank of Atlanta and was named to the SIFMA post on Monday. Jill Spencer, who has been the Federal Home Loan Bank of Atlanta's executive vice president and general counsel, was named interim president and chief executive officer following Dorfman's departure. Prior to joining the Federal Home Loan Bank of Atlanta in 2007, Dorfman was managing director and head of the U.S. agencies and mortgage business at ABN Amro. He also worked in Lehman Brothers' mortgage division as managing director and head of originations in its U.S. government and agencies business. In addition, he has been an attorney for the Federal Deposit Insurance Corp. and held positions at mortgage banking firms.

After originally canceling its public offering last Friday, Two Harbors Investment Corp., a Minnetonka, Minn.-based real estate investment trust that invests in mortgage backed securities, has reversed course, reinstating the offering, but cutting the number of shares proposed to be offered to 11,000,000 shares, plus an over-allotment option of 1,650,000 shares. Originally, the company sought to offer 14,000,000 shares. When it cancelled the offering, Two Harbors said the available share price would result in an unacceptable dilution of book value to existing shareholders. After closing on Friday at $9.20 per share (up $0.45 over the previous day's close), Two Harbors was trading at $9 per share late Monday morning.

Goldman Sachs, its image tarnished by a new subprime-related legal action brought by the government, on Monday made additional comments on the case, including a revelation that it too lost money on the CDO transaction in question. Goldman now claims the firm lost more than $90 million on the deal, which is still paltry compared to almost $1 billion in estimated losses suffered by investors. In answering allegations levied by the Securities and Exchange Commission, the Wall Street firm says it made "extensive" disclosures to investors IKB, a large German Bank, and ACA Capital Management, which it called "sophisticated CDO market" participants. Goldman says the "risk associated with the securities was known to these investors." On Friday the SEC accused Goldman and an executive involved in the transaction of misleading clients on a subprime bond known as ABACUS 2007-AC1. Goldman marketed the offering in 2007. The SEC accused the firm of civil fraud, saying it created the CDO with the help of a hedge fund that was shorting the same bond but did not disclose the relationship to investors.

Buyers purchased more than 700 new condominium units in Greater Downtown Miami during this year's first quarter, nearly twice as many as in the same period a year ago when 390 apartments were sold, according to a new report from Condo Vultures, a Bal Harbour, Fla.-based consulting firm. Of the 82 projects started in the area since 2003, 35 are now sold out and 24 are at or beyond the halfway point, the report said. But six, including a two-tower, 324-unit property near the new Florida Marlins baseball stadium that was just taken back by lender iStar Financial, still have not sold a single unit. The inventory of unsold product in the area has now dipped below the 6,600-unit level. The jump in sales was fueled largely by lower prices, as developers and lenders which have taken back properties dropped their prices from $300 per square foot to $200. Now, some are attempting to bump back up to $300-per-foot range, according to Peter Zalewski, a principal in Condo Vultures, who says "time will tell if the new pricing sticks."

The second half of this year will bring continued challenges for the housing market, according to two Wells Fargo Securities economists, who expect higher mortgage rates and new home price declines. "The housing market will not return to a position of strength until late next year or in 2012," said Mark Vitner and Adam York. In their April "Housing Chartbook," they note that the housing recovery so far has been based on tax incentives, artificially low mortgage rates and "unprecedented" assistance for struggling homeowners. The Federal Reserve stopped buying agency MBS at the end of March and the homebuyer tax credit is set to expire late in the Spring. "We have significant concerns about the sustainability of the housing recovery once the stimulus is removed from the marketplace," the economists say, adding that an excess supply of 2 million unsold homes will continue to exert downward pressure on prices. "We estimate housing prices could fall an additional 6% to 8% from their current levels before they ultimately bottom out," York told National Mortgage News. But he noted that most of the drop in prices will come from sales of higher-end homes.

A new regulatory report says the collapse of Cal State 9 Credit Union of Concord, Calif., was caused by the lender's ill-fated foray into subprime residential lending, which eventually comprised more than 92% of its loans. "Specifically, management committed an exorbitant percentage of the credit union's assets in an indirect 'Home Equity Line of Credit' program without adequate controls in place to oversee and manage the risks in the program's operations," according to a "material loss review" conducted by the National Credit Union Administration's Office of Inspector General. Virtually all of the indirect HELOCs were of the subprime variety that included loans with stated income, high loan-to-value ratios, and negative amortization second liens, most of which were made to borrowers with low credit scores. More troubling, according to the report, was that the risky loan program even jeopardized at least three nearby credit unions and one bank with the sale of $190 million in non-recourse loan participations to those four institutions. The report on the collapse of the $440 million asset Cal State 9-the biggest credit union failure ever in California-comes as the Senate Subcommittee on Permanent Investigations is planning additional hearings on the collapse of Washington Mutual, the biggest depository failure ever which was also caused by subprime lending. Like Washington Mutual, Cal State 9, failed in 2008. Its demise will cost the NCUA insurance fund $206 million, making it the costliest credit union failure to date.

Citigroup executives say they are seeing better performance in the bank's $152 billion North America residential mortgage portfolio, thanks in part to asset sales and loan modifications. The serious delinquency rate (90 days or more past due) on its $96.4 billion portfolio of first liens fell to 10% in the first quarter, down 115 basis points from the previous quarter. It is the first quarterly drop in a long time. "Net credit losses on first mortgages declined 24% to $819 million in the first quarter driven by HAMP loan conversions and improvement in loan loss severity and $1 billion in assets sales during the quarter," Citi said during a conference call. In the first quarter, Citigroup converted more than $2 billion of delinquent mortgages into permanent modifications under the Home Affordable Modification Program. The bank said HAMP modifications are performing better than other loan restructurings and "early results indicate the re-default rates are likely to be lower." The bank did not break out the results of its CitiMortgage subsidy in reporting a first quarter profit of $4.4 billion. However, the company said it originated $31.5 billion of single-family loans in the first quarter down slightly from the previous quarter. As reported by National Mortgage News recently, CitiMortgage has shown some interest in growing its wholesale division again, contacting certain high performance brokers that once sourced loans to the firm.

PMI Mortgage Insurance Co., Walnut Creek, Calif., has created an online tool to help lenders see the pricing advantages of the company's private mortgage insurance products when compared with Federal Housing Administration insurance on loans with high credit scores. "We developed this calculator to counter the commonly held but incorrect perception that FHA is always the lowest cost solution," said Jan Walker, senior vice president of product development and marketing for PMI. "On FICO scores above 680, PMI's pricing is better than the FHA and can save borrowers thousands of dollars." Lenders are able to price various scenarios by entering loan amounts, credit scores and loan-to-value ratios using simple dropdown windows. Scenarios assume owner-occupied purchase transactions, 30-year, fully amortizing 6% fixed rate, and conforming loan balances. The tool can be found on the company's website at http://www.pmi-us.com/pmi_fha_calculator.

U.S. investors still consider real estate as a good investment, according to a survey released by Citi. When asked to rate whether it was a good or excellent time to invest in a specific type of investment, the real estate sector-which for this survey was defined as property, investment properties and/or real estate investment trusts-came back with a positive response from 47% of all investors and 50% of large investors, tops among both groups. "Real estate may have been badly battered in recent years. Still, it has an enduring appeal for Americans, who find it far easier to grasp the value of a house than the value of a stock or stock fund," said Jonathan Clements, director of financial education for Citi Personal Wealth Management. Hart Research Associates conducted the survey for Citi, with the respondents consisting of 756 investors with at least $100,000 of investible assets with 317 of those have more than $500,000 of assets.