Origination

Federal Reserve officials are worried that serious delinquency and foreclosure rates are moving higher and house prices are still under downward pressure. "We have yet to see evidence of a sustained recovery for the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures," Fed chairman Ben Bernanke told the Dallas Regional Chamber on Thursday. The minutes of the March 16 Federal Open Market Committee reveal that Fed officials are not impressed by the improvement in home sales in the second half of last year. It may largely reflect "transitory effects from the first-time homebuyer tax credit rather than a fundamental strengthening of housing activity," the minutes say.

Rising bond yields have pushed the weekly average rate for 30-year fixed-rate mortgages to its highest level in eight months, according to this week's Freddie Mac Primary Mortgage Market Survey. "Once again, mortgage rates followed bond yields higher amid a positive March employment report," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 30-year FRM rate during the week ended April 8 was 5.21%, up from 5.08% the week before and from 4.87% a year ago. The average rate for a 15-year FRM was 4.52%, up from 4.39% the previous week but down slightly from 4.54% a year ago. This was the highest the average weekly 15-year FRM rate has been since Dec. 31, 2009. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.25% during the most recent week, up from 4.10% the previous week but down from 4.93% a year ago. The average one-year Treasury ARM rate for the latest week was 4.14%, up from 4.05% a week ago but down from 4.83% a year ago. Average points were 0.6 for all the aforementioned products except one-year Treasury ARMs, for which average points were 0.5.

Wells Fargo Bank NA, San Francisco, has agreed to allow the NAACP to review its lending practices as part of its settlement of a lawsuit involving alleged fair lending violations. Under the agreement, the NAACP can make recommendations to improve credit availability for African-Americans and assist borrowers facing foreclosure. "We are committed to working constructively with the NAACP and our communities to help stabilize neighborhoods across our country," said Jon Campbell, head of Wells Fargo's Social Responsibility Group. The NAACP commended Wells Fargo for its commitment. "In these tough economic times marked by limited credit and homeowners struggling to stay to afloat, we are pleased that Wells Fargo has stepped forward to be a partner in our efforts to increase fair lending," chairman Roslyn Brock said. Since 2007, the NAACP has sued over a dozen lenders for "systematically" placing blacks into higher-cost subprime loans. The civil rights group said it remains in litigation with 14 other financial institutions, including JPMorgan Chase, Citibank and HSBC, over allegations of unfair lending practices and lending discrimination.

The dollar volume of defaulting loans in Japanese commercial mortgage-backed securities rated by Moody's Investors Service decreased somewhat in the latest monthly reporting period. Defaulting loans totaled about 271.7 billion yen ($3 billion) at the end of March, representing a decline of about 6% from February, according to Moody's. The rating agency said it also found that between January and March "special servicing activities for defaulting loans had intensified compared with the previous year."

The latest monthly data from Fitch on U.S. jumbo, prime-credit residential mortgage-backed securities show serious delinquencies continue to rise while the much higher subprime credit delinquency rate has dropped slightly. In March, late payments of 60-plus days on prime jumbo RMBS rose for 34 consecutive months and passed the 10% mark while subprime delinquencies of this type have dropped slightly month-to-month to 46.3% from 46.9% but remained far above the 39.8% rate seen a year ago. "The improvement in subprime delinquencies may be nothing more than a seasonal anomaly of tax refunds being utilized to help borrowers catch up on mortgage payments," said Fitch managing director Vincent Barberio in the rating agency's Performance Metrics report. In the jumbo sector, California continues to have the highest volume of prime loans outstanding and its 60-plus-day delinquencies during the month were 11.8%, up from 11.6% the previous month. This represents about 44% of the outstanding jumbo market, according to Fitch.

The National Association of Realtors will press Congress to quickly pass a bill that extends the flood insurance program and makes it retroactive to March 29. Congress went on recess at the end of March and allowed the National Flood Insurance Program to expire. The lawmakers don't return to Washington until April 12. "Flood insurance is required by law for home sales on properties located in 100-year floodplain areas, which are left unprotected by this lack of congressional action," said NAR president Vicki Cox Golder. Homeowners with existing flood insurance policies are insured for flood damage. However, the Federal Emergency Management Agency cannot write new policies, renew policies or increase coverage until Congress passes a NFIP reauthorization bill. The Senate inserted a NFIP provision in a tax bill to extend the flood insurance program until April 30. But Republican senators blocked passage of the bill. Recent flooding in New England highlights the importance of flood insurance, the Realtors said.

FHA single-family originations have tailed off during the first two months of 2010 as loan production fell to $22.3 billion in February-off 25% since December. Lenders originated $30.1 billion in FHA-insured loans in December and $26 billion in January. February's loan production could be off because of severe winter weather. FHA's monthly activity report shows that the serious delinquency rate fell to 9.17% in February, down from 9.4% in the previous month. However, the "FHA Outlook" shows the federal mortgage insurance program is seeing heavy demand for streamline refinancings, which could be problematic. Streamlines involve refinancings of existing FHA borrowers so they can lower their mortgage payments. They used to be considered low-risk transactions. But FHA completed 329,400 streamline refinancings in the fiscal year that ended Sept. 30, 2009 and 5.5% are already 90 days or more past due, according to FHA. As of Feb. 28, FHA endorsed another 134,800 streamline refinancings. FHA is projecting it could do 311,500 streamlines by Sept. 30 when FY 2010 ends.

A study released by the Mortgage Bankers Association shows 1.2 million households were lost between 2005 and 2008 despite a population increase of 3.4 million in the area examined. The study, "What Happens to Household Formation in a Recession," was sponsored by the Research Institute for Housing America and conducted by a USC professor. "It is clear the most recent recession impacted individuals' decisions to move out on their own and caused many Americans to join already formed households," said Gary Painter, associate professor in the School of Policy, Planning and Development at the University of Southern California. "Due to data limitations, my analysis had to focus on household formation as of 2008. Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all."

Rate surges drove a decline in overall mortgage applications, the Mortgage Bankers Association's Market Composite Index for the week ended April 2 found. The MCI, a measure of mortgage loan application volume, decreased 11% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 10.5% compared with the previous week. According to Michael Fratantoni, MBA's vice president of research and economics, mortgage rates reached their highest level since August 2009. This had an effect on refinancings as The Refinance Index decreased 16.9% from the previous week. However, the increase had little or no effect on home purchase applications as seasonally adjusted Purchase Index increased 0.2% from one week earlier. The government purchase index increased significantly for the third straight week. The share of purchase applications for government lending programs increased to 49.9%, its highest level since February 1990 and the third highest level in the history of the survey. The market share of refi applications fell to 58.7% for the survey period, down from 63.2% during the previous week. This is the lowest share for refi applications since the week of Aug 28, 2009. On the other hand, the market share of adjustable-rate mortgage applications is up to 6.2%, from 5.2% for the previous week. The average contract interest rate for the 30-year fixed-rate mortgage is up 27 basis points to 5.31% from 5.04% for the previous week, with points declining to 0.64 from 1.07 (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 increased by 20 bps to 4.54%. The average contract interest rate for one-year ARMs increased 15 bps to 7.03%.

The Securities and Exchange Commission is proposing that private issuers of mortgage-backed securities retain 5% of the credit risk when conducting an expedited sale or shelf offering. Issuers would no longer need to get an investment grade rating. The SEC commissioners voted 5-0 to issue the proposed changes to its asset-backed securities rules for a 90-day comment period. As proposed, "the ABS sponsor would hold 5% of each class of asset-backed securities and not hedge those holdings," SEC said. In addition, the issuer's chief executive must certify that the assets have characteristics that provide a reasonable basis to believe they will produce cash flows as described in the prospectus. SEC chairman Mary Schapiro said the changes would increase investor protections and "better alignment of the interests of issuers and investors through a retention or 'skin in the game' requirement." But commissioner Kathleen Casey warned that the 5% risk retention requirement would create a permanent competitive advantage for Ginnie Mae, Fannie Mae and Freddie Mac MBS, which are exempt from SEC ABS rules. The SEC proposal also requires issuers to provide computer-readable loan-level data to investors and the SEC five days before the first sale in an offering. Issuers would be expected to update this loan level data on an ongoing basis if the proposal is adopted and finalized later this year.