Origination

The Department of Housing and Urban Development has taken actions against two lenders and banned them from making Federal Housing Administration-insured loans. HUD's Mortgagee Review Board permanently withdrew the privileges of RSA Financial Inc., Atlanta, and 1st Alliance Mortgage, Houston, to participate in the FHA program. The board also imposed a civil money penalty of $267,900 against 1st Alliance and a $15,000 CMP against RSA Financial. 1st Alliance allegedly used independent contractors to originate 708 FHA loans after certifying they were full-time employees. HUD also claims the Houston-based firm failed to properly ensure that fees "paid outside of closing" were listed on the borrower's HUD-1 settlement statement. HUD discovered that the owner of RSA Financial had a criminal conviction and had been debarred by HUD on two occasions. The MRB also claims that the Atlanta mortgage company was not properly licensed in Georgia. And RSA engaged in prohibited branch arrangements and violated other FHA standards. HUD also reported that Franklin First Financial, Melville, New York agreed to pay a $413,500 civil money penalty and indemnify FHA for possible losses on 31 loans.

JER Investors Trust Inc., McLean, Va., reported the sale of its interest in $152.9 million of face amount of CMBS for proceeds of $5.5 million, most of which was used to repay matured securities. The company said up to $4.7 million were used to repay, in full, amounts outstanding, including accrued interest, on JERT's repurchase agreement with J.P. Morgan Securities Inc. that matured on March 29, 2010. As of March 31, 2010, JERT has an unrestricted cash balance of $1.1 million and continues to be in default of its payment obligations under its ISDA Master Agreement. The agreement is dated as of December 1, 2004 -as subsequently amended- with National Australia Bank Limited and its Junior Subordinated Notes due in 2037.

Commercial lenders throughout the country are becoming increasingly aware of their need to enter into modification agreements with their borrowers, says Kevin Levine, executive vice president of Strategic Asset Services of Woodland Hills, Calif. Levine explained that commercial loan values are falling in most markets, and that the office buildings, retail centers and multifamily residences are losing tenants at an increasing pace due to the economic recession. As a result, borrowers are experiencing compressed cash flow, and are unable to meet their loan payments. "Unless the loan is modified to reduce the payments, the lender inevitably will be forced to commence foreclosure proceedings," he says. "But balance sheets of banks and other lenders are only able to absorb a limited number of foreclosed properties, and that limit is being approached or exceeded by many lenders." When his company first began offering commercial loan modification services in early 2009, many lenders were reluctant to recognize the seriousness of their commercial loan problems and modify the loans, he added. Levine said in the past several months that recognition has increased dramatically. "Commercial lenders are now being compelled to negotiate with their borrowers. It is preferable for them to have a paying asset, even at a reduced return, than to go through the expense of foreclosure and incur property management expenses during a two-three year holding period while attempting to sell the property."

Freddie Mac issued $29.5 billion in mortgage-backed securities in February, down 18.5% from the previous month and 27% from a year ago. The secondary market agency also reported that its holdings of Freddie guaranteed MBS has declined by nearly $14 billion during the first two months of this year to $360.9 billion. Freddie said it purchased $22.6 billion in refinanced single-family mortgages in February, which matched its January purchases. The GSE regulator reported recently that Freddie refinanced 14,750 loans in January through the Home Affordable Refinancing Program, which involves mortgages with loan-to-value ratios above 80%. The Federal Housing Finance Agency report shows Freddie completed HARP refinancings on 717 loans with LTVs between 105% and 125%, compared to 590 in December.

The Securities and Exchange Commission will consider changes to its regulations to ensure better disclosures and protections for investors in private-label mortgage-backed securities. At an April 7 meeting, the commissioners are expected to discuss risk retention, which requires the MBS issuers to retain a portion of the credit risk. The Obama administration supports risk retention and Congress is working on legislation that would require securitizers to retain 5% of the credit risk. Industry groups are very concerned that risk retention, combined with recent changes to accounting and capital rules, will make a revival of the private-label securities market very difficult. In a letter to Senate Banking Committee leaders, 21 banking, housing and real estate groups urged the lawmakers to weigh the entirety of changes so legislative reforms "support, and not impede, a recovery in the securitized credit markets that fuel our overall economy."

Have your plan of attack ready in order to secure the most deals and generate the optimal income.

How are you planning to keep your loan volume up once the stimulus program ends?

For the last few days, I have received so many inquiries about the changes to the HECM fixed rate product that choosing a topic for this article required no thought on my part whatsoever - it was obvious.

Recent comments by a banking regulator about commercial real estate lending are making it tough for builders to get construction financing, according to the National Association of Home Builders. "We have received scores of reports from builders across the nation who have been unable to obtain acquisition, development and construction financing for viable projects or have experienced adverse treatment regarding an outstanding loan," said NAHB president Bob Jones. Due to pressure from regulators, banks are not issuing new AD&D loans and they are calling in existing construction loans to "get them off their books," Jones said. Comptroller of the Currency John Dugan recently called on the regulators to impose hard limits on CRE and construction loans. He stressed, however, that limits should be carefully phased in so problems at distressed banks are not exacerbated. But NAHB contends the comptroller is sending the wrong signal. "With the housing market struggling to regain its footing, regulators need to be issuing more flexible guidelines that will encourage banks to maintain funding for residential AD&C loans in good standing that fall below their underlying value," said Jones.

Lenders participating in a new Federal Housing Administration refinancing program to help homeowners with underwater mortgages can pool those FHA loans in standard Ginnie Mae mortgage-backed securities. In reducing the principal to a 97.75% loan-to-value ratio, the "FHA Short" refinancings will be treated like standard FHA refinancings and placed in Ginnie Mae I and Ginnie Mae II pools, according to sources. A previous FHA principal reduction program, known as Hope for Homeowners, had more restricted pooling options. Ginnie Mae only allowed pooling of H4H refinanced loans in multiple-issuer MBS. The Obama administration unveiled its new FHA Short Refinancing program last Friday and it requires principal reductions of at least 10%. FHA officials said claim and default rates on these refinancings won't be counted toward the lender's Credit Watch score.