Origination

Two subsidiaries of the government-owned AIG have agreed to pay at least $6.1 million to resolve charges that they discriminated against African American borrowers by failing to monitor loan brokers that charged excessive fees. The loans in question were funded through the wholesale channel by AIG Federal Savings Bank, and an affiliate, Wilmington Finance Inc. Neither is still active in wholesale lending. According to the Department of Justice, AIG FSB and WFI "failed to supervise or monitor brokers in setting broker fees. This practice had a disparate impact on African American borrowers, who were charged higher broker fees than white, non-Hispanic borrowers on thousands of such loans from July 2003 until May 2006." American International Group - whose empire includes mortgage firms and a mortgage insurance company - was placed under government control in the fall of 2008. It has received upwards of $150 billion in financial aid and guarantees. The settlement, brought under the Fair Housing and Equal Credit Opportunity Acts, was filed Thursday in conjunction with a complaint made by DOJ in U.S. District Court in Delaware. The settlement, which is subject to court approval, stipulates that the AIG affiliates will pay up to $6.1 million to African American customers who were charged higher broker fees than similarly-situated, non-Hispanic white customers. The two also will invest at least $1 million in consumer financial education efforts. AIG is in the process of liquidating its $20 billion nonprime whole loan portfolio.

With perhaps one exception, the MBS market Friday did not have much of a reaction to an acceleration in Freddie Mac's prepayment speeds which reflected buyouts of a large number of delinquent loans. By staging the massive buyout of loans delinquent by 120-days-plus in a single month, Freddie Mac saw a "colossal" spike in its speeds, according to a Barclays Capital report. But there were "no surprises" there, the report indicated. "The only surprise for the market was some of the lower coupons came in faster than expected," said Walter Schmidt, senior vice president, manager, structured product strategies at FTN Financial Capital Markets. He said Friday morning that as a result swaps between Freddie Mac Gold securities and Fannie Mae securities "have underperformed a little, not by huge amounts."

Hudson City Bancorp, a top ranked residential lender in the New York metro area, wants to convert its thrift subsidiary to a national bank charter. However, company CEO Ronald Hermance Jr. is vowing that the institution will not change its current business model of "originating and purchasing first mortgage loans on residential properties." He said the strategy will continue if it becomes a national bank. He said the thrift may become a national bank because its regulator, the Office of Thrift Supervision, may be eliminated by legislation being promoted by the Obama Administration. "At a time when trust and confidence in the banking industry is being challenged like never before, we believe it is important to stay ahead of any legal and regulatory changes implemented with regard to federal financial oversight," he said. In 2009, Hudson City originated $6 billion and purchased $3 billion in residential mortgage loans.

The Federal Deposit Insurance Corp. is planning to extend its "safe harbor" policy past March 31 while its board continues to work on new securitization standards. The safe harbor provides comfort to investors that FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. FDIC chairman Sheila Bair said the current safe harbor will be extended while the agency works with industry and other regulators on securitization standards. One of the standards involves risk retention where banks are required to retain 5% of the credit risk when they securitize mortgages and other assets. "These reforms would prevent the conflicts of interest we've seen in the past and give investors confidence that they can understand and manage the risks associated with asset-backed securities," Ms. Bair told a joint meeting of minority real estate groups. The comment period on permanently extending the safe harbor and establishing new securitization standards ended Feb. 22. Industry groups, including the American Securitization Forum, are urging FDIC to extend the current safe harbor until the end of this year. ASF noted that Congress is currently working on financial regulatory reform that includes risk retention requirements. "We are concerned about the potential impact of multiple layers of securitization legislation and regulation without coordination among legislators and regulators," ASF says in its comment letter.

Navy Federal Credit Union has committed to originating $7 billion in mortgages for its members in 2010. In 2009, the Vienna, Va. based FCU had production of over $6.2 billion, the best year for mortgage originations in its history. Due to "opportunities in the current market," it is making available 100% financing up to $650,000 nationwide, according to Cutler Dawson, president and chief executive. "Navy Federal has contributed to the recovery in 2009 by extending more than $31.4 billion in credit, more than any other credit union, and is committed to providing even more credit to members in 2010," Mr. Dawson said." The mortgage business has been steadily growing at Navy FCU, with volume of $4.8 billion in 2006, $5.1 billion in 2007 and $5.7 billion in 2008.

Even though Freddie Mac's departure from the interest-only loan market could hurt the ability of some companies to originate the product, at least one firm thinks it will benefit from the GSE's decision. "I'm not concerned about it," said Craig Cole, senior vice president of Union Bank, San Francisco. "It's good for us. More business might come our way." Union Bank, unlike some lenders, does not sell its IOs into the secondary market, and instead holds them in portfolio. Many of its IOs are high balance loans and fall into the jumbo category. However, some mortgage bankers are not happy with Freddie's decision to exit the market in the fall. (For more details see the Monday edition of National Mortgage News.)

Deutsche Bank Securities Inc. has named Wall Street veteran Steve Abrahams as its new chief of securitization/MBS research within the firm's global markets division. Mr. Abrahams, most recently founder and a managing director at Citadel Capital Partners, will carry the title of managing director. During his career, he also worked at Bear Stearns as global head of liquid product strategy, and at Freddie Mac as a credit portfolio manager. Art Frank, who had been DB's director and head of mortgage-backed securities research, has left the company. Mr. Frank could not be reached for comment. Also departing DB is Karen Weaver, who headed securitization research. Ms. Weaver, one of the first on Wall Street to predict the housing bubble and mortgage crash, is retiring. A longtime mortgage researcher, Mr. Frank previously worked for Barclays Capital and for several years headed MBS research for Nomura Securities. In addition to Mr. Abrahams, Deutsche Bank Securities recently hired Dominic Konstam as global head of rates research. Mr. Konstam comes to the firm from Credit Suisse where he was in charge of global interest rate research.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.

The mortgage industry shed 3,500 full-time workers in January, after shedding 1,900 jobs the previous month, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 250,000 from 253,500 in December. Overall, the mortgage industry reduced its workforce by 9% over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating loan demand. BLS reported that 48,000 temporary jobs were created in February. Since September 2009, "temporary help services employment has risen by 284,000," BLS said. The nation's unemployment rate held steady at 9.7% in February and only 36,000 workers lost their jobs despite severe winter weather in parts of the country. It also may be a good sign for servicers that the number of long-term unemployed persons has been holding steady for the past three months, but still remains at a high level. The new jobs report shows the number of persons that have been unemployed for more than 27 weeks was 6.1 million. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Embrace Home Loans, Newport, R.I., is moving its Internet origination division, which is comprised of 50 employees, to an 18,000 square foot building located in Providence, R.I. "As a company, Embrace Home Loans has experienced significant growth," said Kurt Noyce, president. "Most recently we've added several new retail branches along the Eastern Seaboard, and completed a substantial acquisition to further increase our geographic footprint. We are proud of the work we've accomplished and are pleased to be able to add additional office space right here in our local economy. The addition of a new building in Providence not only provides a space for our growing Internet origination division, but also provides the ability for our company to add more local jobs in the future."