Origination

GMAC Inc.'s chief executive Michael Carpenter sought to reassure investors — as his predecessor Alvaro de Molina did before him — that the bleeding at its Residential Capital LLC unit has stopped. On a conference call, Mr. Carpenter said GMAC expects to "fully resolve the challenges related to ResCap and the legacy mortgage business to minimize its impact on the company." Additionally, a spokeswoman for GMAC said despite media reports to the contrary, that ResCap, as a company, is not necessarily for sale. In an email, the spokeswoman said GMAC is "exploring strategic alternatives" for ResCap including asset sales. As reported, ResCap lost $4 billion in the fourth quarter, and $9.2 billion over the previous eight quarters. Mr. Carpenter told investors that, "You will see steady progress month by month, quarter by quarter." Part of the reason for such optimism is that in December, GMAC marked down certain loans to 40 cents on the dollar, from 70 cents, and transferred the assets from the Ally Bank unit to ResCap, resulting in a $2.6 billion loss in the quarter. "We expect the majority of the losses related to legacy assets are behind us," said Robert Hull, GMAC's chief financial officer.

A wave of GSE buyouts of delinquent loans widely expected to affect higher-coupon agency mortgage-backed securities this year failed to materialize in 2010's first month of prepayment data, according to Wall Street research reports. Prepayments also slowed despite record low rates during the period, but analysts had widely expected that would occur due to tight underwriting and the fact that many loans had already refinanced. More surprising to some analysts was the lack of buyouts. Credit Suisse researchers said the buyouts may have failed to materialize due to operational challenges involved in implementing the accounting changes expected to spur them. "We believe the economic incentive for the GSEs to buy out delinquent loans is still there and hence buyout risk remains in place in the short term," the analysts said. "However, we would start fading out buyout risk should it not materialize in February." Barclays Capital researchers said some MBS investors have been concerned about massive GSE buyouts, but they have been reassuring them that it may not happen due to portfolio caps and other factors. Overall, 30-year fixed rate prepayments declined by 16%, according to Credit Suisse. Both firms said prepayments were slower than they had expected.

The mortgage industry shed 1,000 full-time workers in December after a 2,800 increase in November, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 253,400 in December from 255,400 the previous month. Employment in residential finance industry last year averaged 262,900 positions, compared to 308,300 in 2008. Meanwhile, Friday's job report shows the nation's unemployment rate fell three tenths of a percent to 9.7% in January as 20,000 workers were laid off. The bureau revised the December number from a loss of 85,000 full time jobs to a loss of 150,000. [There is one-month lag in BLS reporting of mortgage industry employment data.] The November jobs number was revised upward from a loss of 4,000 jobs to a gain of 64,000. That's the good news. The bad news is that companies have slashed 8.4 millions workers from their payrolls since the recession started in December 2007 — up 1 million from previous estimates. This helps to explain the strain on servicers as well as the high level of defaults and foreclosures. Despite the discouraging numbers, many economists expect to see a pickup in hiring very soon.

The Federal Reserve is prepared to act as a backstop for the mortgage market after it officially ends its MBS purchase program on March 31, according to New York Fed Bank President William Dudley. The Fed is on track to complete its planned purchases of $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae MBS at the end of this quarter. But Mr. Dudley told the Associated Press that the Fed is not on "automated pilot" and will restart MBS purchases if mortgage rates spike. "If there is a sharp turn in the road," Mr. Dudley said, the Fed will intervene. Wall Street mortgage experts seem divided on how the market will react when the Fed stops its MBS purchase program. The Fed bank president expects it will be orderly since the central bank has telegraphed its intentions well in advance of the March 31 cut off.

The Federal Housing Administration had $32.6 billion in liquid assets on hand at Dec. 31 — a slight increase from three months earlier — to cover potential losses on its $700 billion-plus book of business, according to new figures provided by the agency. Compared to the same period a year earlier, the FHA 'Reserve Fund' saw its cash and "investment" balances improve by 13%. However, FHA would not provide a capital ratio for the December 31 period, noting that the figure is "only calculated once a year, at the end of each fiscal year." In the fall, the reserve fund had a capital ratio of just 0.56%, well below the 2% minimum FHA prefers. Analysts fear that unless the insurance fund can quickly raise premiums, FHA might be overwhelmed by claim payments with the reserve fund going into the red. (For the full analysis see the Monday edition of National Mortgage News.)

A probe by the HUD Inspector General of 15 FHA lenders is causing warehouse providers to have second thoughts on extending credit to some of these firms, according to attorneys, consultants, and mortgage executives close to the situation. These officials, who spoke on the condition they not be identified, said entire warehouse lines have been pulled or are in jeopardy. "When a government agency humiliates companies in public, there can be consequences with their relationships with third parties," one attorney said. In early January, Housing and Urban Department IG Kenneth Donohue subpoenaed documents from 15 FHA direct-endorsement lenders, citing their high default and claim rates. Recently, the IG counsel issued a letter to 10 of the companies, clarifying the nature of the probe and its review of loan documents. "Be advised the selection of 20 loans from these lenders was not based upon any evidence of wrongdoing — a point we made in the press release," the OIG counsel says in the letter. He adds, "Further, HUD IG's review of these lenders does not presently affect their ability to participate fully in the department's FHA insurance program." It appears the letter could be used to reassure warehouse lenders that the targeted companies were not accused of wrongdoing. The letter was requested by K&L Gates attorney Phillip Schulman who declined to comment on the matter.

Thanks to a steep yield curve, Annaly Capital Management, New York, a mortgage investment REIT, earned $729 million in the fourth quarter, a 155% improvement in profits from the prior period. In the same quarter a year earlier Annaly lost $506 million. The publicly traded company, which holds $64.8 billion in MBS, told stock analysts that it believes the yield curve will remain steep. According to a research note from Sandler O'Neill, management at Annaly is not "convinced that a sharp decline in MBS prices is on the horizon, although they would welcome a pullback in prices since it would enable Annaly to purchase new MBS at wider spreads."

Fitch Ratings, New York, has also downgraded ratings of Pacific LifeCorp, Newport Beach, Calif., and its subsidiaries, in large part because of fears of continued deterioration of the commercial real estate market could result in higher-than-expected losses for the parent company. PLC has an above-average investment exposure to commercial real estate related assets, including commercial mortgage-backed securities, direct loans and real estate. At the end of the third quarter 2009, these assets represented over 16% of PLC's total invested assets. Fitch is also worried about PLC's exposure to prime and alt-A residential MBS. The rating agency said PLC's gross unrealized loss position relating to these asset classes was $1.2 billion as of Sept. 30, 2009. However, Fitch said it believes PLC's exposure to future investment losses is manageable in the context of its statutory capital and projected operating earnings. PLC's long-term issuer default rating was dropped from "A" to "A-", while Pacific Life Insurance Co., had its insurer financial strength rating cut from "AA-" to "A+".

Fitch Ratings, New York, has downgraded two Farmer Mac Guaranteed Notes Trust transactions as a result of its downgrade earlier this week of the insurer financial strength rating of Metropolitan Life Insurance Co., New York. Fitch said the ratings of the two transactions, Series 2006-2 and Series 2007-1, are based on MetLife's ability to fulfill its obligations under its guaranty. The ratings on both transactions are solely linked to MetLife's IFS rating, which was cut one notch from "A+" down to "A". Both Farmer Mac transactions were downgraded from "AA" to "AA-". A pool of agricultural mortgages secures them, but the notes are general obligations of MetLife. "If MetLife is no longer able to support the transaction, support would then fall to Farmer Mac. If Farmer Mac should then fail to make payments on the notes, the noteholders have ultimate recourse to the collateral," Fitch said.

The average rate for a 30-year fixed-rate mortgage inched very slightly above 5% during the week ended Feb. 4, according to the Freddie Mac Primary Mortgage Market Survey. At 5.01%, this was up from 4.98% the previous week but down from 5.25% a year ago. "Mortgage rates remained relatively stable for a second week amid news of a strengthening housing market," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 15-year FRM rate in the latest survey was 4.40%, up from 4.39% the previous week but down from 4.92% a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.27%, up from 4.25% the previous week but down from 5.26% a year ago. The average one-year Treasury ARM rate was 4.22%, down from 4.29% the previous week and from 4.92% a year ago. Average points were 0.7 for 15- and 30-year product, 0.6 for five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.