Origination

Moody's Investors Service has placed the ratings of 262 residential mortgage resecuritization tranches on watch for possible downgrade. Combined, the resecuritized residential mortgage-backed securities affected have a current outstanding balance of $11 billion. "Increased losses on the underlying certificates are ... likely to affect the principal recovery on the junior resecuritization bonds and probably the senior resecuritization bonds as well," the rating agency said. The resecuritization is backed by alternative-A credit or supbrime collateral RMBS issued from 2005 through 2008.

A temporary tax break for some United Kingdom homebuyers likely contributed to net U.K. mortgage lending exceeding expectations for 2009, but it was still the slowest year since at least 1987. Net U.K. lending for 2009 totaled £11.5 billion ($18.3 billion), above the £8 billion ($12.7 billion) the CML had expected. This was seen as largely due to a relatively strong purchase market in the second half of the year that the tax break likely contributed to as well as a relatively weak U.K. refinance market. Gross lending for the year in the United Kingdom, at £13.4 billion ($21.3 billion), came in much closer to the CML's forecast (£13.5 billion) than the net lending figure for the period. "These figures confirm that the mortgage market ended 2009 in much better shape than it started, but it looks like a slow haul back to meaningful levels of activity," said CML economist Paul Samter. He added that the apparent rush to close in 2009 ahead of the deadline for the tax break could mean the market has a couple of slow months ahead of it.

Covered mortgage bonds — which have yet to appear in the U.S. — trade at better prices when there is a solid legal foundation for the securities, according to a German trade group executive. "It is essential that the underlying legal framework be of high quality," said Jens Tolckmitt, executive director, association of German Pfandbrief Banks. He noted German banks were able to issue 10 billion to 14 billion euros in private covered bonds per month during the height of the financial crisis — September 2008 through January 2009. Mr. Tolckmitt made his comments during a panel discussion on creating a covered bond market in the U.S. Congress is toying with the idea of passing covered bond legislation but no firm timetable is in place. Morrison & Foerster senior counsel Jerry Marlatt noted that legislation sponsored by Rep. Scott Garrett, R-N.J., would assure investors that the FDIC would not liquidate covered bond assets in the event of the issuing bank's failure. Without this legislation, investors would demand higher premiums and higher over-collateralization. "Legislation would take a lot of the expense out of issuing U.S. covered bonds," Mr. Marlatt said. Canadian banks began issuing covered bonds in 2007 without legislation, but did not face FDIC-like issues, according to David Power of the Royal Bank of Canada. Nevertheless, Canadian banks are seeking covered bond legislation, Mr. Power said.

The Eleventh Federal Home Loan District Cost of Funds Index for December recovered somewhat from the shock of Wachovia Mortgage FSB being removed from the calculation and the resulting record 84 basis point rise between October and November. The latest index, at 1.828% for December, was down nearly 27 basis points from the 2.094% reported for November. The Federal Home Loan Bank of San Francisco uses a weighted average calculation to determine COFI and the removal of Wachovia on Nov. 1, 2009 as it was merged into Wells Fargo Bank NA resulted in a major reduction in the amounts used in the formula. But the total average funds of $37.5 billion and the total interest expense of $57.1 million used to determine December's COFI are similar to the numbers used in the November calculation of $38.5 billion and $67.2 million. COFI is computed from the actual interest expense reported for a given month by the Arizona, California and Nevada eligible savings institutions members of the FHLB-SF. The index was designed to be a lagging indicator and thus less susceptible to wild swings. But a disclaimer issued by FHLB-SF said if a reporting member is removed from the calculation, depending on how it impacts total average funds and total interest expense, the effect could be significant.

PNC Financial Services, Pittsburgh, has extended many of the employment agreements with the old National City warehouse group until June 1, according to industry officials familiar with the matter. As reported by National Mortgage News last month, National City Warehouse (under PNC) is extending warehouse lines to June, not just March. There is still interest in selling the unit to a third-party firm, but PNC officials, to date, have declined to discuss the matter.

Several influential issuers are hoping to bring a new-issue residential mortgage securitization to market this year, according to one executive attending the American Securitization Forum conference. "Every major issuer we've spoken to has a goal of doing a deal this year [and] with one or two exceptions, they are all looking at a prime [jumbo] deal," said Alex Santos, president of predictive analytics and advisory firm Digital Risk LLC, Maitland, Fla. In regard to timing, he added that, "The most ambitious goal I have heard is the first quarter." While pricing remains an obstacle, discussions about the possibility have become more serious, said Mr. Santos, whose firm's offerings include contract underwriting. Among the reasons why is that "they hear the loans are better than they were," he said. But Digital Risk has some mixed findings when it comes to whether loans really have improved. Credit quality, as far as loan-to-value and debt-to-income ratios, is better, Mr. Santos said. But when it comes to cutting down on procedural mistakes, underwriting "hasn't improved as much as people expect and hope," he said.

The nation's private mortgage insurers ended one of the worst years ever for the business with a whimper as December 2009 saw the smallest number of applications received for the preceding 12 months. The $5.1 billion of primary new insurance written (all but $9.5 million through the traditional channel) brought the total for 2009 to approximately $81 billion, according to the Mortgage Insurance Cos. of America. For the month, mortgage insurers received just 26,284 in applications. In December 2008, the dollar volume of primary new insurance written was $7.2 billion and there were 61,597 new applications received. Primary insurance in force as of Dec. 31, 2009, is $863.4 billion, down from $952.2 billion one year prior, while primary risk-in-force is $200.7 billion, compared with $219.0 billion during the same period. New pool risk written was $10.2 billion; pool risk-in-force has declined from $8.7 billion at the end of 2008 to $7.7 billion one year later. December's cure default ratio was 64.5%, with 61,032 cures and 94,651 defaults. For last year, there were no months where there were more cures than defaults.

Refinancings at Fannie Mae and Freddie Mac surged 37% in the month of December to the highest level since August, according to the GSE regulator. The government sponsored enterprises purchased nearly 297,000 refinanced loans from lenders in December, up from 217,100 in November. "Total refinance volume rose in December in response to a gradual June to November decline in rates," the Federal Housing Finance Agency said in a report. December's surge includes refinancings of 33,347 borrowers with Fannie and Freddie loans under a special program for homeowners with loan-to-value ratios between 80% and 105%. Launched April 1, the Home Affordable Refinancing Program has helped 188,250 difficult-to-refinance homeowners take advantage of historically low mortgage rates in 2009 and lower their monthly payments. HARP does not require the purchase mortgage insurance. On October 1, FHFA expanded HARP to refinance underwater borrowers with LTVs greater that 105% and up to 125%. During the fourth quarter, the GSEs refinanced 1,900 of these higher LTV loans, including 1,100 in December.

The Federal Housing Administration is forecasting a dropoff in single-family originations during the current 2010 fiscal year and FY 2011 along with an increase in claims and foreclosures. In FY 2009, which ended Sept. 30, FHA lenders originated $330.5 billion in single-family loans, not counting reverse mortgages. FHA expects a 9% decline in originations in FY 2010 to $300 billion followed by an 18% decline in FY 2011 to $246 billion. The President's FY 2011 budget proposal also projects a jump in claim payments to lenders due to defaults on FHA guaranteed single-family loans. In FY 2009, FHA lenders paid $8.5 billion on defaulted loans. Budget estimates show these payments could jump to $15.7 billion in FY 2010 and $19.7 billion in FY 2011. The FHA mortgage insurance fund managed to stay in the black in FY 2009 by a very thin margin. Despite the jump in claims, FHA's financial performance should improve slightly in FY 2010, according to budget projections. FHA is expected to get a boost in revenues from a mortgage insurance premium increase that goes into effect this spring.

The Federal Housing Administration is seeking congressional permission to raise the annual premium on FHA-single-family loans to 0.85%, up from the current 0.55% statutory limit, according to the President's fiscal year 2011 budget proposal. "If granted this statutory flexibility, FHA will lower the upfront premium to 1% and increase the annual premium from 0.50% to 0.85%," the budget document says. The discussion of FHA issues in the budget documents also indicates FHA might charge a 0.90% annual premium on low downpayment mortgages. FHA is in the process of raising the upfront premium to 2.25% this spring with the caveat that it will lower the upfront charge once Congress approves the increase in the annual premium. The budget documents also show that the FHA reverse mortgage program will need a $250 million congressional appropriation in FY 2011 to break even. The administration is proposing changes to the Home Equity Mortgage Conversion program that will raise premiums and "slightly lower loan limits."