Origination

Old Republic International Corp., Chicago, has restated its results for the third quarter 2009 that reduces the net loss it reported, and company executives are none too happy about it. The issue involves $82.5 million received by Republic Mortgage Insurance Co. from captive reinsurance arrangements with mortgage lenders that was to cover future losses. The company's accountants had argued that generally accepted accounting principles require the money be recognized immediately as income, because it is treated as the termination of the reinsurance agreements, not as transactions where ORI/RMIC takes on new risk. Since revealing the potential for the restatement back in November 2009, ORI has been in discussions with the Securities and Exchange Commission's Office of the Chief Accountant and its auditors, PricewaterhouseCoopers LLP. As a result of the restatement, the third quarter sees an increase of its premium income of $82.5 million and a decrease of the post-tax loss by $53.6 million. Therefore, its net operating loss for the third quarter 2009, instead of $66.1 million, is now $12.4 million. The nine-month net operating loss went from $169.6 million down to $166.0 million. A.C. Zucaro, ORI's chairman and chief executive, said the resolution of the timing issues "reinforces our belief that GAAP accounting for mortgage guaranty insurers must change. The necessity for change is to at once effect a more pragmatic and realistic matching of premium revenues and normally recurring claim costs, and ensure that the accounting better reflects the inherent long-term economic catastrophe indemnity provided by the coverage." ORI's year-end results will be released on Jan. 28.

The outlook for the performance of residential mortgage-backed securities and asset-backed securities in Europe, the Middle East and Africa is negative for 2010, according to a recent Moody's Investors Service report. "Rating migrations are still expected, especially on the 492 tranches currently on review for downgrade and which include significant exposures to Spanish and U.K. nonconforming RMBS," said Mehdi Ababou, a Moody's vice president-senior analyst. The report, which reviews the past year as well as a forecast for the current one, notes that in 2009 the number of RMBS and ABS downgrades jumped to 741 compared to 408 in 2008. In 2009, "over two-thirds of the downgrades for RMBS were in Spain and the U.K. nonconforming sectors," said Mr. Ababou.

The National Association of Home Builders has approved a new policy stating its position for improving the nation's housing finance system, a stance that calls for continued government backing of a secondary mortgage market. At its annual convention in Las Vegas, the politically potent group adopted a posture that it believes will ensure a reliable flow of credit at the lowest possible cost "in all geographic areas and under all circumstances." The 175,000-member organization outlined a framework that fails to specifically mention Fannie Mae and Freddie Mac, suggesting instead that "a number of entities" should be encouraged to compete in a secondary market "in a manner that creates greater innovation and efficiency." But it still wants Uncle Sam to be involved, saying the federal government should establish a fund to guarantee the timely payment of principal and interest to investors in mortgage-backed securities. In addition, it backs a requirement that secondary marketing entities benefiting from federal guarantees should pay a fee to capitalize the fund. The federal government would incur exposure only for "catastrophic risk" beyond that covered by the fund, the statement says. "We can't have the federal government on the hook every time some missteps occur," David Ledford, the NAHB's senior vice president for housing economics and land development, said during the NAHB's internal debate. The new statement went through a four-day vetting process that required clearance by five different committees before it was approved unanimously by the NAHB's board of directors. During the discussion in the housing finance and federal government affairs committees, members slaved over words and phrases to write a carefully crafted document. "We're trying to decide how to carry a dozen eggs without a carton," said Kerville, Texas-based affordable housing developer Granger MacDonald, the group's outgoing finance committee chair.

The median price of existing single-family, detached houses sold in California in December recorded its largest year-over-year gain in three years, the state's Realtors reported. The median price hit $306,820 for the month, an 8.4% increase from the revised $283,060 median for December 2008, the group said. But the December figure was up only a modest 0.8% compared with November's $304,520 median price. "Home sales were unusually strong in December and were more consistent with peak season trends," said Leslie Appleton-Young, chief economist at the California Association of Realtors. "Historically, the median price declines November through February and then rises in March. However, lean inventory, historically low interest rates, and incentives for homebuyers have resulted in California's housing market experiencing non-seasonal variations." For the month, existing home sales were up 4%, reaching a seasonally adjusted annual rate of 558,320 units. In addition, the state's unsold inventory fell to 3.8 months compared to 5.6 months in December '08.

Sales of existing single-family homes fell 17% in December to an annualized rate of 5.45 million units with distressed purchases accounting for almost one-third of the activity, according to new figures released by the National Association of Realtors. Compared to December 2008, existing home sales actually rose 15%. However, NAR noted that the inventory of unsold homes rose 11% to a 7.2 month supply rate in December. Even though the supply rate rose, inventory fell to 3.29 million existing homes. (The monthly supply figure is calculated by the sales rate.) Sales fell the most in the Midwest (-26%) and the least in the West (-5%). NAR is warning that with inventory trending downward, buyers might need to "move quickly" if the spring home buying season heats up. NAR chief economist Lawrence Yun said the housing market is "going through a period of swings driven by the tax credit." (The $8,000 first-time homebuyer tax credit was extended from November 30 to April 30.) In December the median price of a home was $177,500, 1.4% higher than a year ago.

Fannie Mae and Freddie Mac could be history after the House Financial Services Committee completes its review of the housing finance system, and makes its recommendations, according to committee chairman Barney Frank, D-Mass., once a huge supporter of the two. "I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their present form," Rep. Frank said during a committee hearing. Earlier this month, Chairman Frank said he plans to hold hearings on restructuring the U.S. housing finance system and he has no desire to see Fannie and Freddie return to their former "hybrid" status as private companies with a public mission. The White House is expected to lay out its blueprint for the two in the next month or so but has offered little guidance on the issue. Rep. Frank's remarks sent the share price of the two tumbling Friday afternoon. The government-sponsored enterprises have been wards of the government for 17 months. Since their takeover, Treasury has pumped $110.6 billion into them to keep their net worth positions above zero, allaying investor fears about their debt and MBS. Presently, the two provide liquidity for roughly 70% of all originations in the U.S. mortgage market with FHA accounting for most of the balance.

Consumers now have access to the National Mortgage Licensing System and Registry to check the credentials and background of state-licensed mortgage lenders or brokers. The online NMLS system allows consumers to see the 10-year employment history of the loan officer or broker, the name of their current employer and the states they are licensed in. Starting in 2011, any adjudicated enforcement actions taken against a loan officer or broker will be listed on the system and accessible by consumers. State regulators initiated the mortgage licensing system to enhance the supervision of the residential mortgage industry, according to Neil Milner, president and CEO of the Conference of State Bank Supervisors. "NMLS Consumer Access is one more initiative undertaken by the states to empower consumers with information while they take on what is usually the most significant purchase of their lifetime: their home," he said. To date, 45 states and territories are participating in the NMLS system. All states and U.S. territories are expected to be on the system by the end of this year. Loan officers employed by federally insured banks and thrifts will start registering on the NMLS system during the second half of 2010.

BlackBox Logic LLC, founded in 2007, said that after years of designing and testing work, it is now offering to the broader market a comprehensive database of loan-level collateral underlying nonagency residential MBS. The company, which is majority owned by a private equity affiliate of the Denver-based Braddock Financial Corp., said it has available a trademarked loan-level data aggregation service called BBxData that covers jumbo-A, subprime and alternative-A credit mortgage markets. This includes more than 7,200 RMBS, 21 million loans and almost 600 million remittance records dating back to 1999. The company is aiming to provide monthly full-set data faster than other providers and to also differentiate itself by allowing users to purchase only the data they need rather than the full 21-million loan dataset. The company's top brass includes three former Fannie Mae executives. Chief executive Larry Barnett was once Fannie's vice president for secondary mortgage trading operations, chief technology officer William Pugh was at one time responsible for all technology development and loan processing systems at Fannie, and lead data modeler Marty Schwartz once managed mortgage loan processing systems for Fannie, including its liquidation and recourse system.

Online home auction company RealtyBid.com, Rainbow City, Ala., is offering close to 1,000 real estate owned properties to investors and homebuyers around the country during January. Hundreds of properties have been added to the home auction website, many from the states of Missouri, Ohio, Utah and Wisconsin. RealtyBid.com chief executive and president Tony Isbell said despite government moratoriums on foreclosures in 2009 that kept the number of REO properties available to buyers flat during the second half of the year, RealtyBid.com continued to break sales records last year. "In 2010, we have already seen increased activity, and we are expecting that trend to continue. We do not expect a tidal wave of properties but a continued increase in inventory as loan modification programs fall well short of expectations." Mr. Isbell said he expects lenders will free up more of their post-foreclosure inventory through the online bidding system.

Fitch Ratings has downgraded 25 preferred securities ratings among its rated U.S. real estate investment trusts following revisions to its global rating criteria for hybrid securities. The downgrades are one notch from current levels for the affected REITs. The issuer default ratings and senior debt ratings for each of these REITs are unaffected. The new criteria apply to hybrid instruments issued by companies in all sectors including banks, insurers, nonbank financial institutions and all nonfinancial corporate entities. The new criteria also provide guidance on how Fitch will rate and notch hybrid securities at different stages in the "life cycle" of an instrument.