Origination

For the fourth quarter of 2009, nonperforming assets decreased from the prior quarter by $289 million for KeyCorp in Cleveland, Ohio, for the first time since the fourth quarter of 2006. Most of the reduction came from nonperforming loans held for sale and a decrease in nonaccrual loans in the commercial portfolio, resulting from the charge-off of two large commercial real estate related relationships in the real estate capital and corporate banking services line of business within the national banking group. As a result of increased loan losses, write-downs of commercial real estate related investments, the provision for losses on lending-related commitments and costs associated with other real estate owned, at the end of the quarter, allowance for loan losses was $2.5 billion up from $1.6 billion one year ago. For the full year, Key had a net loss from continuing operations of $1.581 billion compared to a net loss of $1.337 billion for 2008. CEO Henry L. Meyer III said during the fourth quarter the company saw improvement in its credit metrics, including decreases in delinquencies, nonperforming loans and nonperforming assets. "Our allowance for loan losses stood at 4.31% of total loans and 116% of nonperforming loans at December 31." At Dec. 31, 2009, nonperforming loans totaled $2.2 billion. Nonperforming assets totaled $2.5 billion and represented 4.25% of portfolio loans, OREO and other nonperforming assets, compared to 4.46% at September 30, 2009, and 2.00% at December 31, 2008.

The residential mortgage banking segment at PNC Financial Services Group, Pittsburgh, recorded earnings of $25 million for the fourth quarter and $435 million for the full year 2009. Income for the third quarter was $91 million; the quarter-to-quarter decline is due to lower loan sales revenue, reduced net hedging revenue on its mortgage servicing rights, lower servicing fees and lower net interest income. Loan volume in the fourth quarter was $2.3 billion, down from $3.6 billion in the third quarter. The mortgage servicing portfolio was $145 billion as of Dec. 31, 2009, compared with $158 billion at the end of the third quarter. PNC said during the fourth quarter, it sold $7.9 billion of mortgage servicing rights; in addition, run-off slightly outpaced new loan origination volume. Overall PNC earned $1.1 billion in the fourth quarter and $2.4 billion for the full year. The company reemphasized the residential mortgage origination business following its acquisition of National City Corp. at the end of 2008.

Appraisers are being blamed for holding up the acceptance of so-called "green" building product innovations, several industry executives charged at the National Association of Home Builders' annual convention in Las Vegas. Technologies such as energy sharing, sleep functions for appliances, clothes dryers which use 20% less energy, ranges that self-clean with steam rather than three-hour bursts of 600 degree heat, recycled grey water from showers that is filtered for use in a washing machine are on the drawing boards of Whirlpool and other manufacturers. But product makers and the builders they serve have been slow to move the advancements forward because appraisers aren't valuing them as any better than conventional appliances. "Appraisers are out to lunch on this," said Orlando-based housing industry consultant William Nolan. "We're having a huge fight. Until we can get the values recognized, builders can't justify coming to market with products that can save the world." The appraisal issue is one reason Europe is far more advanced that the United States when it comes to green products, said Whirlpool's Ed Linder. "Appraisers don't understand the value of sustainability."

Fitch Ratings on Thursday upgraded the short- and long-term issuer default ratings on GMAC Inc., in the wake of the Treasury Department recently pumping $3.8 billion into the struggling company. GMAC is the parent of Residential Capital Corp., the nation's fourth largest servicer of home mortgages. Fitch upgraded both ratings to 'B,' noting that GMAC "has addressed the capital shortfall identified through the Supervisory Capital Assessment Program." Treasury is now a 56% shareholder in GMAC, which has been contemplating selling ResCap, or some of its assets. Fitch said the new capital from Treasury provides "further cushion and flexibility to address the mortgage business in an orderly manner." Fitch anticipates that GMAC will remain above the 15% total risk-based capital requirement, even factoring in the adoption of FAS 166 and 167, which require consolidation of off-balance sheet vehicles. Concurrent with the capital actions, GMAC took large write-downs on mortgage-related assets, classifying some as held-for-sale. Fitch believes future volatility emanating from GMAC's residential mortgage business will be significantly lower, particularly given the continued contraction of mortgage loans at the company — $28 billion at Sept. 30.

The average rate for 30-year fixed-rate mortgages was back below 5% in the most recent week covered by the Freddie Mac Primary Mortgage Market Survey, but just barely so. The average rate for a 30-year fixed-rate mortgage during the week ending Jan. 21 was 4.99%, down from 5.06% the previous week and from 5.12% a year ago. The average rate for a 15-year FRM was 4.40% during the most recent week, down from 4.45% a week ago and 4.80% a year ago. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages also fell to 4.27% from 4.32% a week ago and 5.24% a year ago. The average one-year Treasury ARM rate dropped to 4.32% from 4.39% a week ago and 4.92% a year ago. Average points for the most recent week were as follows: 0.7 for 30-year FRMs and 0.6 for all other aforementioned types of mortgages. "Fixed mortgage rates followed bond yields lower for the third consecutive week, pushing 30-year mortgages below 5% once more," said Frank Nothaft, Freddie Mac vice president and chief economist. "Similarly, ARM rates eased along with shorter-term rates, as the federal funds futures market indicates no increase in the Federal Reserves target rate following its upcoming committee meeting."

The Goldman Sachs Group Inc., New York, took a $1.5 billion commercial mortgage loss among commercial and residential write-downs during 2009. But the company also said it saw particularly strong performances compared to the exceptionally weak previous year in areas that included mortgage-related trading and principal investments. It also said it reduced its compensation and benefits by $4 billion to its lowest-ever compensation ratio. The company as a whole had net earnings of $13.39 billion with diluted earnings per common share of $22.13 during fiscal 2009, which ended Dec. 31 of that year. During fiscal 2008, which ended on Nov. 28 of that year, Goldman had diluted EPS of $4.47 and net earnings of $2.32 billion. During the fourth quarter of 2009, Goldman had net earnings of $4.95 billion and diluted earnings per common share of $8.20. During the fourth quarter ended Nov. 28, 2008, the company took a diluted loss per common share of $4.97 and net loss of $2.12 billion.

Mortgage brokers are hopeful that the newly elected Senator from Massachusetts — a closing attorney who once worked with loan officers — could come to their aid. State Senator Scott Brown, a Republican, on Tuesday won the open Senate seat created by the death of Sen. Ted Kennedy (D-Mass.) "He understands how things work," said Marc Savitt, president of the National Association of Independent Housing Professionals. A spokeswoman for Mr. Brown confirmed that he has worked as a closing attorney but said it is too early for him to start talking about where he stands on such issues as the Consumer Financial Protection Agency, and tighter regulation for loan officers and loan brokers. Still, some mortgage brokers are optimistic on the possibilities. "It certainly can't hurt that he used to do closings," said Mr. Savitt. Richard Shapiro, principal in Asset Mortgage Group of Natick, Mass., said he has not closed loans with Mr. Brown but said one of his staffers has. "He's a small local guy," he said of Mr. Brown. Mr. Shapiro said he is hopeful that if Mr. Brown becomes a member of the Senate Banking Committee he might be able to help brokers with some of the hefty licensing fees they are now being charged.

As the average rate for the 30-year fixed rate mortgage dropped back toward the 5% mark last week, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found a corresponding increase in refinance applications. For the week ending Jan. 15, 2010, the Market Composite Index, a measure of mortgage loan application volume, increased 9.1% on a seasonally adjusted basis and 10.4% on an unadjusted basis from one week earlier. The Refinance Index increased 10.4% and the seasonally adjusted Purchase Index increased 4.4% from one week earlier. There was a small gain in the market share of refinance activity, from 71.5% one week ago to 71.7% for the survey period. The market share of adjustable-rate mortgage loan applications increased to 4.1%, up from 4.0% for the previous two weeks. The average contract interest rate for 30-year fixed-rate mortgages fell to 5% from 5.13%, with points decreasing to 1.05 from 1.17 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs decreased by 12 basis points to 4.33% from 4.45%, while for one-year ARMs the average contract interest rate increased by 11 basis points to 6.72%.

A "severe shortage" of new product is shaping up in the apartment market, just in time for an expected major pickup in demand. Industry experts predicted at the National Association of Home Builders convention in Las Vegas that because of the inability of developers to find financing, demand will be begin to outstrip supply by mid-2011. That, coupled with the long, two to three-year lead-time it takes to build a multifamily structure, will lead to increasing shortages of rental and condo properties through 2014. The shortfall — only 80,000 units will be built this year vs. the 300,000 or so that are needed — will grow during a period of increased demand as the economy continues to improve and immigration begins anew. "We desperately need lenders to begin financing apartment communities again," said NAHB chief economist David Crowe. "The vacancy rate is elevated now, but as the economy recovers and jobs return, people who've been doubling up with friends and relatives will want a place of their own." As a result of the impending shortage, the NAHB is forecasting that market rents are likely to rise by 8% to 10% in 2011 and 2012 and 4% to 7% annually thereafter through 2015. Jerry Durkin, managing partner of Woods Partners, an Atlanta-based firm which built an average of 3,600 units annually over the last 10 years but started only 150 last year — and that was in December — said the lack of debt and equity financing is crippling companies like his. Until lenders loosen up, his company is focusing more on buying properties and less on developing, he said. Woods Partners also is "virtually out of the condo business." The lack of financing "has really slowed the industry down," agreed Michael Costa, president of MacFarlane Costa Housing Partners, which at its peak started 30-35 workforce properties a year as either the developer or in a joint venture but expects to break ground on just four in 2010.

High unemployment levels will slow the pending housing recovery, economists speaking at the National Association of Home Builders' annual convention in Las Vegas agreed. But they didn't agree on just how much of a drag the poor job market would be. NAHB chief economist David Crowe, Frank Nothaft of Freddie Mac and David Berson of PMI tended to believe that while gains "won't be very big," buyers are poised to return to the field. But Edward Sullivan, chief economist at the Portland Cement Association, Skokie, Ill., said he reads the tea leaves a little differently. "Housing will turn," he said, "but not until very late this year and nowhere near the magnitude" the mainstream economic community suggests. Noting that small businesses shed 2.2 million workers over the last six months and are still doing so, Mr. Sullivan said the economy won't start generating jobs again until the second half of this year. He also cited the expiring homebuyer tax credits, the huge backlog on foreclosures and continued tight lending standards. The PCA economist said the market isn't likely to improve until the fourth quarter of 2010 and may not show real gains until the first quarter of next year. "I'm still projecting an increase" in starts "but I'm much more modest," he said. "There are so many hurdles out there that a full-fledged recovery won't materialize this year." The other economists voiced the same concerns. Nevertheless, they were more optimistic. The NAHB's Mr. Crowe said starts would jump from 555,000 last year to 700,000 in 2010. Mr. Nothaft of Freddie Mac was even bolder, suggesting that starts would reach the 775,000 level. PMI's Mr. Berson, the former chief economist at Fannie Mae, said starts would increase to 675,000.