Origination

Approximately 38% of existing home sales in 2009 were distressed sales and 12% were short sales, according to the National Association of Realtors. Foreclosure sales accounted for two-out-of-three distressed sales and the rest were short sales, NAR spokesman Walter Maloney said. The NAR began tracking short sales in October 2008 and by February and March short sales peaked at 18% of sales. Lately, short sales have been averaging 12% to 13% of sales on a monthly basis. In a short sale, the lender or servicer allows the defaulted homeowner to sell the property to avoid a foreclosure. Fannie Mae and Freddie Mac completed 17,400 short sale transactions in the third quarter, up from 4,900 in the same period a year ago. Fannie alone completed 11,100 short sales in the third quarter, compared to 10,400 for all of 2008.

Standard & Poor's Ratings Services has lowered its ratings on 99 classes from six residential mortgage-backed securities transactions. The securities, issued between 2005 and 2007, are backed by U.S. subprime and alternative-A credit mortgages as well as prime credit jumbo loans. S&P said 42 of the 99 classes were on its CreditWatch list for possible downgrades and now have been removed from that list. The credit rating agency also affirmed its ratings on 31 classes from four affected MBS and removed two of the affirmed ratings from its CreditWatch negative list.

Fannie Mae has streamlined the process for approving condominiums in Florida through the creation of a "Special Approval" designation. Until now, the government-sponsored enterprise had been granting exceptions to its condo eligibility guidelines for loans on units in those projects not eligible on a case-by-case basis. With the new program, there is a dedicated team that is reviewing condo projects in the state that do not currently meet Fannie Mae's standard eligibility criteria. They will assess such items as occupancy, homeownership association dues, the financial stability of the project and the property's condition. Those that are considered sufficiently stable are granted the "Special Approval" designation, meaning lenders can originate and sell loans secured by units in those projects to Fannie Mae. Those projects that are eligible will be listed on www.eFannieMae.com. The designation is effective for a period of between nine and 18 months and applies only to established condo projects.

Investment funds controlled by Colony Capital, LLC of Los Angeles have agreed to purchase $1.02 billion in troubled commercial loans from the Federal Deposit Insurance Corp., paying just $90.5 million while receiving government funding of $233 million. The sale, a "structured transaction," will give Colony a 40% managing member equity stake in a newly formed limited liability company created to hold the acquired loans. The FDIC will retain the remaining 60%. In total, Colony will gain access to 1,200 commercial real estate loans. Deutsche Bank served as advisor to the FDIC on the sale. Even though Colony is private, it controls Colony Financial, Inc., a publicly traded company. Colony Capital is in the business of acquiring, originating and managing commercial mortgages. As reported by National Mortgage News, the FDIC is contemplating issuing a large security in the first or second quarter backed by delinquent and subperforming residential mortgage assets. Some of these assets could include subprime and/or alt-A MBS, said a source familiar with the plan.

The American Bankers Association has selected MetLife Bank N.A. as its exclusive provider of reverse mortgage programs to its member banks and thrifts. Under the program, MetLife Home Loans will provide ABA firms with a correspondent or broker channel for FHA-insured reverse mortgages, which are known as Home Equity Conversion Mortgages. "This product is a very good fit for community banks," said Deborah Whiteside, senior vice president at ABA Total Business Solutions. "Community bankers know their customers very well," she said, and they have the time to serve as a "trusted financial adviser" and work with seniors and family members. ABA had a similar affinity relationship with another reverse mortgage lender, Financial Freedom, but the relationship was terminated six months ago, said Ms. Whiteside. MetLife Bank securitized about $2 billion in HECMs through Ginnie Mae last year. MetLife vice president Craig Corn said many banks do not have Federal Housing Administration approval to underwrite and close HECMs. But they can take advantage of the broker channel to provide their customers with a reverse mortgage option. "I think we will see more and more banks who get into this program through the ABA will likely become correspondents so that they have full control over the customer's experience," Mr. Corn said.

More than 6% of securitized commercial real estate mortgages are 30 days or more past due, according to a new report issued by Trepp LLC. It marks the first time in the history of commercial mortgage-backed securities that the delinquency rate is above 6%, said Trepp. The New York firm tracks CMBS and issues monthly reports. The delinquency rate jumped to 6.07% in December, up 171 basis points from the end of the third quarter. A year ago, the 30-day or more delinquency rate was 1.21%. The December report also shows that multifamily delinquencies reached 9.27%, a 49 bps increase from November. A year ago, the delinquency rate on multifamily CMBS was 2.82%.

Prepayment speeds for Fannie Mae 30-year fixed-rate MBS jumped 26% to 31% in December, surprising some MBS trackers, according to a sample of Wall Street reports published Friday morning. Freddie speeds jumped by 16% to 19%. Some reports, but not all, said the ramp-up in 30-year Fannie speeds exceeded their expectations. Barclays said the increase in Fannie 30-year paydowns was surprising only in securities with 6.5% and 7% coupons and that speeds on those coupons came in slower than they had expected. Credit Suisse researchers attributed the jump in Fannie speeds to completions of modifications done under the federal Home Affordable Modification Program that were more aggressive than it anticipated. Deutsche Bank researchers said they believe the ramp-up in high premium Fannie coupon speeds reflects an amendment to Fannie's servicing guide that suspended loan repurchases of HAMP modifications in November but permitted them in December. Barclays also said the return in HAMP-related buyouts contributed to the acceleration in Fannie Mae speeds.

The residential mortgage industry added 200 full-time employees to their payrolls in November, the first uptick in industry employment since July. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 255,700, compared to 255,500 in October. The BLS data shows the increase is entirely due to more mortgage brokers having jobs. Employment at mortgage banking firms was flat in November. Overall, the mortgage industry experienced a 10% drop in its workforce over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating demand. Meanwhile, the nation's unemployment rate held steady at 10% in December, but 85,000 workers were laid off, according to the new jobs report. This disappointed analysts who were looking for a sign that the job market had finally turned the corner. It is also the second disappointing economic report this week. On Tuesday, the National Association of Realtors reported that its index of pending sales plunged 16% in November. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

A U.S. district court judge has ruled in favor of Wells Fargo Bank NA and dismissed a lawsuit by the City of Baltimore seeking reimbursement for expenses and loss of revenues due to foreclosures and vacant homes. The city alleged that Wells Fargo targeted minority neighborhoods with subprime loans, which lead to foreclosures and deterioration of inner city neighborhoods. Judge Frederick Motz noted in his opinion that the bank is responsible for only a "negligible portion" the city's vacant properties and other factors such as high unemployment, drug use and violence also are factors. The city's allegations of a "casual connection between Wells Fargo's alleged misconduct and the damages the city claims is not plausible," the judge ruled. The opinion says the number of vacant homes in Baltimore range from 16,000 to 33,000 and the city has identified only 401 vacant properties involving Wells Fargo loans. "From the beginning, we have consistently maintained that Baltimore's economic problems could not be attributed to the small number of foreclosures Wells Fargo has done in Baltimore," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We are pleased the court's decision rejects the city's claim and reflects this point of view." Judge Motz has opened the door for the city to file an amended complaint that seeks damages for "specific houses that became vacant allegedly because of Wells Fargo's lending activities." No comment from the city was available at press time.

The 30-year mortgage rate dropped slightly from where it was at the end of 2009 during the first week of 2010, according to the most recent Freddie Mac Primary Mortgage Market Survey. The average rate for the 30-year fixed rate mortgages slipped to 5.09% from 5.14% the week before but was up from the exceptionally low rate of 5.01% for the same week a year ago. The average 15-year FRM rate slid to 4.50% from 4.54% the previous week and 4.62% a year ago. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages remained stable week-to-week at 4.44% and was down from 5.49% a year ago. The average one-year Treasury ARM rate was 4.31%, down from 4.33% the week before and 4.95% a year ago. Frank Nothaft, Freddie Mac's chief economist, said fixed rates are near their annual average for 2009 but ARM rates are considerably below last year's averages. He noted that ARM rates could rise later this year if the Federal Reserve begins to tighten short-term rates as largely expected. He said activity in the Fed Funds futures market suggests there will not be any Federal Reserve action until the second half of 2010.