Origination

The Clear Capital Home Data Index Market Report shows a 1.7% national quarterly price gain for the 30-day period ended Dec. 24, 2009. Yearly national home prices went from a decline of over 20% on a year-to-year basis for 2008 to a much more modest decline of 1.3% for 2009. On a quarterly basis all four regions showed gains: at 4.1% in the Midwest, 1.2% in the South and the West and a modest 0.4% in the Northeast. What is remarkable about these gains, according to Clear Capital president Kevin Marshall, is that home prices for the nation as a whole were generally flat for 2009 despite yearlong volatility that included record declines early in the year, followed by the gains during the summer and fall. Also, by year-end the annual national real estate owned saturation rate dropped 16 percentage points to 25.5%. Some encouraging results came from several micro markets. For example, the Las Vegas metropolitan statistical area drilldown showed its first positive quarterly price gain in over three years at 1.1%, even though yearly price declines in the area remain high at -27.4%. According to Clear Capital, Las Vegas "is showing signs of transitioning from home-price free-fall, to more traditional trends."

The seasonally adjusted 30-day delinquency rate on home equity lines of credit jumped 20 basis points in the third quarter from the previous quarter to a new record of 2.12%, according to an American Bankers Association survey. On closed-end second mortgages, the seasonally adjusted delinquency rate shot up 29 BP to 4.3% in the third quarter, also a new record. At the start of the year, 1.46% of HELOCs were 30 days or more days past due and 3.0% of closed-end second liens were 30 days or more past due. Banks and thrifts held $667.5 billion in HELOCs as of Sept. 30, according to Federal Deposit Insurance Corp. Call Report data. Of that, $9 billion or 1.3% was 30-to-89 days past due. Banks charged off $5.1 billion in HELOCs in the third quarter. FDIC-insured institutions held $187.7 billion in closed-end second liens and 2.6% or $4. 9 billion were 30-89 days past due. Charge-offs on second liens totaled $2.8 billion.

WL Ross & Co. has reportedly ended negotiations with American International Group, New York, to buy its mortgage insurance division, United Guaranty, Greensboro, N.C., according to MI industry sources. Wilbur Ross, chairman and chief executive of the company, was out of the country and could not be reached for comment. But he issued a statement to National Mortgage News which said, "We never confirmed we were in the deal." However, this past fall reports began to surface that WLR&C was indeed negotiating with AIG and even had an exclusive with the company for several months. Sources familiar with the original parameters of the talks say WLR&C wanted to purchase all of UG's licenses, operating systems, and its entire 2009 book of business, leaving the "legacy" coverage with AIG. No price was ever mentioned. According to the Quarterly Data Report, UG ranks fifth nationwide in terms of policies-in-force with $127 billion. AIG has received pledges of up to $180 billion in taxpayer aid since its near collapse 16 months ago. The U.S. Treasury owns about 80% of the company, which is still publicly traded after undergoing a reverse stock split last year.

A Standard & Poor's review of 15 U.S. subprime transactions issued between 1998 and 2004 has ended with lower ratings on 48 classes from 14 transactions. The rating agency also removed seven of the lowered ratings from CreditWatch with negative implications. In addition, it affirmed ratings on 45 classes and removed one of these ratings from CreditWatch Negative. "The downgrades reflect our belief that credit enhancement for the affected classes will be insufficient to cover projected losses due to increased delinquencies and the current condition of the housing market," S&P said.

Despite an increase in home sales, the housing market continues to face "strong" headwinds due to tight credit conditions and high foreclosure rates, according to Federal Reserve governor Elizabeth Duke. "Many of the existing homeowners who face payment problems are having trouble restructuring their loans and the backlog of foreclosed properties will likely take years to resolve," Gov. Duke told an economic forecasting forum in Raleigh, N.C. She noted that "tighter standards" on government-backed loans and the shortage of jumbo loans are "likely to slow the housing recovery." Meanwhile, the commercial real estate sector has been "hit hard" by business bankruptcies, job losses and vacancies, Gov. Duke said. CRE mortgage delinquency rates have "soared," she added. However, the Fed governor contends the CRE downturn is largely due to "poor business fundamentals" rather that overbuilding. This suggests the performance of the CRE sector will "gradually improve as the economy continues to strengthen," the former Virginia community banker said.

There was a strong decline in mortgage loan applications the week that ended with Christmas Day followed by a very slight gain the following week, said the Mortgage Bankers Association in its most recent Weekly Application Survey. For the week ending Dec. 25, 2009, the Market Composite Index, a measure of mortgage loan application volume, decreased 22.8% on a seasonally adjusted basis from the prior week. For the week ending Jan. 1, 2010, this index increased 0.5% on a seasonally adjusted basis. Both weeks' results include an adjustment to account for the Christmas and New Year's Day holidays. On an unadjusted basis, the Index decreased 46.9% the week before Christmas and increased 0.4% the week after. The Refinance Index decreased 30.5% for the first week and 1.6% in the second, while the seasonally adjusted Purchase Index fell 33.1% and increased 5%, respectively. The share of refinance activity fell under 70% for both weeks (69.6% and 68.2%), where in the previous two weeks leading up to Dec. 25, it had been above three-quarters of all applications. The average contract interest rate for 30-year fixed-rate mortgages zoomed up 26 basis points over two weeks and for the most recent week is at 5.18%, with points at 1.28 (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 increased in the two-week period by 28 basis points to 4.62%.

GMAC Financial Services has written down the value of the riskiest mortgage assets of its mortgage division by 41%, a move that could be a precursor to a sale of the unit. To date, GMAC has declined to comment on reports that Berkshire Hathaway has shown an interest in Residential Capital Corp., the nation's fourth largest home lender. (Berkshire also has declined to comment.) The risky mortgage assets that were marked down by 41% once had a face value of $9.2 billion. Company executives said the markdowns came as a way to make these assets attractive to buyers. "The values we have put on these assets would be sellable in the market," said GMAC chief of mortgage operations Thomas Marano. He noted GMAC sells loans on a regular basis and major capital market players have been consulted. "Yes we do believe we can sell those assets in the market," he added in response to an analyst's question. The writedowns, restructuring and recapitalization of ResCap leave the entity with $19.7 billion in mortgage assets, servicing rights and real estate owned. GMAC chief executive Michael Carpenter noted there are "potentially different strategic alternatives" for the mortgage assets and the servicing business. He also said ResCap can be operated as a wholly owned subsidiary for some time. "We are not in a hurry to do anything." GMAC noted that it will take $3.8 billion of mortgage-related charges for the fourth quarter. GMAC said ResCap owns $4.3 billion in assets that have "greater economic exposure." According to the Quarterly Data Report, ResCap ranks fifth among all residential servicers with $380 billion in servicing rights. To date, the government has pumped $15.1 billion of capital into GMAC through preferred stock and other maneuvers.

The Federal Housing Administration is temporarily delaying the effective date of its new policy to shield appraisers from loan officer and mortgage broker pressure until Feb. 15. The new policy would put FHA in synch with Fannie Mae and Freddie Mac and prohibit commission-based staff and brokers from selecting appraisers. FHA officials initially set a Jan. 1 effective date. But they concluded FHA lenders need more time to change to their systems and decided to give them 45 more days, according to sources. Back in September, FHA officials outlined a number of risk management initiatives, including the new appraisal policy. "FHA does not require the use of appraisal management companies or other third party providers, but it does require lenders take responsibility to assure appraiser independence," FHA officials said.

Over the holiday season I was fortunate to be invited to a client appreciation holiday party by one of my financial planning firms. This is a father and son team and I have worked with them for a few years but had never been asked to attend an event like this. I felt honored to be included. They just said, "Sue swing by if you can, we like you to see what we do for our clients."

Commercial real estate loans held by commercial banks and in CMBS are experiencing higher delinquency rates than CRE loans held by other investors, according to a new report from the Mortgage Bankers Association. Banks hold nearly 45% of the outstanding $3.4 trillion in CRE and multifamily mortgages on their books and 20% are packaged into CMBS, according to MBA's newly released CRE Quarterly Data Book for the third quarter. "While loans held by banks and thrifts and CMBS are experiencing stress roughly on par with the stress with what was seen following the stress of the late-1980s/early-1990s, loans held by life insurance companies, Fannie Mae and Freddie Mac are performing far better than the experience of that time," MBA says. Thrifts hold 5.6% of CRE and multifamily loans. The Quarterly Data Book also shows that commercial banks have reduced their CRE lending over the past three years. In the third quarter of 2009, banks originated $62 billion in CRE/multifamily loans, down 52% from the same period a year ago. Meanwhile, Fannie and Freddie originated $143 billion in multifamily loans in the third quarter, down 31% from the same period in 2008.