Origination

PMI Mortgage Insurance Co., Walnut Creek, Calif., sold its entire investment in RAM Holdings Ltd. (RAM Holdings Ltd. is the holding company for RAM Reinsurance Co. Ltd.) Terms and conditions of the sale were not disclosed. The company had impaired its investment in RAM Holdings Ltd. in 2008 and reduced the carrying value of the investment to zero. The completion of this sale continues the company's focus on its core U.S. mortgage insurance operations and the proceeds from the sale will add to PMI Mortgage Insurance Co.'s liquidity position.

A bipartisan effort by members of the Senate Banking Committee to draft a financial regulatory reform bill is making progress, according to committee leaders. Committee members have been in talks for several weeks to reach a consensus on producing a bill, according to committee chairman Christopher Dodd, D-Conn., and ranking Republican Richard Shelby of Alabama. The two said the talks have been productive and they hope to resolve remaining issues by January. The House of Representatives passed a reform bill that deals with the resolution of large financial institutions, strengthening consumer protection, restructuring the supervision of depository institutions and improving oversight of derivatives. Senate Banking Committee members are trying to address the same issues but they are expected to come up with a very different bill. In mid-November, Sen. Dodd released a "discussion draft" of his regulatory reform bill. It garnered weak support among his fellow Democrats and the Republicans blasted it.

By restructuring certain modified pool mortgage insurance policies, PMI Mortgage Insurance Co., Walnut Creek, Calif., has seen an aggregated statutory capital benefit of $51 million. As part of this restructuring, PMI paid a counterparty aggregate accelerated discounted claim payments of approximately $264 million. The capital benefit is because the deal had a positive impact on PMI's loss reserves for the fourth quarter of 2009.

The production of new houses in California continued to slide in November, practically assuring that the state will record its lowest number of starts ever. According to the California Industry Research Board, builders pulled just 2,540 permits in November, down 12% from October and just about the same as the number of permits issued in November a year ago. Through the first 11 months of the year, 32,558 permits were issued, a 46% decline from the same period in 2008, when 60,304 permits were issued. CBIA expects the year to end with a total of just 35,600 starts, down significantly from 60,962 permits in 2008, which previously held the record for the lowest amount of new home production. "We're on track to set another record for production this year, but it's not a record anyone is happy about," said Liz Snow, president of the California Building Industry Association. So far this year, production breaks down like this: single-family permits, down 28% and multifamily, off 66%. For November, single-family permits totaled 1,710, down 20% from October but up 18% from a year ago. Permits were issued for 830 multifamily units in the month, up 9% from October but down 74% from last November.

Nearly 40% of homebuyers are using Federal Housing Administration financing, according to a November survey of real estate agents. The monthly survey by the National Association of Realtors also found that first-time homebuyers are responsible for 50% of all sales. "The FHA helps provide affordable mortgage financing to homeowners, particularly first-time homebuyers who are so important in drawing down inventory to help stabilize the current housing market," said NAR president Vicki Cox Golder. The latest government data show that FHA endorsed 92,900 purchase mortgages in November and 83% of the borrowers are first-time buyers. The NAR survey also tracks distressed sales and agents reported that foreclosure and short sales made up 33% of home sales last month. Investors and first-time buyers are "competing" for foreclosed properties, NAR said. "Realtors report that many buyers have pricing expectations that treat every property as if it were in foreclosure."

The Federal Housing Administration has tightened its guidelines on short sales so that borrowers who defaulted on their previous mortgages can't get a new FHA-insured loan. The new guidance is designed to prevent borrowers who want to take advantage of the decline in house prices to buy a new home at a reduced price using an FHA loan for doing so. "Borrowers in default on their mortgage at the time of a short sale (or preforeclosure sale) are not eligible for a new FHA-insured mortgage for three years," FHA says in a mortgagee letter. The new policy has been causing problems for some lenders with loans in the pipeline, according to Bud Carter, an FHA consultant with Potomac Partners in Washington. In general, FHA will not approve loans if the borrower has defaulted within the past three years. However, FHA never provided specific instructions on short sales, Mr. Carter said, so lenders were dealing with this issue on a "case-by-case basis." Mortgagee Letter 09-52 also addresses cases where a lender takes a principal writedown and refinances the borrower into an FHA-insured mortgage. The agency clarifies that the borrower has to be current on all their payments to qualify for an FHA refinancing.

The average rate for a 30-year fixed-rate mortgage rose above 5% during the week ended Dec. 24, according to Freddie Mac. "Although interest rates for 30-year fixed-rate mortgages are above 5% this week for the first time since the end of October, they are still around 0.5 percentage points below this year's peak set in mid-June," said Frank Nothaft, vice president and chief economist at Freddie Mac. Rates also remain ahead of year-ago levels, although in the case of the 30-year it is not by much. At 5.05%, the average 30-year rate is up slightly from the previous week's 4.94% and down — but only slightly — from 5.14% a year ago. The average rate for a 15-year FRM during the week ended Dec. 24 was 4.45%, up from 4.38% the previous week but down from 4.91% a year ago. The average rate for a five-year Treasury-indexed adjustable-rate mortgage during the week ended Dec. 24 was 4.4%, up from 4.37% the previous week but down from 5.49% a year ago. The average rate for a one-year, Treasury-indexed ARM during the week ended Dec. 24 was 4.38%, up from 4.34% the previous week but down from 4.95% a year ago. Average points were 0.7 for 30-year FRMs and 0.6 for all other aforementioned loan product types.

The GSE regulator and the Treasury Department have approved $6 million pay packages for the chief executive officers of Fannie Mae and Freddie Mac. On top of a base salary of $900,000, the CEOs are targeted to receive $3.1 million in deferred pay and $2 million in performance incentives in 2009 and 2010. Both of the CEOs are new this year. Michael Williams was Fannie's chief operating officer before his July promotion to be the government-sponsored enterprise's new president and CEO in April. Mutual fund executive Charles Haldeman was appointed Freddie's CEO in July. Compensation for 2009 will be prorated and all compensation is in cash. (The GSEs were placed in conservatorships in September 2008 and they cannot issue stock.) At the beginning of 2008, former Freddie CEO Richard Syron was targeted to receive $15.2 million in compensation. Former Fannie CEO Daniel Mudd received $12.2 million in compensation in 2007, including $9 million in stock. Under the new compensation program, the second highest paid executives are Fannie's chief financial officer David Johnson ($3.5 million) and Freddie's chief operating officer Bruce Witherell ($4.5 million). Except for CEOs, CFOs and COOs, the base salaries for all other GSE executives cannot exceed $500,000 a year, according to the Federal Housing Finance Board. "On average, the total compensation for executive officers at the two enterprises for 2009 is down 40% from pre-conservatorship levels," FHFA said.

Third-party and retail lender SunTrust Mortgage Inc.'s servicer quality rating of SQ2+ as a primary servicer of prime residential mortgages has been removed from watch for a possible downgrade. The move follows improvements in its call center and incentive compensation scorecard that resulted in Moody's upgrading its assessment of the company's loss mitigation abilities to above average from average. "Since the prior review, the company increased outbound collection call volumes and extended collection call center hours," Moody's said. The rating agency also said that it views SunTrust's foreclosure and real estate owned timeline management abilities to be above average. It views the company's servicing stability as average. The senior unsecured debt rating for SunTrust Mortgage's parent company SunTrust Banks Inc. has a negative outlook. Moody's rates servicers somewhere on a scale between SQ1 and SQ5 on which servicers rated SQ1 are considered strong and those rated SQ5 are considered weak, with plus or minus signs indicating interim points along that scale.

The inventory of unsold existing single-family houses in California is now down to a manageable 4.5 months, according to the monthly roundup of sales activity by the state's Realtor association. In November a year ago, there was a 7.1 month's supply of housing awaiting buyers. "With sales bottoming out more than two years ago, and the median home price reaching its trough in February 2009, California remains ahead of the nation in market recovery," said Leslie Appleton-Young, chief economist at the California Association of Realtors. According to CAR's latest report, sales were up 4.7% in November from the same month a year ago to a seasonally adjusted rate of 536,720 units, while the median price increased 5.8%, from $287,880 in November 2008 to $304,520. On a month-by-month basis, closed sales in November were actually down 4.6% from October, but the November median price was up 2.4% from $297,500 the month before. According to CAR president Steve Goddard, rookies continue to drive the California market because of the $8,000 federal first-time buyer tax credit, while efforts by lenders and the government to assist owners at risk of foreclosure have cut into the number of properties on the market. CAR's price and sales data for detached homes are generated from a survey of more than 90 Realtor associations throughout the state. Data for condominiums are based on a survey of more than 60 state groups.