Origination

Home prices rose 0.6% in October and rebounded from a 0.4% decline in September, according to a house price index compiled by the Federal Housing Finance Agency. The index, however, only reflects homes funded by Fannie Mae and Freddie Mac loans. Regionally, the FHFA HPI registered a 3.7% jump in the Pacific states, which includes California. The Mid-Atlantic states ranked second with a 1.8% increase in house prices. The South-Atlantic region, which runs from Maryland to Florida, experienced the worst monthly performance with a 1.6% price decline in prices. FHFA bases its house price index on Fannie Mae and Freddie purchase mortgage transactions. Overall, U.S. prices are down 1.9% since October 2008, according to the regulator's HPI. The FHFA index is 10.8% below the April 2007 peak in prices.

Standard & Poor's has downgraded the ratings on five mortgage insurance companies, saying industry losses have exceeded its prior expectations and the recession has had a deeper impact on their portfolios than expected S&P said claims payments remain below expectations as a result of the backlog of foreclosures and the moratoria implemented earlier in the year. However, the report notes "the lower-risk books of business within the mortgage sector (such as those with higher FICO scores or lower loan-to-value ratios) have been and will be more adversely affected than we had anticipated and U.S. mortgage insurers' losses will continue to be greater than previously expected overall." The company hardest hit by the downgrade was Republic Mortgage Insurance Co., whose rating was dropped from "A-" to "BBB-". Ironically, S&P said RMIC received a two-notch uplift, "reflecting that company's strategic importance to Old Republic International (RMIC's parent company) and management's requirement that the mortgage insurance group capital be self sustaining." United Guaranty was dropped from "BBB+" to "BBB", with S&P giving it "a four-notch benefit because of a net-worth-maintenance agreement from its ultimate parent, American International Group Inc., and a reinsurance treaty from a higher-rated affiliate." Genworth was dropped from "BBB+" to "BBB-" with one notch of benefit because of the potential for support from its parent company. PMI and Radian were cut from "BB-" to "B+". Back in October, MGIC was downgraded to "B+". S&P said it is still reviewing CMG Mortgage Insurance Co. and California Housing Loan Insurance Fund.

A pair of Bank of America subsidiaries, Countrywide Home Loans Inc., and BAC Home Loans Servicing LP, is suing Mortgage Guaranty Insurance Corp. seeking a declaratory judgment against the mortgage insurer. The complaint states MGIC is denying paying Countrywide "millions of dollars in valid mortgage insurance claims." In a Securities and Exchange Commission filing, MGIC Investment Corp. said it intends to defend the mortgage insurer against the allegations "vigorously," although it added a disclaimer stating it is unable to predict the outcome of the case or its effect on the company. Countrywide had obtained mortgage insurance on the loans in question via a flow policy. According to the court filing, MGIC is denying claims based on allegations that misrepresented information was provided by or on behalf of the borrower. Countrywide counters in the filing that MGIC is basing its decisions on "second or third-hand accounts of one-sided, self-serving and/or unsubstantiated hearsay and would not be admissible." The court filing does state a substantial number of loans involved are stated income loans and MGIC was aware of that fact. The filing said MGIC did not demand income information for all loans, not just the stated income loans, which Countrywide submitted for insurance underwriting. The suit also alleges MGIC is denying claims payments based on faulty review appraisals the mortgage insurer is conducting.

The Federal Reserve Board and the Federal Trade Commission have issued a final rule that requires lenders to disclose their use of risk-based pricing along with a notice that tells consumers they will not get the best deal because of their credit score. Starting in January 2011, lenders must provide mortgage applicants with a risk-based pricing notice if they will receive less favorable terms than 40% of the lender's other customers. The final rule has two tests, including a 40%/60% test, for determining when consumers should get a RBP notice. The Fair Credit Reporting Act rule, mandated by Congress in 2003, provides some exceptions to the RBP notice requirement, including one for single-family lenders that provide applicants with their credit score. Along with the credit score, the lender must provide a notice that "describes the creditor's use of credit scores to set the terms of credit," the final rule says.

Higher to stable mortgage interest rates have finally had a negative effect on loan application volume said the Mortgage Bankers Association in its Weekly Mortgage Applications Survey for the week ending Dec. 18. The Market Composite Index, a measure of mortgage loan application volume, decreased 10.7% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 10.9% compared with the previous week. The Refinance Index decreased 10.1% from the previous week and the seasonally adjusted Purchase Index fell 11.6% from one week earlier. The share of refinance activity increased to 75.9% of total applications, up from 75.2% the previous week. The adjustable-rate mortgage share of activity decreased to 3.8% from 4.1%. The average contract interest rate for 30-year fixed-rate mortgages remained at 4.92% for the second consecutive week (after increasing the previous two weeks), with points increasing to 1.23 from 1.08 (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 a single basis point over the previous week to 4.33%. For one-year adjustable-rate loans, the rate remained at 6.52% for the second consecutive week. The organization said its offices will be closed next week and the next time it will be releasing survey results will be on Jan. 6, 2010.

New home sales plunged 11.3% in November from the previous month, but some experts are brushing it off as an aberration due to the expiring of the first-time homebuyer tax credit. Weiss Research real estate analyst Mike Larson noted that November sales fell to the lowest level in seven months. "Some giveback was to be expected given the feared expiration of the tax credit (on Nov. 30) and the pull-forward of some demand." But Congress has extended the tax credit and expanded it to repeat buyers, "I suspect sales going forward will find support," Mr. Larson said. The U.S. Census Bureau reported that sales of new single-family homes fell to a 355,000 seasonally adjusted annual rate in November from 400,000 in October. The bureau also revised downward the sales numbers for the previous three months. IHS Global Insight economist Patrick Newport noted that the inventory of unsold new homes has fallen for 31 consecutive months. And the tax credit has focused buyers on purchasing completed homes and less expensive homes. Now there are only 101,000 completed units for sale. "The decline in inventories implies that builders, at some point soon, will need to ramp up housing starts, or they will lose sales," Mr. Newport said.

As 2009 winds down and many of us are traveling to see friends and family over the next week or so, it's easy to get sidetracked in the hustle and bustle.

Union Bank of San Diego, which derives 60% of its originations from wholesale production, is looking to increase its broker network next year, according to a top official at the company. Craig Cole, senior vice president and division manager for Union, said the lender currently has 80 approved brokers that it uses. "We may increase that to more than 100 next year," he said in an interview with National Mortgage News. In the third quarter, Union Bank ranked 14th nationwide among wholesalers, according to figures compiled by the Quarterly Data Report. Mr. Cole said his institution has had no problems with the quality of its broker-sourced loans, saying "they're as clean as a whistle." Union is a top ranked jumbo lender as well.

The multifamily sector is taking a beating and experiencing record vacancy rates due to high unemployment and low household formation, according to Freddie Mac. Freddie Mac and its sister company, Fannie Mae, are major investors in multifamily loans, and could experience greater delinquencies if the situation persists. High jobless rates among teenagers (27%) and 20-24-year olds is forcing many to postpone household formation or move back with family and friends, according to Freddie Mac chief economist Frank Nothaft. In addition, the vacancy rates have moved up as federal tax credits for first-time homebuyers have encouraged renters to become homeowners. A Census Bureau report shows the vacancy rate on buildings with ten or more apartments is 13.5% as of Sept. 30. For apartments built since the start of 2000, the vacancy rate is 23.2%, "reflecting in part the slow rental rate of newly built dwellings," Mr. Nothaft says in a paper on housing trends. "As a result of rising vacancies and lack of opportunity to increase rents," he said, multifamily property values are falling and delinquency rates on multifamily mortgages are rising. The Freddie economist points out that the National Council of Real Estate Fiduciaries has reported that multifamily property values have declined 29% from their mid-2008 peak. The Federal Deposit Insurance Corp. reported that the number of multifamily loans 90 days for more past due has doubled since last year and hit 3.6% in the third quarter — the highest since 1993.

The steepness of the curve formed by the range of yields between two-year and 10-year Treasuries has reached never-before-seen levels -- a good sign for mortgage originators whose profits are derived from the difference between their cost of funds and the residential loans they originate. The bad news for lenders is that rising mortgage rates could cause application volume to slow even though their cost of funds will stay cheap. The steep yield curve could be conducive to sales of "long" paper on collateralized mortgage obligations, "but sometimes if the market is selling off rapidly as it has been this week" investors might wait for it to stabilize, said Art Frank, director of mortgage-backed securities research at Deutsche Bank Securities. Over the course of the past week the 10-year yield has been as low as 3.50% but as of late Tuesday morning it was above 3.70%.