Origination

Even though the warehouse lending platform of National City is among the largest in the mortgage space - and continues to be profitable - PNC Financial Services plans to close it by mid-year 2010, according to warehouse lending officials. A spokesman for PNC confirmed the closing but declined to provide details. Commercial banks and other investors interested in the business have contacted PNC about buying the division but those talks have gone nowhere. "It's really a shame," said one warehouse advisor, requesting his name not be used. "They still have about $1.5 billion in commitments." This official noted that nonbank residential originators continue to fear that none of the remaining players in warehouse lending will fill the void once the National City unit ceases to exist. (For the full story see this week's issue of National Mortgage News.)

As rates increased for the second straight week, the share of applications from consumers looking to refinance their mortgages rose to the highest level since the end of April, said the Mortgage Bankers Association in its Weekly Mortgage Applications Survey for the week ending Dec. 11. The Market Composite Index, a measure of mortgage loan application volume, increased 0.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 0.3% compared with the previous week. The Refinance Index increased 0.9% from the previous week and the seasonally adjusted Purchase Index fell 0.1% from one week earlier. The share of refinance activity increased to 75.2% of total applications, up from 74.4% the previous week. This is the largest share of refinance applications since the week of April 24, 2009. The adjustable-rate mortgage share of activity decreased to 4.1% from 4.7%. This is the lowest share of ARM applications since mid-June. The average contract interest rate for 30-year fixed-rate mortgages increased from 4.88% to 4.92%, with points decreasing to 1.08 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 for the second consecutive week was 4.33%. For one-year adjustable rate loans, rates decreased by 3 BPs to 6.52%. The MBA stopped disclosing index values with the July 31 data release. The MBA can be found online at http://www.mortgagebankers.org.

Construction of new single-family homes rose 2.1% from October to November at a seasonally adjusted annual rate of 482,000, a sign that housing construction might finally be on firm footing. When compared to November 2008 the gain is even more impressive: 5.5%. According to figures released Wednesday morning by the U.S. Census Bureau and Department of Housing and Urban Development, all housing starts (single- and multifamily) rose by 8.9% in November from October to 574,000 units. But when compared with November 2008 all starts fell 12.4%. In November multifamily construction was the laggard: just 83,000 units started compared with 180,000 in the same month a year ago. Applications for new building permits were also up, rising 6% to an annual rate of 584,000 units, a stronger showing than economists predicted. "Stabilization in home construction appears to be on solid footing, with single-family housing starts at levels well above the low set in March of this year," said Freddie Mac's chief economist Frank Nothaft. "The bottom in home construction has coincided with increasing home sales throughout the past nine months, as homebuyers are now attracted by the combination of lower home prices, low mortgage rates and the perception that the free fall in the housing market is behind us."

I've seen conflicting articles in the last few days referring to the predictions of reverse mortgage volume for 2010. Some say volume will be down, others say the opposite. I of course prefer to look at the "glass half full" position. Let me outline a couple of reasons why I think the reverse mortgage business will do just fine in 2010.

The American Securitization Forum has released a new set of model representations and warranties aimed at better aligning incentives of mortgage originators with those of investors as part of a larger, ongoing effort to get the new-issue securitized market going again. The new model includes provisions not included in existing market 'reps and warrants' such as making origination parties responsible for the coverage of fraud and enforcing buybacks of 100% of the value of "defective" mortgages. The inclusion of fraud coverage "is probably one of the most significant examples" of differences between the range of reps and warrants currently used in the market today and what the model suggests, Tom Deutsch, deputy director of the American Securitization Forum, told NMN. Mr. Deutsch said the model provides a "baseline set" of recommended reps and warrants that originators and investors may wish to vary from or even reduce if it is agreed, for example, that an originator has strong fraud controls in place. He also noted that the forum had "very detailed involvement from all the major originators" and "it was a tremendous undertaking to get consensus." The model also covers the qualifications and independence of the person performing a property appraisal and requires originators to use "reasonable" processes to authenticate documentation and verify income for loans with less than full documentation. The model is part of the ASF's "Project on Residential Securitization Transparency and Reporting" also known as Project RESTART. The American Securitization Forum sets recommended standards for market participants based on discussions with its members.

Genworth Financial, whose mortgage insurance division has been bloodied by claims payments tied to record delinquencies, said the business will not turn an operating profit until mid-2011. Company CEO Michael Frazier said at the firm's annual investor day meeting in New York that the business will have to get through more delinquencies. He said losses will be mitigated by steps Genworth has taken to head off claims. According to figures compiled by NMN, Genworth operates the nation's fourth largest MI in terms of policies-in-force: $133 billion as of Sept. 30. Even though Genworth's MI unit continues to lose money it recently loosened some of its underwriting standards. Mr. Frazier said he expects U.S. mortgage delinquencies to peak in the coming year.

The Federal Deposit Insurance Corp. has issued a proposed rule on securitization standards that include a 5% risk retention requirement on newly issued MBS by depositories. The new standards are part of the agency's revision of "safe harbor" policies with regard to receivership assets. The current safe harbor assures MBS investors that FDIC will not seize the underlying mortgages of MBS sold by a bank that later fails. The regulator is making the proposal because of recent changes in accounting rules and wants to set a securitization requirement as a way to revive the private-label MBS market. FDIC wants to move quickly on the new policies. Chairman Sheila Bair says securitization standards are compatible with current House and Senate legislative efforts. However, at an FDIC board meeting Tuesday, Comptroller of the Currency John Dugan raised objections and is forcing FDIC to move more deliberately. "A rigid minimum retention requirement risks closing down securitization markets," he said.

The American Securitization Forum has released a new set of model representations and warranties aimed at better aligning incentives of mortgage originators with those of investors as part of a larger, ongoing effort to get the new-issue securitized market going again. The new model includes provisions not included in existing market reps and warrants such as making origination parties responsible for the coverage of fraud and enforcing buybacks of 100% of the value of "defective" mortgages. The model also covers the qualifications and independence of the person performing a property appraisal and requires originators to use "reasonable" processes to authenticate documentation and verify income for loans with less than full documentation. The model is part of the ASF's "Project on Residential Securitization Transparency and Reporting" also known as Project RESTART. The American Securitization Forum sets recommended standards for market participants based on discussions with its members.

Amherst Securities Group is warning MBS investors that not all triple-A rated restructured REMICs are the same and some could run into problems including possible downgrades under "modest stress" conditions. The investment banking boutique notes that Wall Street has restructured $43 billion in downgraded REMICs over the past 11 months — five times the volume it did last year. Amherst says the credit rating agencies are requiring different subordination levels for triple-A rated tranches. "As a result of the ratings patchwork, some of the ratings are too aggressive to us while others are too conservative," the company said.

Origination vendor Ellie Mae has acquired compliance provider Mavent for an undisclosed sum, National Mortgage News has learned. "In terms of what's going on in the industry, it was an opportunity that came along and fits strategically with what we think our clients need," Jonathan Corr, chief strategy officer at Ellie Mae told NMN. Employees from both companies will be merged. Mavent president Lou Pizante initially will stay to oversee the transition, but his future with the company is not decided, said Mr. Corr. "We're integrating the two organizations. Lou will work through the transition." Mavent analyzes electronic mortgage loan data to determine whether a mortgage transaction complies with over 330 federal and state consumer protection laws related to mortgage lending.