Origination

During the week of Nov. 27, which was shortened due to Thanksgiving, the Mortgage Bankers Association Weekly Mortgage Applications Survey found its Market Composite Index increased 2.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index — a measure of mortgage loan application volume — decreased 29.3% compared with the previous week. The Refinance Index increased 1.7% from the previous week and the seasonally adjusted Purchase Index increased 4.1% from one week earlier. These results included an adjustment to account for the Thanksgiving holiday. The share of refinance activity increased to 72.1% of total applications, up from 71.7% the previous week. The adjustable-rate mortgage share of activity decreased to 4.8% from 5.3%. The average contract interest rate for 30-year fixed-rate mortgages fell to its lowest point since May of this year, going to 4.79% from 4.82%, with points decreasing to 1.00 from 1.19 (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 has reached its lowest point ever for this survey, declining by 5 basis points, to 4.27%. Since the week of Nov. 6, that rate had been stable at 4.32%. For one-year adjustable rate loans, rates decreased by 10 BP to 6.56%.

A suit that left securitized commercial mortgages affiliated with the bankrupt General Growth Properties exposed to potential losses and highlighted the limits of securitizations' "bankruptcy remote" nature is close to finalizing a settlement that would alleviate the loss concern, according to Fitch Ratings. "Settlement terms have been reached between a group of special servicers and GGP for 73 CMBS loans securitized in various CMBS transactions included in the April 2009 Chapter 11 filing of GGP," the rating agency said. The settlement would "convert U.S. CMBS loans affiliated with [GGP] back to performing status" and if confirmed by the bankruptcy court, 92 properties would emerge from bankruptcy within the next 60 days and would return to performing loan status 60 to 90 days thereafter." The bankruptcy remote special-purpose entities that commercial mortgage-backed securities and other securitizations are issued through are not - as Fitch notes and the case illustrates - completely "bankruptcy proof." However, if the case is settled as agreed it would show SPEs are still effective, as it would demonstrate that they do allow for a situation in which mortgages can be removed intact from a bankruptcy, according to Fitch senior director Adam Fox.

The former regional director of a downpayment assistance provider rejects characterizations of downpayment aid, now banned by the Federal Housing Administration, as a scam, saying it instead has been an opportunity for those with strong credit records and solid jobs who found themselves short of the cash needed to close a loan. The aid served a need because 20%-30% of denials were because of borrowers not having cash to close, said Algernon H. Penn, previously a regional director with downpayment assistance provider Nehemiah Corp. of California, in a letter to National Mortgage News about an item that appeared Dec. 1 on its website. He said that FHA did benefit from downpayment assistance in the form of an increase in the size of its loan pool and revenues. HUD had guidelines for the program in its 4155 handbook that Nehemiah used to design its program and this has been validated in court, said Mr. Penn, who is now president of the Penn Consulting Group. He said downpayment assistance loans performed poorly because of a lack of requirements his company had but others did not, including a dearth of homebuyer education and abuse of what was supposed to be nonprofit intent as well as unchecked appraisal inflation. (Mr. Penn's letter will appear in the Dec. 7 print edition of NMN).

The Federal Housing Administration's proposal to increase the net worth requirement for FHA lenders to $2.5 million is too high, according to the chief executive of the nation's largest mortgage cooperatives. Lenders One chief executive Scott Stern said raising the FHA net worth requirement from $250,000 to $1 million is workable. But FHA wants to raise it to $2.5 million within three years. "These are very high net worth levels" that will force a lot of traditional lenders to stop offering FHA products, he said. He noted that FHA's proposal comes at a time when Fannie Mae is raising its credit score requirement to 620 and Congress is threatening to impose risk retention requirements on lenders that sell or securitize mortgages. "Risk retention could decimate the mortgage industry and force a lot of lenders to go out of business," he said in an interview. Requiring a lender to retain an interest in every loan is not necessary on FHA, Fannie and Freddie loans, he added. The Lender One CEO stressed that the safety and soundness of FHA, Fannie and Freddie is paramount. But it is already difficult for consumers to get loans and rejection rates are very high. "It is getting very tight," he said.

The Federal Housing Administration is asking for an increase in mortgage insurance premiums to replenish its diminishing capital reserves while hiking credit scores for applicants. Housing secretary Shaun Donovan will ask Congress Wednesday afternoon to raise the 55-basis point cap on annual government MI premiums. Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.) Even though it is hiking loan costs, HUD will allow the upfront premium to be priced into the interest rate. It also will allow home sellers to pay the premium. "The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a mortgage-banking consultant with Potomac Partners. As the health of the mortgage insurance fund improves, FHA can reduce the premiums and other restrictions, he added.

The Department of Housing and Urban Development is asking Congress for additional authority allowing FHA to require lenders to indemnify the insurer against losses on bad loans. In testimony before the House Financial Services Committee, housing secretary Shaun Donovan said, "We are asking for additional authority for our proposals to hold FHA lenders responsible for fraud and misrepresentations by indemnifying the FHA fund." In his prepared testimony, secretary Donovan also noted that FHA's enforcement actions are presently limited to sanctioning individual lender branches. "We will be asking Congress to expand FHA's ability to hold lenders accountable nationally" across their entire branch network, the HUD secretary said. HUD is developing a "Lender Scorecard" that will summarize each FHA lender's performance. "This scorecard will be posted on our website to ensure transparency and accountability for lenders, borrowers and the market," Mr. Donovan testified.

As we look forward to 2010, we continue to see stories of companies closing their doors or scaling back their operations. Have you taken decisive steps to be sure that in 2010 your reverse mortgage business will continue and you'll be able to serve the seniors in your community? You've heard it said, "hope is not a strategy" Are you sitting around just hoping that things will be OK in 2010? Or have you taken stock of your business and put a plan in place that reflects your goals and current conditions?

The parent company of Cleveland's AmTrust Bank — the nation's third largest residential wholesale lender — filed for bankruptcy protection Monday. AmTrust Financial Corp., the corporate parent of AmTrust Bank, filed for Chapter 11 protection Monday in U.S. Bankruptcy Court in Cleveland. According to the Quarterly Data Report, AmTrust ranks third among all residential wholesalers. The company's bank unit and its 66 branches in Florida, Ohio and Arizona are not part of the Chapter 11 filing. Peter Goldberg, AmTrust's chief executive and a member of the family that controls AmTrust, said in a court filing that the bank and its subsidiaries "will continue their business operations."

Fannie Mae is raising its minimum credit score to 620 from 580 and lowering its maximum debt-to-income ratio to 45% to reduce future defaults. The underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter, the GSE's automated underwriting system. "The adjustments reflect careful analysis of a borrower's ability to repay their mortgage obligation over the life of the loan," said Fannie spokesman Brian Faith. Fannie claims that borrowers with credit scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. In modifying loans, "we have seen too many borrowers where their other consumer debt has jeopardized their success at homeownership," Mr. Faith said. He noted that none of these changes apply to Fannie's Refi Plus program, which provides a streamlined refinancing option for existing Fannie borrowers that have loan-to-value ratios greater than 80% and up to 125%.

The National Association of Realtors' pending home sales index rose 3.7% in October and posted its ninth consecutive monthly gain. The index, considered a leading indicator of future sales, hit 114.1 in October, compared to 110.1 in September. The PHSI has risen 31.8% since October 2008. The upward trend reflects the success of the $8,000 first-time homebuyer tax credit, said NAR chief economist Lawrence Yun. "This means the tax credit is helping unleash pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," Mr. Yun said. However, the Realtors are expecting a dip in sales in the months ahead followed by a surge in early spring. Their economists are forecasting that 2010 existing home sales will come in at 5.7 million, up 10.8% from this year.