Origination

"Several dozen" of the 1,200 to 1,500 fraud investigations currently underway within the Department of Housing and Urban Development's Inspector General's Office involve home equity conversion mortgages, a group of reverse mortgage specialists meeting in San Diego were told. Some cases involve a single loan; others, hundreds of loans, and they run the gamut of industry practitioners - from single loan officers to big companies, according to Michael Stolworthy, the assistant special agent in charge of mortgage crime investigations in the IG's office, which is the law enforcement arm of HUD. "I'm not saying fraud is widespread, but some of these are not just fly-by-night outfits," Mr. Stolworthy told the National Reverse Mortgage Lenders Conference. "This is not an industry permeated with fraud, but it's not perfect either." The mortgage cop didn't name names, but he said one miscreant's name has popped up on straw buyer cases involving more than 300 properties. In another investigation that involved the well-known Crips gang of street thugs, 25 seniors were sold highly inflated properties using the popular HECM for purchase program. Despite these ongoing investigations, Mr. Stolworthy extolled the virtues of reverse mortgages. "I'm a big supporter; HECM is an excellent product," he said. "But an industry that's often on the defensive doesn't need this kind of black eye."

The Department of Housing and Urban Development will soon publish an advance notice of rule making concerning reverse mortgages that the agency's official who oversees the Home Equity Conversion Mortgage program says "a lot of people may find disconcerting." The notice, which is awaiting approval from the Office of Management and Budget, "asks some very serious questions," Meg Burns, the director of the office of single-family program development at the Federal Housing Administration, said at the National Reverse Mortgage Lenders Association's annual conference in San Diego. One "straight out" question that will be asked is whether borrowers should be allowed to pocket the proceeds of a reverse loan and use the money as the basis of an annuity against falling prices. Another question is whether or not a limit should be placed on how the proceeds are used by the borrower, and a third is whether draws should be limited unless the borrower has an immediate need. "We think it's appropriate to ask these questions because these are the issues the come up all the time with lawmakers," Ms. Burns told the conference. She added HUD would soon publish a proposed regulation that would require all reverse mortgage lenders to determine if the income of a would-be borrower is enough to meet his and/or her current obligations. If so, HUD may place restrictions on how much of the loan proceeds a borrower can draw. Yet another idea on the table at HUD is what's called a "HECM Mini" in which borrowers whose equity in their homes was more than needed would tell the lender what percentage of the value they wanted and the maximum claim limits would be adjusted accordingly.

The average 30-year primary market mortgage rate tracked by Freddie Mac is nearing a record low not seen since April. The average rate for a 30-year fixed-rate mortgage in the company's Primary Mortgage Market Survey for the week ending Nov. 19 was 4.83%, down from 4.91% the previous week and 6.04% a year ago. This is not far from the record low of 4.78% seen earlier this year. Even more favorable than the average 30-year FRM rate in the latest week was the average 15-year FRM rate, which hit a new record low during the period of 4.32%. This was slightly below the previous record low of 4.33% hit the week of Oct. 8 and was down from 4.36% a week ago and 5.73% a year ago. The average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage in the latest week was 4.25%, down from 4.29% a week ago and 5.87% a year ago. The average rate for a one-year Treasury ARM was 4.35%, down from 4.46% a week ago and 5.29% a year ago. Average points were as follows: 0.7 for 30-year FRMs and 0.6 for all the other aforementioned types of loans.

Still bristling from the Federal Housing Administration's decision in late September to cut "principal list factors" by roughly 10% across the board as of Oct. 1, reverse mortgage lenders are now bracing for another haircut, this one probably around Jan. 1. After meeting with FHA Commissioner David Stevens before the start of the National Reverse Mortgage Lenders Association's annual conference in San Diego, NRMLA President Peter Bell seemed resigned to the reality that the FHA would lower the two factors - the borrower's age and the current mortgage rate - that form the matrix used to determine what percentage of the property's value is available to the borrower. But at the same time, he told MortgageWire that his members would not be pleased. "This whole thing with risk management has ruffled a lot of feathers," Mr. Bell said. Changes in the matrix are dictated by the Office of Management and Budget's reading of house prices, which have been falling in most locations. An announcement is expected shortly after the Thanksgiving holiday. "It's really a new day in Washington," he said. "Evidence-based decision making drives the process now." According to a rump survey by the group of the loans booked year-to-date by the three largest portfolio lenders of reverse mortgages, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed on the property.

Triad Guaranty Inc., a mortgage insurer that is in self-liquidation mode, has received a delisting notice from the NASDAQ. The exchange told the nation's smallest MI that it is no longer in compliance with a rule requiring it to maintain a minimum market capitalization (based on common stock value) of $15 million. NASDAQ is giving the Winston-Salem company 90 calendar days, or until Feb. 9, 2010, to regain compliance. Triad, whose shares trade for about 50 cents, lost $102 million in the third quarter. In October Triad agreed to sell its MI platform, including its technology, to Essent Guaranty, a new MI company that hopes to begin writing policies next year. Triad has outstanding coverage on about $57 billion worth of home mortgages, according to the Quarterly Data Report.

Technology Credit Union of San Jose has introduced a new five-year jumbo ARM and is willing to fund mortgages up to $1 million in the high-priced San Francisco Bay Area. Introduction of the new product comes as area homebuyers are having a hard time finding affordable loans over the Fannie Mae/Freddie Mac limit, mainly because the secondary market for these nonconforming mortgages has dried up along with the securitization market. For now, most jumbo loans being funded are held in portfolio at depositories with Bank of America and Wells Fargo being two of the largest players in that market. Technology CU is a $1 billion credit union serving several hundred companies in Silicon Valley. A few months back Kinecta Federal Credit Union of Manhattan Beach, Calif., stepped up its jumbo lending.

Residential originations will decline by almost 30% next year to $1.38 trillion as rising interest rates put a crimp on new originations, according to a new forecast from Fannie Mae. The GSE believes originations will total $1.95 trillion this year. (The Quarterly Data Report, a National Mortgage News publication, is forecasting $2.1 trillion in fundings this year.) Last month the Mortgage Bankers Association reduced its 2010 forecast to about $1.6 trillion. Mortgage lenders had one of their worst years of the decade in 2008 ($1.6 trillion in fundings) when the worldwide credit crisis came to a head in the fourth quarter. Fannie's economists predict the interest rate on 30-year fixed-rate loans will average 5.42% in 2010 compared to 5.07% this year. Refinancings will comprise only 47% of originations, compared to 67% this year. "We continue to expect a 10% increase in home sales in 2010," Fannie chief economist Doug Duncan says in his monthly "Economic Developments" update report. He believes FHA will be the beneficiary due to congressional action to extend the first-time homebuyer tax credit and expand it to buyers in the move-up market. "The tax credit will likely be a boon for the Federal Housing Administration, whose share of purchase mortgages has increased significantly during the past year," he said. FHA insured $170.6 billion in purchase mortgages in fiscal-year 2009 with 78.5% going to first-time homebuyers.

The market share of refinance applications for the week ended Nov. 13 is at its highest level since mid-May, the Mortgage Bankers Association Weekly Mortgage Applications Survey found. Refis made up 72.9% of the applications submitted for the week, up from 71.5% for the previous week. MBA said this is the largest share of refi applications since May 15. However, the Market Composite Index, a measure of loan application volume, decreased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 3.3% compared with the previous week. The Refinance Index decreased 1.4% from the previous week while seasonally adjusted Purchase Index decreased 4.7%. MBA said this is the sixth week in a row the seasonally adjusted Purchase Index has declined bringing it to its lowest level since November 1997.The share of adjustable-rate mortgage applications fell to 5.4% for the week, from 5.5% one week prior. The average contract interest rate for 30-year fixed-rate mortgages fell to 4.83% from 4.9%, with points increasing to 1.17 from 1.03 (including the origination fee) for loans with an 80% loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs declined by 1 basis point, to 4.32%. For the week of Nov. 6, 2009, there was no change in the rate. For one-year adjustable rate loans, rates decreased by 3 bps to 6.82%. The MBA stopped disclosing index values with the July 31 data release. The MBA can be found online at http://www.mortgagebankers.org.

Single-family housing starts dropped 6.8% in October from the previous month while multifamily starts plummeted 33% to the slowest pace on record. The U.S. Census Bureau reported that single-family housing starts fell to a 476,000 seasonally adjusted annual rate in October from a 511,000 rate in September. Builders held back on starting construction of new homes due to the possible expiration of the $8,000 first-time buyer tax credit, according to the National Association of Home Builders. Congress recently extended the tax credit and expanded it to repeat buyers. "We hope and expect that this will have a substantial stimulative effect on home sales and help keep the housing market solidly on the road to recovery," NAHB chairman Joe Robson said. Meanwhile, construction of multifamily units fell to a 48,000 seasonally adjusted annual rate in October from a 72,000 rate in September. Multifamily starts have fallen 78% since October 2008 as vacancy rates rise and lenders tightening lending standards.

Comptroller of the Currency John Dugan said regulators worldwide should prohibit lenders from making payment-option adjustable-rate mortgages and other negative amortizing products. "We should generally prohibit the lowering of monthly payments through so-called negative amortization mortgages, which have performed terribly," Mr. Dugan told an international banking conference in Tokyo. The U.S. national bank supervisor urged regulators to adopt minimum mortgage standards that require verification of borrowers' income and assets, meaningful downpayments and underwriting that takes into account the fully indexed interest rate. The comptroller noted that real estate markets around the world are heating up due to low interest rates and they should be careful. "We in America fundamentally lost our way" and the consequences have been "disastrous," Mr. Dugan said. "It's simply hard to believe how far and how fast mortgage originators strayed from basic, fundamental, common-sense principles of sound underwriting. And perhaps it's even more astounding that lenders, investors and yes, regulators, allowed this to happen," he added. In the U.S., few, if any, are still originating these types of mortgages.