Origination

As I write this article I am on a plane bound for San Diego and the annual conference of the National Reverse Mortgage Lenders Association. I can't help but wonder what my colleagues and peers will be saying this year. Some may say it was an "off" year despite another record in volume. What about you? Have you met your production goals? If so, did you find it more difficult than last year? What plans have you put in place now for 2010?

Eighteen months after becoming a Fannie Mae multifamily "DUS" lender, CB Richard Ellis has reached the $1 billion mark in originations. The Boston-based real estate and lending company launched its DUS initiative in April 2008. In 2009, the company has closed $605 million in product to date. Nearly 60% of its volume was generated in collaboration with its investment sales team, financing the acquisition of properties. The group is headed by Peter Donovan, who serves as president.

The first new issue of commercial mortgage-backed securities completed under the government's Term Asset-Backed Securities Lending Facility is a step forward on what may be a long journey toward that market's recovery, according to Moody's Investors Service. The first CMBS deal done under TALF is collateralized by a $400 million loan to subsidiaries of Developers Diversified Realty Corp., a retail real estate investment trust. According to combined news reports, the security came to market this week but Moody's notes in a new report that, "significant issues affecting the broader CMBS securitization sector remain unresolved." The rating agency adds, "not all CMBS loan financings will benefit from the program, which has stringent rules."

The yield on the benchmark 10-year Treasury continued its drop Tuesday, suggesting that the recent downward drift in mortgage rates might continue. At press time, the 10-year was yielding 3.3% compared to 3.5% less than a week ago. Rates began to fall after Federal Reserve chairman Ben Bernanke spoke Monday, reaffirming the government's intervention policies in the mortgage market. The Fed is set to end its MBS liquidity program by the spring but the Fed chairman said the central bank might adjust the program, depending on what market conditions call for.

The nation's homebuilders may have to wait until next year to start reaping the rewards of the recently enacted $6,500 tax credit for repeat buyers, an industry consultant has warned. While builders who work in the move-up market can anticipate a boost in sales, Southern California real estate consultant John Burns says the burning question is: Will the tax break be enough to motivate buyers to enter the market during the normally slow holiday season? Under the rules, buyers must sign contracts by the end of April and must close on their new digs by the end of June. That gives buyers who are looking at newly built homes plenty of time to shop, but not necessarily enough time to get their choices built. The typical construction cycle is 90 days, so buyers who haven't found a model they like by the end of March may be cutting it close, possibly too close. That's why consultants like Mr. Burns and others are advising builders to start a few homes on speculation. Right now, John Burns Real Estate Consulting's November survey of 265 building company executives is finding "cooling traffic and sales in many locations, particularly those with no spec inventory."

Seven individuals have been charged for their roles in a mortgage fraud scheme that involved more than 100 properties in Northern California. The indictment charges Amy Schloemann, Karim Akil, Wonda Louise Kidd, Michelle McGuire, Kaska Clay, James Ross and Darnell Thomas with conspiracy to commit wire fraud, wire fraud and money laundering. According to Joseph P. Russoniello, U.S. attorney for the Eastern District of California, the defendants, who were unavailable for comment, allegedly participated in a fraud scheme involving the fraudulent purchase of more than 100 properties through the use of straw buyers, real estate appraisers, notaries and escrow agents, and the laundering of profits. The defendants allegedly directed straw buyers to sign loan applications containing false information and allegedly hired notary publics to fraudulently notarize documents. The defendants allegedly increased their profits on the purchase of properties by submitting false documents to lenders. Once the properties were purchased, the defendants allegedly split the proceeds and failed to make payments on the properties, causing lenders to foreclose.

Although its portfolio is continuing to perform well, PMC Commercial Trust has seen the weakened economy impact some of its borrowers, according to its third quarter financial results. In addition, the Dallas-based commercial real estate investment trust has taken possession of two properties through foreclosure. "We anticipate the weakness to continue for at least several quarters," said PMC chairman Lance Rosemore in a statement, adding, "our loans are typically real estate secured and, in most cases, the value of the underlying collateral should cover our principal exposure." In response to the current economic conditions, PMC Commercial Trust increased its reserves for loan losses during 2009. Income from continuing operations increased to $1.5 million in 3Q09 from $587,000 during the third quarter of 2008. Net income increased to $1.9 million during the third quarter of 2009 compared to $603,000 for the third quarter of 2008.

The expansion-minded CMG Mortgage of California has opened a new retail branch in Denver, hiring mortgage banker Matt Klaess to run it. Mr. Klaess, the former owner of American Guarantee Mortgage, is "well known" in the Denver market, CMG said in a statement. No further details were available at press time. A few weeks ago CMG bought Northwest Financial Services, Seattle, a loan brokerage firm with 30 retail loan officers, for an undisclosed sum. CMG is a nonbank residential lender that ranks 58th nationwide in terms of loan originations, according to figures compiled by National Mortgage News and the Quarterly Data Report.

The Federal Reserve Board has clarified its new HOEPA lending standard so that lenders can refinance short-term balloon mortgages on farmhouses and other rural residences. Rural lenders make nonconforming 3-year and 5-year balloon mortgages that they hold in portfolio. They raised concerns that the Home Ownership and Equity Protection Act regulations that went into effect Oct. 1 could prohibit such products. The HOEPA rule requires lenders to evaluate the borrower's ability to repay a loan. On higher-cost balloon mortgages with a term of less than seven years, it appeared the borrower must be able to pay off the mortgage in full at the end of the term. FRB director of consumer affairs Sandra Braunstein said there is "no" such pay off requirement since it would effectively ban short-term balloon loans. "If the Board had intended to ban such products it would have done so explicitly," she says in a letter to banking trade groups and bank examiners. In making the loan, the lender should "verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral," Mr. Braunstein says. American Bankers Association regulatory counsel Rod Alba said, "most of our members" are satisfied with this clarification. But some are concerned that they may still be open to possible private litigation or borrowers exercising a right of rescission, he said.

While concerns about low appraisals are legitimate, the problem is not necessarily with the Home Valuation Code of Conduct, a key federal regulator told an angry crowd of real estate professionals in San Diego. "We keep trying to find a provision (in the HVCC) that is causing problems, but we can't," Alfred Pollard of the Federal Housing Finance Agency said at the National Association of Realtors' annual convention. NAR members are hopping mad at delayed closings and lost transactions. In a survey conducted earlier in the year, three our of four agents said it is taking longer to get appraisals and the holdup is affecting their sales. But Mr. Pollard, the FHFA's general counsel, said that a few lost deals may be the price that has to be paid to rid the marketplace of lousy appraisers. Mark Johnson of LSI Title, an appraisal management company, also defended the code. While there are some "bad actors" in the AMC sector, he said, "the reality is that no matter how you look at it," the increase in complaints coincided not only with the "huge decline in prices that took place last year" but also at a time when mortgage rates hit bottom and lenders strained to handle the volume of applications. "There were too many loans in the pipeline," said Mr. Johnson, who manages the appraisal and valuation divisions at LSI, a division of Lender Processing Services. "I'm trying to be humble and confident at the same time," he told a session of hostile Realtors, "but applications tripled in some cases."