Origination

Given the success of the first-time homebuyer tax credit and its extension into next year, the National Association of Realtors is forecasting that existing home sales will jump 13.6% in 2010 after a 2% increase in 2009. First-time buyers will account for a record 47% of homes sales in 2009, according to NAR chief economist Lawrence Yun. "In fact the credit is working better than first projected — it now looks like we'll have 2.3 million to 2.4 million first-time buyers this year," he said. The National Association of Home Builders estimates the tax credit has generated 200,000 extra sales. Mr. Yun expects sales of previous owned homes will hit 5.7 million in 2010, up from 5.0 million in the previous year. Congress recently extended the $8,000 first-time homebuyer tax credit to April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The lawmakers also created a new $6,500 tax credit for repeat or move-up buyers. Bernard Markstein, NAHB director of economic forecasting, expects the extended/expanded tax credit, which goes into effect Dec. 1, will generate 180,000 extra sales, including 40,000 new home sales.

With the extension of the $8,000 first-time homebuyers tax credit and the addition of a smaller $6,500 credit for move-up buyers, the housing sector has gotten a second chance, but a third is unlikely. There will not be a third extension, according to the National Association of Realtors' director of tax policy. Lawmakers "made us promise practically in blood that we would not come back" for another extension, Lindo Goold said at NAR's annual convention in San Diego. Ms. Goold also spoke of "the high drama" involved in persuading Congress to increase the income limits involved with the credits. "You have no idea how nip and tuck it was," she told a convention session. The NAR's chief tax lobbyist also pleaded with realty agents not to allow their clients to "dream up schemes" to get around the rules regarding the credits, warning that the industry's credibility is on the line. Ms. Goold said the group enjoyed unprecedented success and "extraordinary victories" on Capital Hill this year. But she also advised that 2009 probably will be the last year the Realtor lobby will be able to be on the offensive. "We won't have that luxury too much longer," Ms. Goold said, explaining that with the government's coffers all but empty, the highly prized mortgage interest deduction, the capital gains write off and a favorable estate tax all may be on the table next year.

With nobody looking over its shoulder, the Federal Housing Administration has been "very vigilant" in not resetting area median home prices to their current levels, a National Association of Realtors' lobbyist said at the group's convention in San Diego. Noting that the agency is using 2006-level prices to set loan limits for individual markets, Megan Booth, an NAR senior policy representative, told a convention session that the "dramatic drop in house prices" over the last three years would result in lower loan limits in numerous places. With the conforming loan limit remaining at $417,000 for another year — and $729,750 in high-cost areas — the ceilings on loans that can be insured by the FHA also will not change in 2010 unless the agency recalculates the median prices for the nation's 3,300-plus counties. But Ms. Booth indicated the government fears any decline in the limits would rock local housing markets. NAR, meanwhile, will use the next 12 months to push to make the 2010 limits permanent. "No. 1 on our agenda is liquidity," said the group's new president, Vicki Cox Golder, a Tucson land broker. "Without funding, we can't get people into homes."

Effective immediately, the Federal Housing Administration will no longer require two appraisals on higher-balance loans for properties located in declining markets. The two-appraisal mandate — both were required prior to an underwriting decision — was put into place at the peak of the housing crisis. But "we haven't noticed any benefit" from the rule, "and it really slowed down the process," FHA Commissioner David Stevens told Mortgage Wire at the National Association of Realtors' convention in San Diego, where he announced the policy change over the weekend. The move was hailed by NAR officials, who have been seeking the change. But they were disappointed that Mr. Stevens, who headed Long & Foster Realtors, the nation's largest independent brokerage firm, before his appointment and is considered one of the Realtors' own, did not announce a change in policy requiring that condominium reserves be fully funded. He told Mortgage Wire that the problem of unfunded reserves is particularly acute in resort markets where there is an excess supply of new but unsold apartments. "We're all about owner-occupancy," he said. "I'm not sure it is up to the FHA to fill that void." In his remarks to the conference, Mr. Stevens, who also has worked for Freddie Mac and Wells Fargo, said the FHA's share of originations "may be significantly higher" at year-end than the current 25% level. But he also said he is looking forward to the time when FHA originations will shrink back to a more normal level. "We are here to bear witness to the countercyclical role the FHA was created to play," he said. "And we will be here until private capital returns to the housing finance system."

Lenders trying to comply with a new RESPA rule that goes into January 1 will not have to worry about being slapped with an enforcement action if they fall short during the first few months, according to the Department of Housing and Urban Development. HUD has instructed its staff to exercise restraint in taking enforcement actions against Federal Housing Administration-approved lenders during the first 120 days. HUD also is urging other federal and state enforcement agencies to go easy on other lenders that are making a good faith effort to implement the new Real Estate Settlement Procedures Act rule. "We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," said HUD Secretary Shaun Donovan. Lenders and certain other settlement services groups have been urging HUD to delay the implemention date for a few months. But HUD has refused. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices," secretary Donovan said.

Federal Reserve Board chairman Ben Bernanke said Monday that the central bank will continue to support the mortgage market while bank lending remains constrained. "We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitizing through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities," the Fed chief told the Economic Club of New York. The Fed has purchased more than $800 billion in agency MBS and it recently extended its MBS purchase program through March 31. (The effort was originally slated to expire at yearend 2009.) The Fed chairman noted that banks have tightened their lending standards more than the central bank had expected. "Unfortunately, reduced bank lending may well slow the recovery," Mr. Bernanke said. A Fed survey of senior loan officers in October found that 25% of banks had tightened their underwriting standards on prime single-family loans, a slightly higher percentage than reported in the July survey.

Freddie Mac said the conforming loan limits on the mortgages it purchases from lenders will not change in 2010. Moreover, even the $729,750 loan limit for high cost areas will remain the same since Congress extended it for another year. Otherwise, the loan limits for first mortgages are: $417,000 for mortgages secured by one-unit properties, $533,850 for mortgages secured by two-unit properties, $645,300 for mortgages secured by three-unit properties and $801,950 for mortgages secured by four-unit properties. Fannie Mae is expected to make the same pronouncement shortly.

Ashford Hospitality Trust booked a non-cash impairment charge of $19.8 million in the third quarter, setting aside loan reserves on two luxury hotel projects. The Dallas-based real estate investment trust elected to reserve for the remaining $9.1 million of its $18.2 million first mortgage participation in the Four Seasons Nevis due to additional uninsured costs incurred by the borrower and the delayed reopening of the resort until 2010. In addition, Ashford signed an agreement with the borrower on the Ritz Carlton Key Biscayne to allow for a discounted payoff of Ashford's $33.6 million loan that was set to mature in 2017. If closing occurs, Ashford will receive $20 million in cash and a $4 million secured note that matures in 2017. The company will reserve $10.7 million on this loan in anticipation of the discounted payoff.

Genworth Financial is slated to receive an estimated $85 million federal income tax refund that will benefit its mortgage insurance business, the Richmond, Va., company said. The refund is due to changes in federal law expanding the net carry-back period for certain net operating losses from two years out to five years. The estimate is based on Genworth's results for the first three quarters of 2009. The exact amount of the recovery will be based on the company's 2009 full year results and will be calculated early next year. A significant portion of the recovery will benefit Genworth's U.S. mortgage insurance business and could decrease its risk-to-capital ratio by between 0.5 and 1.0 points. At the end of the third quarter, Genworth's U.S. mortgage insurance unit had a risk-to-capital ratio of 15.1 to 1. Some states require mortgage insurers to have 25 to 1 ratio to write new policies. This includes North Carolina, where the Genworth unit is domiciled.

Fannie Mae completed 56,816 loan modifications during the first nine months of the year with 46% involving mortgages with current loan-to-value ratios greater than 100%. "A significant portion of our modifications pertain to loans with a mark-to-market LTV ratio greater than 100%," Fannie said in its third quarter financial report. Fannie notes that 20% of its high LTV single-family mortgages are 90-days or more past due, compared to a serious delinquency rate of 4.72% on its entire $2.8 trillion guaranteed mortgage portfolio. In the third quarter, the GSE completed 28,000 loan modifications, including a "limited number" of borrowers who qualified for the Obama administration's Home Affordable Modification Program. However, the GSE said a "large number" of the third quarter modifications involved borrowers "who did not qualify for modifications under the Home Affordable Modification Program."