Origination

CMG Mortgage of California has purchased Northwest Financial Services, Seattle, a loan brokerage firm with 30 retail loan officers. No purchase price was disclosed. CMG president Chris George said his company has already converted NFS into a mortgage banker. It will remain a retail lender and supplement CMG's presence in the state. Mr. George said prior to the purchase NFS was originating between $15 million and $25 million a month in residential loans. It has one office. According to figures compiled by National Mortgage News and the Quarterly Data Report, CMG — a non-depository retail/wholesale funder — ranks 58th nationwide in terms of loan originations.

It is a new low point for the Eleventh Federal Home Loan Bank District Cost of Funds Index, which for September 2009 fell 14 basis points to 1.272%. The previous low was recorded in April at 1.380%. The decline in COFI has moderated in the past five months. In the period between November 2008 and April 2009, it fell 177.5 basis points. Between May and September, the index fell just 56 basis points. The COFI is computed from the actual interest expense reported for a given month by the Arizona, California, and Nevada savings institutions members of the Federal Home Loan Bank of San Francisco. That includes the cost of deposits. Deposit interest rates might be at record lows. The average secondary market rate for one-month certificates of deposits is at an all-time low for September at 0.21%, the sixth month in a row of declines. Last October, a run up in this rate peaked at 4.04%. The secondary market rate for the three-month is 0.25% and for the six-month CD is 0.36%.

September was the worst month of the year so far in terms of dollar volume of primary new insurance written for the private mortgage insurance companies. According to data gathered by the Mortgage Insurance Cos. of America, there was just $4.8 billion of primary new insurance written, compared with a revised total of $5.8 billion in August; a statement from MICA said this includes HARP originations, but the group did not break out how many. Last September MICA members wrote $8.1 billion, but this does not include figures from Radian Guaranty Inc., whose data was not included in the group's statistics until December 2008. Since that month, the industry's primary insurance in force has declined from $952.2 billion down to $892.7 billion. New pool risk written was $4.7 million for September, while pool risk in force at the end of the third quarter was $7.9 billion, up from $7.0 billion for the same period one year prior. There was an improvement in the cure/default ratio, from 57.6% in August to 64.7% for September with 59,750 cures and 92,292 defaults during the month.

The Department of Housing and Urban Development is threatening to stop Financial Mortgage USA, Honolulu, from making Federal Housing Administration reverse mortgages and allegedly taking advantage of seniors. HUD alleges that the mortgage brokerage firm "duped" seniors into using the proceeds of their FHA reverse mortgages to purchase annuities from an affiliated insurance firm. [Reverse mortgages have an annuity feature depending on the payment plan the senior chooses.] The HUD Mortgagee Review Board is "particularly concerned about one case in which the company steered an 88-year-old borrower into purchasing an annuity which did not mature until she reached her 104th birthday," the department said. The MRB has proposed to permanently withdraw Financial Mortgage USA's status as a FHA-approved lender and fine the company $97,500 for violating FHA rules. The Honolulu lender can request an administrative hearing to contest HUD's actions. Company executives could not be reached for comment.

Federal regulators have issued guidance that encourages banks to refinance or restructure commercial real estate loans despite declines in property values and rents. "The financial regulators recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions," according to a policy statement issued by the Federal Financial Institutions Examination Council. The policy statement provides examples of prudent CRE workouts. It also stresses the importance of the borrower's willingness and capacity to repay the mortgage. The guidance tells examiners not to adversely classify prudent workouts, even in cases where the borrower is associated with an industry that is facing financial difficulties. CRE loans that are "renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment," the guidance says.

A few months ago, industry groups seemed resigned that Congress might impose a 5% risk retention requirement on mortgage securitizations, but now legislation is headed for a committee markup that pushes the "skin in the game" bar to 10% which has many concerned. "The 10% requirement is unstudied and could have a significant negative impact on mortgage finance," said Scott Talbott, a lobbyist for the Financial Services Roundtable. Mr. Talbott warned House Finance Financial Services members in his testimony that requiring lenders to retain that much credit risk would "significantly limit" their capacity to extend mortgage credit. In May, the House passed a subprime lending bill that requires lenders that sell and securitize subprime mortgages to retain 5% of the credit risk. Industry groups thought they had achieved a workable compromise. The subprime bill (H.R. 1728), specifically exempts government guaranteed mortgages and loans purchased or securitized by Fannie Mae and Freddie Mac from the credit risk retention requirement. The Senate has not taken any action on H.R. 1728. Financial Services Committee chairman Barney Frank, D-Mass., the primary author of H.R. 1728, did not include the exemptions in his regulatory reform bill to address systemic risk issues and "too big to fail" institutions. Regulators can reduce the 10% retention requirement to 5% on certain mortgages under the new bill, but no lower than 5%. "We are baffled as to why this has come back up again, since we thought it was settled in the subprime lending bill," said Glen Corso, managing director of the Community Mortgage Banking Project. Mr. Corso pointed out that the Frank bill, which has the support of the Obama administration, also imposes a credit risk retention requirement on securitizers that can be in lieu of or in addition to the lenders requirement. "I think there will certainly be a push for some exemptions," said Bert Ely, a banking consultant.

Independent mortgage banking firms saw their origination profits increase 28% to $1,358 per loan in the second quarter thanks to rising loan volumes, in particular a swell in refinancings. According to a new study by the Mortgage Bankers Association, 96% of the 292 lenders surveyed posted a pre-tax profit in 2Q compared to 85% in 1Q and just 53% in 4Q. The profit study focused on what the trade group calls "independent" mortgage bankers, a universe that includes both non-depositories and subsidiaries of banks. None of the nation's "mega" banks — Bank of America, Wells Fargo & Co., JPMorgan Chase, and Citigroup — are included in the MBA's survey, said a spokeswoman. According to figures compiled by National Mortgage News and the Quarterly Data Report, all lenders funded $583 billion in residential loans in 2Q compared to $480 billion in 1Q — a 21% increase in volume. Commenting on the results, Marina Walsh, MBA's associate vice president of industry analysis, said, "The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits. At the same time, purchases picked up as homebuyers with good credit took advantage of low interest rates."

As the bank earnings season starts to wind down, credit rating firm DBRS said the results for the most part show a weak quarter. "Despite the improvement in financial markets and some promising signs in housing markets, DBRS still expects that mounting job losses, the weak economy and the sustained pressure of asset quality deterioration will keep bank earnings weak at least into the middle of 2010. This economic pressure is falling more heavily in some regions of the country, especially where housing markets and real estate activity collapsed and remain depressed," a report from the company said. Nonperforming loans are increasing, but at a slower pace. Like many others, the Chicago firm is projecting commercial real estate as the next hot spot. CRE portfolios have held up well except for construction loans. But higher vacancies, lower rents and depressed valuations will have an impact, as the weakness in the economy feeds through to demand for commercial space. "CRE is likely to be the weak link in a bank earnings recovery," DBRS said. The report also noted that mortgage banking income in general was lower when compared with the second quarter of this year.

Michael Brennan, co-founder and former president and CEO of First Industrial Realty Trust, has formed Brennan Investment Group LLC, a new Chicago-based industrial real estate investment firm. BIG will opportunistically acquire, develop and operate industrial properties in select major metropolitan markets throughout the United States. The firm's managing principals will co-invest with private and institutional capital, pursuing single asset and portfolio acquisitions, including acquisitions of debt. "We established Brennan Investment Group at one of the most opportune periods the industrial real estate market has ever seen," said Mr. Brennan, who will serve as chairman and managing principal of BIG. "The industrial real estate sector is a large, stable and diversified investment class offering a compelling opportunity for both current income and appreciation."

Donn C. Costa has been named acting president of Golf Savings Bank, Mountlake Terrace, Wash., a savings bank focused on single-family mortgage originations. He has been with Golf Savings since 1994 and has served as its executive vice president since 2006 when it was acquired by Sterling Financial Corp., Spokane, Wash.. Mr. Costa will work closely with Sterling's acting chief executive, Gregory Seibly, who was appointed as acting CEO of Golf Savings as well. Golf Savings Bank currently employs more than 600 people in 32 mortgage offices and retail banks across the Pacific Northwest.