Origination

U.S. District Judge Alexander Williams, Jr., sentenced Sidney Okosun, a Nigerian national residing in Washington, D.C., to 18 months in prison, followed by five years of supervised release for bank fraud in connection with a scheme to defraud mortgage lenders. Judge Williams also ordered Okosun to pay $2.2 million in restitution. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Okosun, a loan officer formerly licensed as a mortgage originator by the state of Maryland, conspired with others to purchase properties from a company co-defendant Oladipo Olafunmiloye owned. Conspirators sought mortgages and refinance loans to purchase the properties without having to identify Olafunmiloye's ownership interest. The defendants recruited straw buyers who made almost none of the payments related to the purchase of the properties. Once the purchase of the properties had been funded, Olafunmiloye caused the straw buyers to default on their mortgage payments. As a result, the lenders were forced to foreclose on those properties. Acting as mortgage broker, Okosun coordinated the submission of nine fraudulent loan applications to lenders and brokered the fraudulent loans. Olafunmiloye was sentenced to 46 months in prison for his role in the scheme. Oyekunle Ikudayisi was sentenced to six months in prison and six months home detention with electronic monitoring. Kolawole Aminu was sentenced to three years probation.

Commercial loan balances for Wilmington Trust Corp. were $6.69 billion on average during the third quarter of 2009. Within the Wilmington, Del.-based wealth management firm's commercial portfolio, commercial mortgage balances rose on a trailing quarter and year-over-year basis. According to the company's earnings report, commercial construction balances were slightly higher than for the year-ago third quarter, but lower than for the trailing quarter. Balances of other types of commercial, financial and agricultural loans were lower than for the trailing quarter and the year-ago third quarter. According to Wilmington Trust, the increase in commercial mortgage balances reflected changes in the credit markets that have minimized the competitive advantages formerly held by specialty commercial mortgage lenders. Wilmington Trust extends commercial mortgage loans to middle-market business owners within the mid-Atlantic region. More than half of commercial mortgage loans at Sept. 30, 2009, were for owner-occupied properties. According to the company, 18% were for community shopping centers. The rest were for a variety of other types of commercial and industrial properties. More than half — 57% — of Wilmington Trust's commercial mortgage loans were for properties in Delaware, with the majority in the state's northern-most county.

The benchmark 10-year Treasury bond has risen notably over the past week and may be putting upward pressure on mortgage rates. The yield of noon Monday was above 3.5%. Last Tuesday it was a little above 3.3%, according to Yahoo Finance.

Freddie Mac veteran Bob Ryan starts this Monday as the Federal Housing Administration's first senior risk officer ever. Mr. Ryan has worked at Freddie for nearly 26 years and most recently served as vice president of portfolio management and pricing in Freddie's single family credit guarantee division. FHA commissioner David Stevens pledged to install an experienced risk manager to review all FHA programs. "FHA will never be able to fulfill its mission long term or short term if it is under scrutiny for not being well managed from a risk management standpoint," Mr. Stevens said.

The Mortgage Bankers Association has created The Council on the Future of FHA, a 25-member committee to make policy recommendations for the government-run mortgage insurance program's future. In a statement, MBA said it believes it is essential that the Federal Housing Administration must have up-to-date resources, risk management tools, and business practices to meet current and future challenges. Daniel Crockett, president, chief executive and chairman of Franklin American Mortgage Co., Franklin, Tenn., will chair the council. MBA has also retained the consulting services of the Collingwood Group to assist in this project. Managing directors of the Collingwood Group include former Ginnie Mae president Joe Murin and former FHA Commissioner Brian Montgomery. "During the recent run up in business, the folks at FHA have done an incredible job given the limited resources at their disposal," said Mr. Crockett in a statement issued by MBA. "Our members want to help ensure that FHA can effectively manage the risks that come with the increased business the agency is seeing. MBA wants to take proactive steps to ensure the safety and soundness of the agency today and in the future."

Over 100 banks have failed this year and Federal Deposit Insurance Corp. officials expect the failure rate will remain at the current pace for the rest of this year and 2010. Seven small FDIC-insurance institutions were closed over the weekend, including Partners Bank, Naples, Fla. "Partners Bank is the 100th FDIC-insured institution to fail this year, and the seventh in Florida," FDIC said. In six of the seven resolutions, the acquiring banks purchased all or a good portion of the failed bank's assets. Four of the resolutions involved loss-sharing agreements where the acquiring bank agrees to purchase most of the assets and FDIC agrees to cover 80% of the losses. "We have been having very good success in having the acquiring institutions take over all of the assets," said FDIC spokesman David Barr. Overall, FDIC estimates that mounting failures will cost the deposit insurance fund $100 billion from 2009 through 2013, including the $27.3 billion it has already incurred from the 106 failures so far this year.

The Senate is slated to take up a bill this week that extends unemployment benefits and it might include an extension of the $8,000 homebuyer tax credit. Proponents of the first-time homebuyer tax credit that is due to expire Nov. 30 were planning to offer amendments to unemployment benefits bill that would extend and possibly expand the tax credit. But now it appears Senate lenders are working on a compromise that could be tucked into the bill as a manager's amendment. Such an approach would increase the chances that the first-time homebuyer tax credit would be extended by at least six months. And depending on the costs, it might include features of a proposal sponsored by Senators Christopher Dodd, D-Conn., Johnny Isakson, R-Ga., and Joseph Lieberman, D-Conn., that extends the tax credit through June 30. The Dodd-Isakson-Lieberman proposal expands the tax credit to all buyers and raises the income limits to $150,000 for individuals and $300,000 for joint returns.

Three years after being sold to an investor group led by Goldman Sachs & Co., Capmark Financial Group — the nation's third largest commercial mortgage servicer — filed for bankruptcy protection, though it has vowed to continue making new loans. The Horsham, Pa.-based company, formerly known as GMAC Commercial Mortgage, services $288 billion of commercial real estate loans. In the first-half it funded just $1.94 billion of product compared to $10.39 billion for all of last year. In its filing, the nonbank lender listed $21 billon in debts and consolidated assets of $20.1 billion. Its other owners include KKR & Co., and Five Mile Capital Partners, Greenwich, Conn. Three years ago General Motors sold 78% of GMAC Commercial to the group for $1.5 billion in cash. At the time it looked like a good deal for Goldman and its partners — until commercial loan delinquencies began to rise and the U.S. economy collapsed in 2008. Capmark has struggled as the default rate on commercial mortgages held by financial institutions more than doubled to the highest rate since 1994. A spokeswoman for Capmark said the company plans to restructure it balance sheet. "We intend to keep making loans," she added.

Saying all vintages are now susceptible to the severe economic conditions, Fitch Ratings has placed 247 commercial mortgage-backed securities bonds with a balance of $9.3 billion in 22 fixed-rate 2005 transactions on Rating Watch Negative. It did even though these loans are currently performing better than those recently reviewed from the 2006 through 2008 vintages. The 2005 transactions have 4.3% of loans in special servicing and 13.1% loans of concern, compared with 7.2% and 18.3% for the 2006 vintage, 7.1% and 25.9% for the 2007 vintage and 9.6% and 23.7% for the 2008 vintage. The Rating Watch Negative placements will be resolved when Fitch performs an in-depth review of the each of the transactions involved.

U.S. residential mortgage-backed securities investors believe home prices will hit bottom while default rates will improve in the next 12 months, according to a survey conducted by a unit of Standard & Poor's. The Valuation Inputs Consensus survey tracks valuation projections of 64 institutions active in the U.S. and European structured finance markets. Expectations for default rates for loans included in 2007-vintage RMBS are down to 12% from 30% in the second quarter 2009 survey for alt-A and to 23% from 30% for subprime loans. However, prime fixed rate loan delinquencies for 2007-vintage RMBS trended up from 2% for the second quarter survey to 4%. "Because the majority of poorly performing securitized U.S. mortgage loans have already defaulted or paid down, default rate forecasts for underlying collateral on U.S. alt-A and subprime RMBS are stabilizing versus expectations for U.S. prime RMBS," says Peter Jones, global head of S&P's Valuation Scenario Services business. "Furthermore, default rate expectations for U.S. mortgage loans — although improving across most asset classes — remain significantly higher than U.K. loans, which are expected to deteriorate across all classes. Clearly, respondents see the U.K. and U.S. assets in two very distinct ways." Investors in RMBS secured by properties in the United Kingdom believe the default rates on non-conforming loans will climb from 8.2% over the next six month to 9.8% for the period covering 12-to-18 months from now. They expect home prices there to fall 7% in the next 12 months; in the second quarter survey, they expected a 10% decline.