Origination

Despite a slight increase in mortgage rates during the week, the average rate for the 30-year fixed-rate product that dominates the market remained below 5%, according to Freddie Mac. This makes three consecutive weeks of sub-5% rates, said Frank Nothaft, Freddie Mac's vice president and chief economist. During the week ending Oct. 15, the average rate for a 30-year fixed-rate mortgage inched up to 4.92% from 4.87% but remained far below where it was a year ago when it was 6.46%. The average 15-year FRM rate also increased slightly week-to-week, edging up to 4.37% from 4.33%, but it was still much lower than a year ago when it was 6.14%. Five-year hybrid Treasury-indexed adjustable-rate mortgages saw their average rate during the week increase a little bit to 4.38% from 4.35% and a year ago, but they also continued to be priced much lower than a year ago when they carried a rate of 6.14% on average. The average rate for one-year Treasury adjustable-rate mortgages climbed to 4.60% from 4.53% but that rate was down from 5.16% a year ago. Average points were as follows: 0.7 for 30- and 15-year FRMs, 0.6 for five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.

Mortgages and other credit products are producing significantly higher year-to-year revenues for Goldman Sachs. The firm said in its third quarter earnings that this boosted its net revenues fixed income, currency and commodities to almost $6 billion in the third quarter, compared to $1.6 billion during its "difficult" third quarter a year ago. The company as a whole earned $3.19 billion for the quarter, up from $845 million during 2008. However, quarterly investment banking revenues were down 31% year-to-year.

Residential lenders in California have seven new mortgage laws to deal with this week — including legislation that allows homebuyers to question their loan modifications through a court monitor, and a bill that bans negative amortization loans. Gov. Arnold Schwarzenegger signed the legislation earlier in the week. The "anti-steering" measure prohibits loan brokers from putting their clients into high interest rate loans when they qualify for lower rate notes. It also limits prepayment penalties to 2% of the loan balance.

Even though residential lenders are enjoying a decent year when it comes to originations, the next two are looking dicey, according to a new economic forecast by the Mortgage Bankers Association. MBA chief economist Jay Brinkmann estimates that fundings will fall to $1.556 trillion next year and just $1.482 trillion the year after before rebounding slightly. Up until recently, Mr. Brinkmann's forecast for the next two years stood at $1.62 trillion and $1.608 trillion, respectively. According to figures compiled by National Mortgage News and the Quarterly Data Report, the industry is on track to fund roughly $2.1 trillion this year, a handsome 32% gain from 2008 when the mortgage and credit markets swooned. In a recent interview with NMN Mr. Brinkmann cited uncertainty over the first time home buyer tax credit and the Federal Reserve's impending withdrawal from the MBS market as chief concerns.

An amendment that would delay mortgage disclosure changes under the Real Estate Settlement and Procedures Act is slated to be introduced Thursday afternoon. According to the National Association of Mortgage Brokers, Rep. Judy Biggert, R., Ill., will introduce an amendment to pending consumer protection legislation allowing for a more gradual implementation of RESPA changes. In particular, brokers are concerned that come January 1 the "good faith estimate" form is going to four pages from one, causing headaches throughout the industry. The Biggert amendment would allow "both new and old forms" to be allowed during the transition period, according to a memo issued by NAMB.

Fitch Ratings has found that 60% of borrowers with performing loans in 2006 and 2007 U.S. mortgage securitizations are in negative equity positions and hundreds of seasoned deals are stressed as well, albeit to a lesser extent. Fitch said it has taken various rating actions on 649 seasoned, prime residential mortgage-backed securities transactions issued prior to 2005, citing pressure from negative home-equity positions and unemployment. However, it noted that in seasoned deals, while it has downgraded a significant number of mezzanine and subordinate classes, less than 5% of senior classes with top AAA ratings were negatively affected. Despite positive home price figures over the summer, Fitch projects over the next year a further home price decline of approximately 10% nationally. Even with the modifications and the first-time homebuyer tax credit helping home prices to some extent, the growing distressed inventory expected to result from continuing borrower stresses will cause prices to continue falling, according to Fitch senior director Grant Bailey. This means performing-to-delinquency roll-rates could stay high in prime as well as alternative-A and subprime credit RMBS from 2006/2007 into next year, Fitch said. The rating agency forecast in a recent global economic outlook report that unemployment would continue to rise and peak at 10.3% in the middle of 2010. It noted that this is a particular concern in California, where the greatest percentage of 2006/2007 RMBS borrowers is located. In California, unemployment is at 12.2% as compared to 9.8% nationally.

New Financial Accounting Standard Board rules that go into effect Jan. 1 could force bank issuers and servicers to consolidate "hundreds of billions of dollars" of private-label residential and commercial mortgage securities on their balance sheets, according to industry trade groups. The Mortgage Bankers Association and Commercial Mortgage Securities Association warn that such a consolidation of securitized assets would "artificially increase" bank risk-based capital and loan loss reserve requirements at the worst time - forcing some to raise additional capital. Anything regulators can do to delay implementation "will serve to postpone the pro-cyclical, anti-consumer, anti-affordable housing impacts" of the FAS rules 166 and 167, MBA and CMSA say in a joint comment letter to the federal banking agencies. The groups say FASB is reacting to credit card issuers that provided credit support for their securities to shield investors from losses and prevent rating agency downgrades. They argue, "There is no business case for sponsors to provide credit support" for static pools of securitized mortgages. "MBA and CMSA recommend that the agencies take the time to study the risks inherent in each of the major securitization structures so that the regulatory capital treatment is more precisely aligned with the risk of the reporting bank." Capital One Financial Corp., McLean, Va., is urging the regulators to delay the capital impact of consolidation for six months. The American Bankers Association wants a one-year delay. The banking agencies have suggested a phase-in over four quarters would reduce the costs and burdens.

Even though JPMorgan Chase posted strong third quarter earnings, the mega bank set aside $4 billion in mortgage-related credit charges, including $1.1 billion tied to Washington Mutual, which it bought a year ago. It also posted a $1 billion loss in its consumer lending division, which includes mortgage banking, a business center that it is scaling back. The charge related to WaMu reflects "deterioration" in its "purchased credit-impared portfolio," JPM said. The bank said it took credit hits on subprime loans ($422 million), prime ($525 million) and home-equity loans ($1.1 billion). All were easily more than double the dollar amount of charge-offs in 3Q 2008. In an analyst report, Credit Suisse notes, "We had expected only nominal reserve increases on the consumer side this quarter." CS analyst Moshe Orenbuch called the WaMu charge a "catch-up" noting that "while there may be one more of these marks" it should not be recurring. Overall, JPM earned $3.6 billion in the quarter, a 583% jump from the same period last year.

Loan applications as measured by the Mortgage Bankers Association's weekly survey inched down from one week earlier. The MBA's Market Composite Index, a measure of mortgage application volume, fell 1.8% on a seasonally adjusted basis and 1.7% on an unadjusted basis during the week ended Oct. 9. The Refinance Index fell by just 0.1% from the previous week, but the percentage of refinances in the market as a whole increased to 67.4% from 66.3% and the Refinance Index's four-week moving average rose 8%. The four-week moving average for the Market Index rose by 5.6%. This average was up 1.6% for the Purchase Index. On a seasonally adjusted week-to-week basis, the Purchase Index was down 5% and on an unadjusted basis it is down 4.8%. On a year-to-year basis for the week, the unadjusted Purchase Index was down 6.8%. Adjustable-rate mortgage applications increased slightly to 6.2% of total applications from 6.1% the week before. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages during the week rose to 5.02% from 4.89%, with points (including the origination fee) dropping to 1.11 from 1.13 for mortgages with 80% loan-to-value ratios. The average contract interest rate for 15-year FRMs during the period rose to 4.44% from 4.32% with points remaining unchanged at 1.04 for 80% LTV loans. The average contract interest rate for one-year adjustable-rate mortgages rose to 6.71% from 6.56% with points rising to 0.32 from 0.30 for 80% LTV loans. The MBA at one time provided index values with its weekly survey but no longer does.

Lenders originated nearly $300 billion in Federal Housing Administration single-family loans through August with one more month to go in fiscal year 2009. In August, FHA endorsed $31.8 billion in loans bringing the 11-month total up to $298.6 billion, a 94% increase from the same period in FY 2008. As of Aug. 31, FHA's year-to-date portfolio of insured loans totaled $675.6 billion, an amount greater than what was seen during the full fiscal year ending Sept. 30, 2008 when it was $474.4 billion. Meanwhile, FHA defaults are up, too. The federal mortgage insurance agency had an 8.1% serious delinquency rate as of Aug. 31, compared to 6.9% on Sept. 30, 2008. At the end of August, 430,300 FHA loans were 90 days or more past due or in foreclosure. The agency has managed to keep its inventory of foreclosed houses relatively flat. But sales of real estate-owned totaled 61,900 for the first 11 months of FY 2009, up 48% from the same period in FY 2008. FHA currently has 39,000 in REO with an estimated value of $4.7 billion.