Origination

Housing starts will jump 38% next year and finally contribute to economic growth as the housing sector breaks out of a three-year spiral, according to a new National Association of Business Economists survey. In the consensus opinion of 44 NABE members, housing starts will hit 800,000 in 2010 compared to 580,000 this year. House prices will rise too. Based on the Federal Housing Finance house price index, prices will increase 2% next year, after falling 3.4% in 2009. "The nascent housing recovery will gather momentum and deliver robust growth in 2010, albeit from a depressed level," NABE said in a summary. The survey results show wide disagreement on the outlook for housing, however. The five most optimistic economists see housing starts hitting 920,000 in 2010 and prices jumping 6.2%. The most pessimistic five see prices falling 5.1% with housing starts essentially flat at 600,000.

The House Financial Services Committee will start a marathon markup session this Wednesday (Oct. 14), voting on two contentious measures that would create the much talked about Consumer Financial Protection Agency and impose a new regulatory regime on derivatives. The committee is expected to take up the derivative bill first. The markup of the CFPA bill (H.R. 3126) could extend into the following week. Committee chairman Barney Frank, D-Mass., has been working with community banks to address their concerns about the new agency. Despite strong opposition from the America Bankers Association, Financial Services Roundtable, American Financial Services Association and Chamber of Commerce, Rep. Frank is expected to have the votes to pass the CFPA bill out of committee. Late last week President Obama said the CFPA will have the power to set "clear rules" for mortgage and credit card lenders and enforce them. The president said the Chamber of Commerce and financial firms are lobbying against the CFPA bill to "maintain the status quo and maximize their profits at the expense of American consumers." He stressed that the new agency will not restrict consumer choice and financial innovation as opponents have claimed.

The MBA put out a 'request for proposal' to build a national fraud database only to later shelve the idea, but MERSCORP Inc. and Interthinx have moved ahead, deciding the issue is too important to ignore. At the Mortgage Bankers Association's annual convention the pair launched a national fraud prevention database that will allow lenders to seek, identify, and share suspected fraudulent activity on loan applications from the point of origination. The companies said MERS FraudALERT will help identify and prevent fraud through the sharing and reporting of key data among the more than 62 million loans currently registered on the MERS system. Lenders can submit loan application data and incident reports with suspected or confirmed fraudulent activity to a centralized database. The system will then notify other lenders who have connections to the loans, alerting them of possible problems.

Franklin American Mortgage Co. of Tennessee has received the green light on $500 million worth of new warehouse lines -- additional facilities that the firm says will allow it to double its anticipated 2009 originations to $40 billion within two years. Over the weekend the nonbank finalized a new $300 million agreement with Credit Suisse and a $200 million commitment from Bank of America. Combined with its existing warehouse facilities, FAMC expects a major boost in originations. Company president Dan Crockett told National Mortgage News Online that the firm will use the new facilities to continue expanding its three lending channels: retail, correspondent, and wholesale. Asked about the prospects for wholesale -- a channel that many firms have exited in the past 18 months -- Mr. Crockett said he anticipates maintaining 30% to 40% of FAMC's total production there. However, he noted that Washington policies in regard to wholesale could be a concern if brokers continue to be driven from the business. Like the wholesale niche, warehouse lending has come under extreme pressure but Mr. Crockett said lines are becoming more available and stable of late. He speculated that the lower risk produced by today's tight underwriting standards has reached the point where it is encouraging new involvement. While one of FAMC's warehouse providers, BB&T, may not remain committed long term to providing the warehouse facilities it acquired from failed line provider Colonial Bank, Mr. Crockett is confident his company can replace the funding through transactions with other providers. In addition to its new lines with Credit Suisse and BoA, FAMC has been in discussions with Freddie Mac and Natty Mac about their warehouse lending pilot program. The lender also has been in "heavy negotiations" with Citigroup in regard to a line.

Although new FHA Commissioner David Stevens denies doomsday predictions that his will be the next mortgage giant to fall, two longtime industry consultants told National Mortgage News at the MBA convention they believe the agency is in big trouble -- bigger even than what a former Fannie Mae executive warned of last week before a House subcommittee. Scott Cooley and Thomas LaMalfa said it is almost a foregone conclusion that the Federal Housing Administration will go under. The agency will be "the next Fannie Mae" and will cave "within two or three years," predicted Mr. LaMalfa, who began saying in 1996 that Fannie Mae and Freddie Mac were accidents waiting to happen. By the agency's own admission, one of four borrowers who took out FHA-insured loans in 2007 are currently behind on their payments, as are one in every five borrowers who obtained their mortgages last year. Mr. Stevens has said the FHA is currently recording its best book of business in years. Both Mr. LaMalfa and Mr. Cooley (a pioneer in mortgage software) also said the mortgage market has much further to tumble before it begins a long, slow climb back from the depths of the housing depression.

Freddie Mac late Friday announced a warehouse lending pilot program where it will provide participating firms with standby commitments to purchase qualifying loans in the event a seller/servicer cannot meet its funding obligations or fails. A source close to the situation told National Mortgage News that the GSE has been operating a version of the pilot since June. The participating warehouse provider in that program is Natty Mac of Florida. Freddie said pre-funding reviews are required. Fannie Mae is working on a similar program. "The warehouse lending industry has nearly exited the market making it increasingly difficult for lenders to fund loans," said Freddie CEO Charles E. Haldeman. "We're proud to help bring much-needed additional liquidity to the residential and apartment financing community." The GSE noted that seller/servicers interested and that qualify for the program will need to enter into a separate agreement directly with the participating warehouse lender. The credit line from the warehouse lender that is supported by the standby commitment will fund only the loans the participating seller/servicer intends to sell to Freddie.

Simply extending the $8,000 first-time homebuyer tax credit will not provide much stimulus for the economy, according an IHS Global Insight economist. "The first time buyers who were going to use it would have used it already," said Global Insight economist Patrick Newport. Congress has to "expand it in some way to have any impact," he said. The Obama administration and congressional Democrats are discussing ways to create more jobs and stimulate the economy and a homebuyer tax credit extension is in the mix. The first-time homebuyer tax credit is due to expire November 30 and the National Association of Home Builders and others are pushing for an extension that expands the tax credit to all home buyers. NAHB president and CEO Jerry Howard says it would kick start the move-up market, generate more sales and construction, and create 350,000 jobs. But it would cost the government $30 billion to $35 billion for a full year. "To get the most bang for the buck, it is has to be in effect throughout the spring and summer home buying season," Mr. Howard said.

In 2008 the top customer of Fannie Mae was, by far, the combined mortgage operation of Bank of America and Countrywide Financial Corp., accounting for almost 18% of all loans sold to the mortgage giant, according to an analysis done by National Mortgage News. Overall, BoA/CFC sold $112 billion of home mortgages to Fannie, which purchased $631 billion in product from all its seller/servicers last year. Countrywide itself, which was purchased by BoA, on July 1, 2008, sold $86 billion in mortgages to Fannie Mae. For years Countrywide had a "strategic alliance" agreement with Fannie whereby it received discounts on the guarantee fee charged to it in exchange for selling most of its originations to the GSE. As Countrywide's credit quality deteriorated its problem loans translated into trouble for Fannie Mae, which was placed into a federal conservatorship in September 2008. Fannie's second largest customer last year was Wells Fargo & Co., with loan sales of $68.9 billion. When Wachovia is factored into Wells' sales, the figure rises slightly to $70.9 billion. (Wells bought Wachovia last fall.)

Even though the Federal Reserve plans to wean itself from buying mortgage-backed securities from Fannie Mae and Freddie Mac some time next Spring, the government still accounts for most GSE MBS purchases, according to the Mortgage Bankers Association. Basing its figures on August MBS sales, MBA said the Federal Reserve accounted for 79.5% of all GSE issuances, with the Treasury gobbling up another 9% for a total of 88.5%. MBA chief economist Jay Brinkmann told National Mortgage News that he thinks one explanation for the government buying so much of the product is that they might be overpaying for it, causing other investors to sit on the sidelines and stick to their pricing models. He said private equity money is chasing higher yield returns on such things as distressed assets and commercial properties. "There is no desire to get in at these prices," he said of the GSE MBS market.

Wells Fargo & Co., and Bank of America dominated the residential production market in the first-half, originating $231 billion in loans, and achieving a combined market share of almost 45%, according to figures compiled by National Mortgage News and the Quarterly Data Report. The nation's number three ranked funder, Chase, a subsidiary of JPMorgan Chase, ranked a distant third with $30.8 billion in originations and a market share of just 5.97%. Wells had a first-half market share of 24.77% and BoA 19.87%, NMN/QDR found. Year over year, Wells grew its fundings by 63%, BoA 40%. Both benefitted, in part, by purchasing other originators. (BoA bought Countrywide and Merrill Lynch. Wells bought Wachovia.) The two mega lenders continue to use three origination channels through which they gather loans: retail, wholesale and correspondent. Chase stopped funding mortgages through loan brokers earlier this year. (The complete half-year results appear in NMN's Mid Year Data Report.)