Origination

Robert Grosser, former chief executive of Cityscape Financial, an early high flyer of the subprime business of 1990s, has been named president of Luxury Mortgage, Stamford, Conn. Luxury is buying Homestar Direct, a mortgage firm that Mr. Grosser formed in 1999 after the publicly traded Cityscape filed for bankruptcy protection. Homestar's origination platform focused on consumer direct marketing utilizing diverse channels to reach target borrowers. Homestar is becoming part of Luxury in an asset acquisition transaction. Mr. Grosser will work with Luxury's CEO David Adamo on the overall day-to-day management of the firm with a focus on the following areas: new business opportunities, regulatory/compliance, accounting, human resources, vendor management, facilities management, capital planning, capital raising, strategic planning and risk management. Cityscape was based in Elmsford, N.Y.

Joshua Gervolstad, a former mortgage broker from Redding, Calif., pleaded guilty to mail fraud in connection with a mortgage fraud scheme. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Gervolstad, who was a mortgage broker, submitted inflated appraisals and false lien documents for use in closing purchase transactions involving five different real properties located in Redding and Lodi. The closing statement for each property contained fraudulent papers requiring the payoff of a lien to an entity called TPG Investments. In each case, the lien did not exist. In reality, Gervolstad controlled TPG Investments and used its bank account to divert mortgage loan funds to himself and others. His scheme caused $1.8 million in fraudulent payouts for liens that didn't exist, affecting mortgages with a total value of $5.4 million. At least three properties were foreclosed on. Gervolstad is scheduled for sentencing on Dec. 14.

Existing home sales in the Golden State will slow somewhat "to a more sustainable pace" in 2010, according to the latest forecast from the California Association of Realtors. Thanks to a strong market for distressed properties, sales in the Golden State rebounded this year from double-digit declines in 2007 and 2008. But next year will be "the new normal," said CAR president James Liptak, with a steady stream of sales driven by distressed properties at the low end and moderate price appreciation. The group, the country's largest state organization of realty professionals, expects the median price to rise 3.3% next year, from $271,000 to $280,000. But it is calling for sales to dip 2.3%, from a projected 540,000 units in 2009 to 527,500 in 2010. About a third of the projected sales will be foreclosures or short sales. "Housing in California has become a tale of two markets," Mr. Liptak said at CAR's annual convention in San Jose. "The low-end continues to attract first-time buyers and investors, with a resulting shortage in the number of homes for sale. But sellers at the high end continue to be challenged by the ability of homebuyers to secure financing as well as their concerns about where prices are headed." Chief economist Leslie Appleton-Young listed several "wild cards" that could impact the forecast, with distressed properties being paramount. "Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year," she said.

Housing prices have finally bottomed out in most parts of the country and a year from now prices could be up by 5%, according to Allen Sinai, chief economist at Decision Economics. "The bursting of the housing price bubble is over now," Mr. Sinai told MortgageWire. The founder of Decision Economics expects prices could be 5% to 7% higher by the end of the third quarter of 2010, based on the Standard & Poor's/Case Shiller house price index. "Despite big inventories, despite foreclosures in lots of areas, generally speaking housing prices are headed up," Mr. Sinai said.

States that adopted tough anti-predatory lending laws have lower foreclosure rates than states that did not, according to University of North Carolina researchers. A new UNC Center for Community Capital study found that national banks that did not comply with tough state laws due to federal preemption made riskier loans than the state-regulated lenders. "It appears that state laws did a better job of ensuring home loan quality than federal regulation, but their impact was diminished by preemption after 2004," said Robert Quercia, director of the UNC research center. After the Comptroller of the Currency invoked preemption, subprime lending by national banks increased in those states with strict predatory lending laws and their share of the subprime market jumped from 9% to 20% by 2007, according to the UNC Center study. North Carolina was one of the first states to enact a predatory lending law and it became a model for other states.

Securitization and yield spread premiums are incentives for bad loans to be made in a volume-driven reverse mortgage market, according to a new study by the National Consumer Law Center. The group issued a report saying that many of the ingredients behind the subprime crisis are now being seen in the reverse mortgage business. During a conference call, Rick Jurgens of NCLC said "arrangers get paid when deals get done and they don't get paid when no deal is done and that's a problem. The lesson from the subprime debacle is even stronger in this market." The approach to allow market forces to drive out the bad players was tried during the subprime crisis and didn't work, he said. When asked whether it made a difference that almost all of the reverse mortgages being securitized today are through government channels (unlike subprime loans which went through Wall Street firms), Mr. Jurgens said "I don't think we can take too much comfort that the capital markets are in bad shape right now to think that we won't see some of that same drive to do deals coming out the other side." NCLC believes reverse mortgage customers need strong consumer protections and "the tiger of securitization has to be harnessed before we go for a ride on that one again," he said.

Thirty-year mortgage-backed securities prepayments generally came in slower than expected in September, Wall Street research reports show. Aggregate speeds on 30-year Fannie Mae MBS during the month were 11% slower than in September while 15-year product saw smaller declines, according to two firms' reports. A Credit Suisse research report said the slowdown in 15-year product was in line with its expectations and the slowdowns in respective prepayment speeds for different coupons in all products "were similar across the two agencies." Thirty-year 5s, 5.5s and 6s slowed by 9%, 13% and 10%, respectively, and were "significantly slower than expectations," according to a Deutsche Bank report. "September's slow speeds indicate that mortgage originators are not engaging in the aggressive outreach to in-the-money borrowers as they did in 2003 and other recent refi waves, and that borrowers who refi on their own mostly already refinanced last spring," Deutsche Bank said. Speeds could slow going forward due to lower rates, but "any October speedup should be modest," according to the Deutsche Bank report.

For the third consecutive week, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found the average rate for the 30-year fixed rate loan to be under 5%, benefiting not only refinance applications but loan purchase applications as well. The Market Composite Index, a measure of loan application volume, increased 16.4% both on a seasonally adjusted basis and on an unadjusted basis for the week ended Oct. 2. MBA noted that the seasonally adjusted Purchase Index increased 13.2% from one week earlier, which puts the index at its highest level since January. Additionally, the seasonally adjusted Government Purchase index is at a record level in the survey after a 14.4% increase from the week before. The Refinance Index increased 18.2% from the previous week. The market share of refinance applications increased to 66.3% of total applications received, up from 65.3% for the previous week. The share of adjustable rate mortgage applications declined to 6.1% for the week, down from 6.2% one week prior. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.89% from 4.94%, with points increasing from 0.94 to 1.13 (including the origination fee) for loans with an 80% percent loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs fell 2 basis points from the previous week, to 4.32%, while for one-year adjustable rate loans, it increased by 16 BP to 6.56%.

Fannie Mae and Freddie Mac have been given the green light by their regulator to aid the warehouse lending market by issuing guaranteed purchase agreements on residential loans that are in the process of being funded, according to industry officials familiar with the plan. At deadline, the GSEs and their regulator had not returned telephone calls about the matter. It's believed that if Fannie and Freddie issue a commitment to purchase a loan (a loan that is in the process of being funded) the warehouse lender of record will have to hold little or no capital against it, said one observer. This would make warehouse lending - which is already a profitable niche - even more so. Until now, the capital banks must hold against these credits has been one of the stumbling blocks to new entrants coming into the business. Over the past few months two of the largest players in warehouse lending - Colonial Bank of Alabama and National City of Cleveland - have either exited the sector or announced plans to do so. NatCity's warehouse group may be sold by its current owner, PNC Financial Services. Colonial failed this summer. Some of its clients are still being served by it acquirer, BB&T.

Seems like more often than not, the stories you see in the media about reverse mortgages are, well, less than complimentary. Let's face it they are down right ugly. Seniors are cautioned to be extra careful and our segment of the industry is labeled as the next subprime crisis. Gimme a break.