Origination

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.

Apartment vacancies recently hit their highest level since 1986, surging in cities across the nation, according to research conducted by Reis Inc., New York. The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis which tracks vacancies and rents in the top 79 U.S. markets. The rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its analysis in 1980. Weak apartment rentals could spell trouble for multifamily owners that need to refinance or sell their properties in the year ahead. Reis said some markets were still chugging along last year but the surge in unemployment has dampened the sector's outlook.

U.S. subprime residential mortgage-backed securities prices are continuing to stabilize but there is little sign of any increase in value, according to a Fitch Solutions index. The index, which tracks credit default swaps of RMBS, as of Sept. 1 had fallen just slightly from the previous month, dropping three basis points to 8.31 from 8.34. The index also showed improvement in some vintages' default rates. The 2007 vintage's default rates were 18% less than they were in May while the 2006 vintage's default rates were 14% less than they were in May. Despite this, "asset values have not shown any sign of recovery," the company said.

It could take up to four years before the jumbo securitization market returns, according to research conducted by Bridge Capital Advantage of San Diego. Bridge Capital president Lucy Malone said the firm's belief is based on -- among other things -- conversations the company has had with the nation's top three lenders, Wells Fargo & Co., Bank of America, and JPMorgan Chase. Ms. Malone says she has been in the business for almost 30 years. "This was once a market that was over-served," she said. "Now it's under-served." Up until mid-year, Ms. Malone's firm was making jumbo and super-jumbo mortgages. Today, it makes what she calls "asset-based" loans that are collateralized not by a high-price home but a borrower's stock portfolio. She noted that only portfolio lenders are making jumbos and most require down payments of at least 40% and 12 months of reserves.

Evolution Partners of Cleveland has made an equity investment in American Eagle Mortgage, a non-bank retail funder that bills itself as the "fastest growing" home mortgage lender in Ohio. "It's our first investment in mortgage banking," said Brendan Anderson, a managing partner in Evolution. He declined to say how large of a stake his venture capital firm obtained but said its plan is to keep the investment for "five or six years, but we're prepared to go longer if we have to." American Eagle is a small non-depository that is currently originating $150 million a year in home mortgages. "With our capital we see them doubling or tripling their business," said Mr. Anderson. He noted that American Eagle has plans to expand its sales team. "This is a firm that stuck to its knitting during the subprime boom and stayed in conventional and FHA. They didn't go crazy like everyone else did." American Eagle was formed by John Schrenkel and Dave Berry in 2001. They serve as president/CEO, and senior vice president, respectively. Both men have an ownership stake as well.

Housing trade groups are urging Senate appropriators to go along with a House-passed provision that extends the GSE $729,750 loan limit, which is due to expire Dec. 31, for another nine months. "We believe continuing the current higher temporary loan limit is necessary to complete the recovery of the nation's housing market," the nine trade groups say in a joint letter. The House has passed a Department of Housing and Urban Development appropriations bill that extends the $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans for the rest of the 2010 fiscal year, which ends Sept. 30, 2010. The Senate did not include an extension because raising Fannie and Freddie's loan limit raises budget costs. The Senate is expected to accept the loan limit extension when House and Senate appropriators meet in conference to agree on a final HUD FY 2010 budget bill. Congress raised the loan limit to $729,750 in Feb. 2008 as part of the Bush administration's stimulus bill. It was extended again in Feb. 2009 with the passage of President Obama's stimulus bill. "Although the economy is showing signs of recovery, current conditions require those limits to stay at the higher level," the trade groups say.

The combined Treasury and Federal Reserve investment in the U.S. mortgage market was above the $1.2 trillion level when the government's fiscal year ended earlier this week, according to the latest figures from the Federal Housing Finance Agency. But even at that, some $768 billion in liquidity is still available if needed, FHFA Acting Director Edward DeMarco said at the New England Mortgage Bankers Conference in Providence. As of Sept. 30, Fannie Mae and Freddie Mac had drawn $96 billion under the Treasury Department's $400 billion senior preferred stock purchase agreement. Treasury also has purchased $181 billion of the enterprise's mortgage-backed securities. In addition to DoT's support, the Fed has purchased $885 billion worth of MBS securities, $813 billion of which was issued by Fannie and Freddie. The Fed also has bought $131 billion in Fannie, Freddie and Federal Home Loan Bank debt obligations out of the $200 billion for which it is committed. "This considerable backstop" has allowed enterprises to play a "critical role in bringing some measure of liquidity to the mortgage market," Mr. DeMarco told the conference. In particular, the government support has assured lenders that they will have an outlet for loan originations and kept mortgage rates at or around the 5% level.

The SAFE Act is putting nondepository mortgage lenders at a disadvantage to banks when it comes to hiring new loan officers, according to Scott Stern, chief executive of mortgage cooperative Lenders One. The Secure and Fair Enforcement for Mortgage Licensing Act passed by Congress in July 2008 requires LOs joining an independent mortgage company to go through prelicensing and continuing education requirements mandated by the states. "It is a huge barrier to hiring new loan officers," Mr. Stern said, because LOs hired by banks don't face prelicensing and continuing education requirements and don't pay licensing fees. Like stockbrokers, he said there should be one nationally recognized prelicensing course and one nationally recognized continuing education course for all loan officers. "We believe all lenders that meet with consumers should be licensed," the Lenders One CEO said. Mr. Stern is forming an advocacy group called the Community Mortgage Lenders of America that has membership commitments from 140 mortgage banking companies and community banks. He has lined up BuckleySandler LLP to serve as regulatory counsel for the new trade group and the Glaser Group to be its Washington lobbying arm.

The Mortgage Bankers Association will update its origination forecast for 2010 at next week's annual convention but isn't giving any hints on whether the forecast will change much. MBA chief economist Jay Brinkmann told National Mortgage News that he is weighing such key factors as the possibility that the government might extend the first-time homebuyer tax credit and what effect the Federal Reserve's plan to reduce its mortgage purchases will have on the market. In its latest forecast MBA estimates $1.62 trillion in new single-family originations for next year, which is what the industry funded in 2008, the year the subprime sector collapsed and credit markets ground to a halt. The forecast is set for next Wednesday at the trade group's annual convention in San Diego. According to figures compiled by NMN and its Quarterly Data Report product, mortgage bankers funded $1.06 trillion during the first half of this year and could wind up funding $2 trillion by the time 2009 ends. MBA's forecast for this year is $1.89 trillion.

Detecting a change in attitude among both buyers and sellers — not to mention what is now a three-month increase in the benchmark price indices that bear his name — economist Karl Case believes the housing market has hit bottom. Not that housing is ready to bounce back with a vengeance, but at least it is no longer in a free-fall, the co-founder of the S&P Case Shiller indices said at the New England Mortgage Bankers Conference in Providence, R.I. "We're not going to come roaring out of this," said Mr. Case, who has been teaching economics at Wellesley College for more than 30 years. "We'll come out of this slowly. There will be some bad days and good days, but the mood began changing in March." The economics professor cited several signs that a recovery has begun, including a 25% increase in housing starts since April and "the best number of all," a sharp drop in unsold inventory of new homes. The huge number of completed but unsold houses has "been a real drag" on the market, he said. "The building industry has been getting killed like it's never been killed before," he said. But Mr. Case also warned that if he is reading the tealeaves incorrectly, the mortgage market could take another hit. If housing continues to falter, the economist said, "then we are writing bad paper now." To illustrate just how far the housing sector has fallen, the economics professor pointed to housing starts, which nosedived from 2.273 million units at the peak of the cycle in January 2006 to 598,000 units in August. That decline cost the economy roughly $588 billion, or 4.2% of GDP, he said.