Origination

Union Bank ranked first among all residential lenders in terms of average loan size in the second quarter — $965,197, according to figures compiled by National Mortgage News and the Quarterly Data Report. The bank's average loan size rose 7% over the past 12 months. Union is headquartered in San Francisco, one of the more expensive metropolitan areas in the nation. However, most firms on the list saw their average loan size fall during the second quarter. First Republic Bank of San Francisco, ranked second, with an average loan size of $801,582, a 24% decline from the same period last year. Thanks to the credit crisis, the secondary market for jumbo loans has essentially dried up and many originators are keeping these non-GSE mortgages on their balance sheets.

The National Association of Realtors is urging the Federal Reserve Board to delay implementation of a HOEPA provision that could place higher-priced Federal Housing Administration loans in violation of new restrictions on prepayment penalties. The Home Owners and Equity Protection Act regulation that goes onto effect this Thursday (October 1) "would prevent lenders from making higher-priced FHA loans," NAR says in a letter to the Fed. "We are requesting this delay to give the Board, the Federal Housing Administration and Ginnie Mae an opportunity to correct the unintended consequences of the intersection" between the new HOEPA rule and Ginnie Mae's payoff requirements, NAR president Charles McMillan says in the Sept. 25 letter. Ginnie Mae requires that all interest on a mortgage must be paid for the full month. If an FHA loan is prepaid on October 9, for instance, the borrower has to pay interest for the rest of the month. The Fed views this extra interest as a prepayment penalty. The American Bankers Association, Mortgage Bankers Association and Consumer Mortgage Coalition have asked the Fed to drop its treatment of post-payoff interest as a prepayment penalty.

Effective October 1, the proceeds on FHA-insured reverse mortgages will be reduced by 10% — a swift policy change that has spurred lenders to beat the deadline so their clients can borrow more. If lenders can get a FHA case number by September 30, they can save their clients $10,000 to $20,000 in loan proceeds. The average FHA-insured home equity conversion mortgage amount is $159,000. To get a case number for a HECM, the lender has to provide FHA with a signed certificate that the borrower has completed the necessary counseling requirements. Counseling agencies are "swamped," according to Peter Bell, president of the National Reverse Mortgage Lenders Association. "The rush is to get anyone thinking of getting a loan into counseling," he said. The federal mortgage insurance agency made the coverage change to reduce its risk exposure and operate the HECM program without a credit subsidy. According to budget estimates, the HECM program faces an estimated $800 million loss due to falling housing prices and congressional appropriators have not come up with the funds to cover this loss. "We are taking prudent steps at this time to protect the viability of the HECM program and the market it serves," FHA commissioner David Stevens said.

The Federal Reserve's recent decisions to enhance consumer protection regulation and crack down on industry compensation practices do not appear to be assuaging critics in Congress. In the past two weeks, the Fed announced it would begin supervising nonbank subsidiaries of bank holding companies for compliance with consumer protection rules. That move was followed by word that the central bank is crafting a proposal designed to restrict inappropriate executive compensation practices at financial institutions. Those steps come as the prospect of the Fed becoming the systemic risk regulator look increasingly bleak. Though the Fed makes no mention of Congress when discussing its latest actions, observers say its proposals are being developed with one place in mind — Capitol Hill. "They're talking to the Hill," said Gil Schwartz, a former Fed lawyer who is now in private practice. "They're saying the Fed is engaged and they should be anointed with the mantel of the systemic regulator."

Efforts by Financial Services Committee chairman Barney Frank, D-Mass., to get community bankers behind his Consumer Financial Protection Agency bill might require giving banking regulators more say over consumer regulations. Chairman Frank recently proposed several changes to the CFPA bill that the Independent Community Bankers Association considers very positive. "It is moving in the right direction," said ICBA's top lobbyist Steve Verdier. But he noted that the trade group still has concerns about rulemaking. In staking out the trade group's position, ICBA has issued a statement that calls for joint rulemaking between the banking regulators and the CFPA when it comes to consumer regulations. "While the bill provides a role for the banking agencies through an advisory oversight board, the board lacks substantive authority over consumer regulations," ICBA says.

Luxury hotel owners are at risk of defaulting on their commercial mortgages as the recession reduces occupancy rates, and the credit crunch constrains refinancing as banks and other lenders become weary of renewing existing lines. According to Realpoint LLC, a credit rating company, loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default. Realpoint LLC has put some of the biggest loans on its watch list because of late payments, according to Bloomberg. "All segments are showing signs of distress, but the luxury segment carries much higher loan balances and is more clearly affected," said Frank Innaurato, managing director of CMBS analytical services at Realpoint.

The nation's housing market might be best served by creating up to 20 housing GSEs, according to a recent report by the Congressional Research Service. The CRS, however, is not promoting one option over another but instead weighs the benefits of several different ideas concerning the future of Fannie Mae and Freddie Mac. CRS notes that 20 housing GSEs could fall under financial stress at the same time but says one way to avoid this is to assign each a specific geographic region or have them "specialize in certain types of housing such as condominiums or multifamily rental housing." Next year the Obama Administration is expected to unveil its proposals on Fannie and Freddie. Since the third quarter of 2007 Fannie has posted net losses of $102 billion, Freddie $63 billion.

Two additional mortgage vulture funds went public this week — both as REITs — but their IPOs failed to catch fire with investors. Colony Financial Inc., Los Angeles, sold 12.5 million shares, raising $250 million. Apollo Commercial Real Estate Finance, New York, sold 10 million shares and raised $200 million. Both are trading in a tight range with somewhat light volume. The two were formed to buy distressed mortgage assets, in this care, commercial-related notes. The deals were originally scheduled to price on Tuesday, but were postponed until later in the week. This past summer PennyMac Mortgage Investment Trust of Pasadena, Calif., went public, raising about $320 million, about half of what it was hoping for. PennyMac invests in, and services troubled residential loans. Sources tell National Mortgage News PennyMac has looked at several portfolios but has only wound up buying a few.

New Century Bank, Phoenixville, Pa., which recently entered the warehouse lending arena, has named Glenn Hedde president of the new division. Mr. Hedde will be in charge of approving and monitoring lines of credit extended to non-depository mortgage banking firms. Previously, he served as regional director of Agree Capital in Flushing, N.Y., and before that senior vice president of Popular Warehouse Lending, Marlton, N.J. (PWL was a division of Banco Popular, San Juan, P.R.) New Century is managed by Jay Sidhu, former CEO of Sovereign Bancorp. As reported by National Mortgage News this summer, Mr. Sidhu made the strategic decision to have New Century enter warehouse lending.

New home sales edged up 0.7% in August after a 6.5% jump in construction activity in July, according to the government. The U.S. Census Bureau reported sales of new single-family homes rose to a 429,000 seasonally adjusted annual rate in August, up from a 426,000 rate in July. The July rate was revised downward by 4,000 sales. "August new home sales inched higher, but only because of revisions," said Weiss Research analyst Mike Larson. Nevertheless, home sales continue to stabilize, "but at depressed levels," he said. IHS Global Insight economist Patrick Newport pointed out that the number of unsold new homes has declined over the past 28 months to 262,000 units, which is a 7-month supply, down from an 11- month supply a year ago. Despite this reduction in inventory, "the market for selling new homes is still brutal," Mr. Newport said.