Origination

The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form. Under the plan, the creation of mortgage-backed securities would rely on risk-based premiums paid into a federal insurance fund with loan level guarantees provided by what the trade group calls a "small number of privately-owned government-chartered and regulated mortgage credit-guarantor entities" or MCGEs. MBA wants ownership of at least one of the MCGEs to be in a co-op form with mortgage lenders as shareholders. "A co-op could be attractive to mortgage bankers," said MBA chief executive John Courson. (Ownership of Freddie Mac stock was limited to savings and loan associations under a co-op structure until 1989, when the company first sold shares on the New York Stock Exchange.) Even though Fannie and Freddie would no longer exist under this blueprint for the secondary market their "technology, human capital, standard documents and relationships" could serve as the foundation for the new MCGEs, MBA says. The plan — which played a role in driving down the GSEs' share price on Wednesday morning — was drafted by a special task force of MBA members including top executives in the industry who work for lenders, servicers, mortgage insurance firms, title companies and other players in the business. Fannie and Freddie declined to comment on the proposal. Some members of the task force work for companies that were once part of FM Watch, a lobbying group whose mission was to curtail the powers of Fannie and Freddie.

As mortgage originators, we are constantly trying to build our "list", our database of customers and prospects. It is our lifeblood. So much effort and expense is spent on acquiring that lead and we all too often suffer from a failure to follow up once we have that prospect. Recently I was asked to prepare some comments on how we, as reverse mortgage originators can stay in front of our prospects and increase the likelihood that they will call us first when the time is right. You've heard it said in sales that for each month you don't reach out to your prospects, the chance they will contact you diminishes. It's no different with the senior population. The prospective reverse mortgage client wants to know that you are still around (especially give the current environment) and that their business is still important to you.

Mortgage document company DocMagic is suing mortgage software firm Ellie Mae for alleged antitrust violations and, in a second suit, for misuse of intellectual property. DocMagic also is seeking a permanent injunction against Ellie Mae for alleged misuse of DocMagic's intellectual property in the Ellie Mae Docs system. The antitrust suit alleges that DocMagic was provided access to Ellie Mae's ePASS network until Ellie Mae terminated its ePASS agreement and then took steps to prevent its users from accessing DocMagic products through unfair and anti-competitive behavior, including sabotaging clients from accessing DocMagic altogether through alternative web service calls. The filing said Ellie Mae notified ePASS Network users that DocMagic would no longer be available on ePASS or Encompass Closer and that DocMagic users would instead be moved to Ellie Mae's loan document service. It further alleges Ellie Mae began changing the terms of the Encompass user agreements to prohibit the transfer of data from Encompass to any third-party service provider outside of the ePASS network. "We've had a long relationship with Ellie Mae and have also been a long-standing client of ePASS. It has become clear that Ellie Mae wants to replace us as their document provider. They really didn't give us any alternative," said Don Iannitti, president and CEO of DocMagic. "I think they want to save money. I think the client is the victim. It can't be about monopolization." The complaint for injunctive relief DocMagic filed is based on Ellie Mae's alleged unauthorized use of DocMagic's intellectual property, including DocMagic's user interface, workflow, terminology and overall look in Ellie Mae's document system. "When we were working with them, we helped them in creating the workflow in the Encompass project. We recreated our screens and workflow for them. In replacing us, the look remained the same," Mr. Iannitti added. Ellie Mae was unable to comment at deadline but said it plans to release a statement in the future.

Federal Home Loan Banks are on pace to pay off their Resolution Funding Corp. obligations by April 15, 2012, which would free up 20% of their income one year earlier than expected. The FHLBank's Office of Finance made this determination based on the $278 million Refcorp payment the banks made in the second quarter. Since 1989, the 12 FHLBanks have diverted at least $300 million of their income to pay off $30 billion in Refcorp bonds. The federal government sold the 40-year bonds to cover part of the costs of the savings and loan cleanup. American Bankers Association executive vice president Bob Davis noted that the FHLBank System will be more secure once the Refcorp obligations are finally satisfied. "We need to start planning now for how we are going to use those funds. And how some of those funds can be used to make the FHLBank System more competitive and effective in carrying out its mission," Mr. Davis said.

A leading indicator of future home sales rose 3.2% in July to a level not seen since the summer of 2007, according to the National Association of Realtors. The NAR pending sales index hit 97.6 in July, up from 94.6 in June. The index has risen for six straight months, according to NAR chief economist Lawrence Yun, as homebuyers take advantage of very affordable prices and the $8,000 first homebuyer tax credit. NAR estimates that 1.8 million to 2.0 million first-time homebuyers will use the tax credit before it expires at the end of November. The tax credit, the group believes, will generate approximately 350,000 sales that would not have happened without it. NAR, the National Association of Home Builders and other housing groups are urging Congress to extend and expand the tax credit this fall. "Unless the tax credit is extended no one should be surprised to see home sales drop in the first quarter of next year," Mr. Yun said. However, NAR is forecasting that existing home sales will pick up again in the second quarter and be stronger in 2010 than this year even without the tax credit. The economic recovery appears "fragile," a NAR spokesman said. An extension of the tax credit will provide a sounder footing for the housing market, he said.

With PHH Corporation's stock nearing its 52-week high of almost $23 a share, company insiders — including mortgage chief Mark Danahy — have been unloading shares. According to trading records, Mr. Danahy sold 16,120 shares over the past month at a price between $20.10 and $20.49. In total, he grossed $327,000. William F. Brown, an officer of the company, sold 10,000 shares for $21 each, grossing $210,000. The Mt. Laurel, N.J.-based PHH, which underwent a proxy battle and management shakeup earlier this year, is the nation's 11ith largest residential lender, according to the Quarterly Data Report. It services $149 billion in product, ranking 10th nationwide. Its 52-week low is $4.27, reached back in November of last year.

CBC National Bank, Beaufort, S.C., hopes to fund at least $900 million in loans through mortgage brokers this year, more than double its volume from 2008. "It could reach $1 billion or more," said Steve Ralyf, senior vice president in charge of wholesale for the bank. During the first-half CBC table funded $490 million through brokers, a 145% gain from the same period a year earlier. CBC re-entered the wholesale channel in the fall of 2007 after exiting the business in 2004. At the time many of the nation's top wholesale lenders were beginning to scale back their table funding units dramatically or closing them outright. "We saw a major opportunity," said Mr. Ralyf. Currently, the bank has a network of 200 brokers but has no immediate plans to expand its broker network dramatically. Most of the residential loans it funds are in the southeast, in Georgia and Florida. "We're staying in the bank's imprint," he told National Mortgage News.

The Federal Reserve should slow its purchases of agency mortgage-backed securities so that it can extend the buying program into next year, according to one MBS market expert. Credit Suisse mortgage strategist Mahesh Swaminathan said the Federal Reserve Bank of New York is purchasing Fannie Mae, Freddie Mac and Ginnie Mae MBS at a rate of $25 billion a week. "They are really racing," said Mr. Swaminathan. "At this pace they will be done with their purchase program by yearend. I don't think that is desirable," he added. Recent statements by a couple of Federal Reserve Bank presidents indicate the $1.25 trillion MBS purchase program may be allowed to expire at the end of December. The New York Fed has already purchased $790 billion of agency MBS. If they cut their weekly purchases by 50% or more, the Credit Suisse strategist said, the purchase program could be extended into the first and second quarters of 2010. "It is much better to slow things down now and telegraph that they are ready to support the market for some more time," he said.

Two of 10 defendants indicted in a straw buying mortgage fraud scheme have pleaded guilty to their roles. Anthony E. Carollo of Raytown, Mo., and Rebecca Gelwix of Des Moines, Iowa, each admitted to conspiring with Eric M. Rabicoff and others to defraud mortgage lenders. According to Lanny Welch, U.S. attorney for the District of Kansas, the convicted and alleged conspirators arranged for straw buyers to purchase homes that were for sale by owners. They obtained financing for the deals by submitting false loan applications to lenders. The scheme also called for contract prices to be increased and for the convicted and alleged conspirators to receive money by submitting false invoices to title companies at closing. Carollo, the manager of a small business, was listed as the employer for all the straw buyers and provided false verifications of employment on behalf of the straw buyers that were sent to lenders. Defendant Anthony Painton, Jr., recruited Gelwix as a straw buyer. The scheme obtained more than $3 million. Carollo and Gelwix are scheduled for sentencing Nov. 16. Painton, who pleaded guilty in January, is scheduled for sentencing Oct. 19. The remaining seven defendants, including Mr. Rabicoff, are awaiting trial and were unavailable for comment. They are: Jason L. Rabicoff, Lucas R. Collier, Deborah Saulmon, Bora Ly, Kong Bun Ly and Richard Ngek.

The fair value of loans held by the nation's largest commercial banks continues to decline, indicating that credit markets have not yet turned around and raising serious questions about the effectiveness of the government's efforts to help the industry through the credit crisis. Among the banks that were stress-tested by the government in May, the difference between carrying values and fair values grew 14.4% from Dec. 31 to June 30 - to $164.4 billion. Observers said the data shows that it is getting even more difficult to find buyers for stressed loans and that banks' efforts to jettison bad assets could be delayed. And if the Financial Accounting Standards Board advances a sweeping mark-to-market proposal, some banks might have to raise more capital to close their valuation gaps. "It is clearly a sign of stress that surprises me," said Tim Yeager, a finance professor at the University of Arkansas and a former economist at the St. Louis Federal Reserve Bank. "I thought by now that we would have turned the corner, but things seem to be getting worse."