Origination

State credit union regulators said the second quarter saw a continued increase in loan delinquencies and loan losses, most of it concentrated in mortgage loans, and of troubled institutions among California's credit unions. The delinquency ratio for all California credit unions topped 2% at midyear, with state charters particularly hard-hit at over 2.2%, William Haraf, commissioner of the state's Department of Financial Institutions, told the California CU League. That compares to a delinquency ratio of 1.58% for all credit unions nationwide at midyear. Loan defaults surged by 12% during the second quarter to more than $1 billion, while the charge-off ratio rose to almost 2%. Delinquencies among real estate loans continued to rise even faster, by 27% in the second quarter to $680 million. Delinquencies for member business loans also spiked in the second quarter to 1.78%, from 1.23% in the first quarter, the DFI commissioner reported. In addition, the number of problem credit unions, those rated CAMEL 3, 4 or 5, rose to 53, from 41 at the end of the first quarter, even as several troubled institutions, like American River HealthPro CU, E1 Financial CU and Community Trust CU, were merged out.

Appraisal management companies are not to blame for real estate deals falling apart, the chief compliance officer for the nation's first AMC said in an interview. Donald Blanchard of Lender Processing Services, the parent of LSI, an AMC which has been in business 25 years, said that while his company is "agnostic" concerning the Home Valuation Code of Conduct, it has decided to get out the word that AMCs are not the source of the problem. He cited statistics that show home values nationwide are down 15% to 20%; consequently property valuations would be lower. Furthermore, we are in a slow recovery process from the tumult of the last few years. Another contributory factor is that about 30% of home sales right now are from real estate-owned or distressed sales, which also bring down values. The company checked its data, he said, and found that 85% of the appraisals last year met the underwriting criteria for the loan to be made. Mr. Blanchard addressed some of the other myths HVCC opponents have been pushing. For example, supposedly AMCs use inexperienced appraisers. LSI has some 20,000 appraisers on its panel, with an average tenure of over 13 years. There is a requirement of three years experience just to get on the panel, he said. The next myth is that AMCs don't pay fair fees. LSI's fees have been stable for five years and its panel appraisers understand the value added by being a member. As for the argument of out-of-area appraisers, the No. 1 criteria used to assign jobs is proximity.

Capital constraints on mortgage insurance companies could impede the ability of Fannie Mae and Freddie Mac to keep up with the demand for mortgage financing during the housing recovery, according to a report by the government-sponsored enterprises' regulator. Former Federal Housing Finance Agency director James Lockhart has been urging the Treasury Department to provide capital assistance for the private MIs since last November. The Mortgage Insurance Cos. of America also is seeking assistance. "We have a request pending and we are waiting for a response," said MICA spokesman Jeff Lubar. The GSEs can purchase single-family mortgages with loan-to-value ratios higher than 80% only if the homebuyer gets mortgage insurance. The FHFA Mortgage Market Note issued a day before Mr. Lockhart's August 21st departure projects that the demand for such high LTV loans could hit $230 billion in 2009. The ability of the MIs to meet that level of demand is "remote," the FHFA report says. "The industry's ability to build and maintain sufficient capital to meet the needs of the enterprises over the short term without some federal assistance or an infusion of private capital is unclear," the report concludes.

The Mortgage Bankers Association's Market Composite Index increased 7.5% on a seasonally adjusted basis for the week ended Aug. 21, driven by refinancings, which zoomed even as the average rate for the 30-year fixed rate mortgage increased nine basis points. The Refinance Index gained 12.7% after rising by 7%, dropping by 7% and rising again by 7% in the previous three weeks. On an unadjusted basis, the MCI increased 6.3% compared with the previous week and 34.1% compared with the same week one year earlier. The MCI is calculated from the MBA's Weekly Mortgage Applications Survey. MBA stopped disclosing index values with the July 31 data release. Driven by an increase in applications for government loans, the Purchase Index increased by 1% over the previous week. This makes the fourth consecutive weekly increase in this component. The share of refinancing applications increased to 56.5% of total applications, up from 53.3% the previous week. For the second consecutive week the share of adjustable-rate mortgage applications remains at 6.5%. The average contract interest rate for 30-year fixed-rate mortgages fell to 5.24 % from 5.15%, with points increasing to 1.07 from 0.98 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs increased by six basis points to 4.58%, while for one-year adjustable-rate loans, it increased by 8 bps to 6.74%. The MBA can be found online at http://www.mortgagebankers.org.

New-home sales unexpectedly spiked 9.6% in July following a 9.1% rise in June, another sign that the housing market could indeed be on the mend. According to figures compiled by the U.S. Census Bureau, sales of new single-family homes rose to a seasonally adjusted annual rate of 433,000 in July, compared to a 395,000 rate in June. The June rate was revised upward by 11,000 sales. Weiss Research analyst Mike Larson said sales were "hotter" than expected. "This is clear evidence the dramatic cut in housing starts, plus increasing consumer confidence and the targeted tax credit for first-time buyers is restoring stability to the new home market," he said. The federal government's $8,000 federal tax credit expires later this year. The National Association of Home Builders and other trade groups are lobbying to have it extended.

Seriously delinquent single-family loans held on the balance sheets of thrift institutions hit a record high of 5.5% in the second quarter, an increase of 180 basis points over the past six months, according to new figures released by the Office of Thrift Supervision. The 794 federal chartered thrifts hold $437.6 billion in single-family loans, $24.1 billion of which are 90 days or more past due. "Mortgages on one-to-four family properties comprise approximately 68% of troubled assets," OTS said, compared to only 23% of troubled assets during the thrift crisis in 1990 when commercial real estate loans were responsible for the failure of many S&Ls. The thrift delinquency rate increased from the first to the second quarter even through the largest thrift, Countrywide Savings, was merged into Bank of America, a national bank, in April. Countrywide Savings had $6.7 billion in troubled assets and it originated $30 billion in single-family loans in the first quarter. The remaining thrift institutions originated $62.4 billion in the second quarter, an increase of less than 1% from the first quarter if Countrywide is not counted. (Thrifts, including Countrywide, originated $88.1 billion in mortgages during the first quarter.) OTS reported that thrift institutions posted a $4 million profit for the second quarter, the first profit in nearly two years. First-quarter losses totaled $1.6 billion.

Colonial BancGroup, the holding company for the now-defunct Alabama bank, has filed for Chapter 11 bankruptcy protection, listing assets of just $45 million against debts of $380 million. Up until recently the bank - sold 10 days ago by the Federal Deposit Insurance Corp. to BB&T - was the nation's largest warehouse lender to nonbank mortgage lenders. Its largest unsecured creditor is the Bank of New York Trust Co., which is owed $254 million. The debt is related to the issuance of subordinated notes. A Florida affiliate of the bank is owed an additional $104 million.

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John A. Bui of San Jose, Calif., pleaded guilty in federal court in San Francisco to charges related to his role in a mortgage fraud scheme. According to Joseph P. Russoniello, U.S. attorney for the Northern District of California, Bui and others assisted individuals who wanted to obtain mortgages from lenders. He routinely transmitted fraudulent loan applications containing false employment information and false and inflated income and bank account information to mortgage lenders. In addition, the loan applications were supported by false and forged documents that purported to verify the borrowers' employment, income and assets. Bui and other members of the scheme used a network of co-conspirators who agreed to pose as the borrowers' employers and falsely verify to the mortgage lenders the accuracy of the employment and income information listed on the loan applications. As a result of the scheme, Bui gained more than $3.5 million. Bui, who is currently in custody, is scheduled for sentencing on Nov. 6, 2009 before U.S. District Court Judge Susan Illston.

As a result of challenges brought on by new regulations and restrictions that are making it increasingly difficult for independent mortgage bankers and brokers to offer loans with competitive rates, Mortgage Network Inc., Lancaster, Pa., has merged with Source Mortgage, Wyomissing, Pa. Keith Alan Zielaskowski, president of Source Mortgage Corp. has been named branch manager for the Mortgage Network Wyomissing retail location. Mr. Zielaskowski, along with his entire team, will continue to operate in the same location but with the support of the Pittsburgh and Lancaster MNET locations. "Most large lenders are capitalizing on the increased demand for loans by raising rates, putting brokers in a position where they cannot compete," said Bob Johnson, senior regional vice president of Mortgage Network. "Brokers used to play a valuable role in the lending ecosystem, offering expertise and personalized service to their customers." He said brokers today are forced with either leaving the industry or joining a big institution, which typically compromises their customer service values. "It is not uncommon for large companies to charge higher rates with long processing delays of over 60 days," said Mr. Johnson.