Origination

Interest rate volatility has had a large effect on the refinance component of the Mortgage Bankers Association Market Composite Index in recent weeks. Two weeks ago, the Refinance Index increased 7.2%; last week it declined 7.2%. For the week ended Aug. 14, the index increased 6.9%. The MCI gained 5.6% on a seasonally adjusted basis for the most recent period, after a drop of 3.5% for the week prior. On an unadjusted basis, the Index increased 4.8% compared with the previous week and increased 25.0% 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. MBA noted the seasonally adjusted Purchase Index has been less sensitive to interest rate swings. It increased 3.9% from one week earlier, the third gain in the Purchase Index in a row and fourth in the past five weeks. The share of refinancing applications increased to 53.3% of total applications, up from 52.3% the previous week. The adjustable-rate mortgage share of activity has been increasing as of late. At the end of last year, ARMs were just 0.9% of mortgage applications. In the most recent survey their share increased to 6.5% from 5.8% of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages fell to 5.15% from 5.38%, with points decreasing to 0.98 from 1.18 (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 declined by 19 basis points to 4.52%, while for one-year adjustable rate loans, it decreased by 5 BPs to 6.66%.

BB&T has acquired all of the mortgage warehouse assets from the failed Colonial Bank, except for those associated with Taylor, Bean & Whitaker, a spokesman for the Federal Deposit Insurance Corp. said. A BB&T spokeswoman added that the company is currently evaluating Colonial's warehouse business. BB&T does have a warehouse lending business of its own, but it is very small, she said. In its statement on the Colonial acquisition, BB&T said it did not acquire any assets relating to TBW. The FDIC spokesman said those assets are primarily mortgage loans and are currently involved in litigation. Bank of America last week sued Colonial over $1 billion in collateral associated with TBW affiliate Ocala Funding LLC.

Over the last couple of weeks, I've received comments from readers (please do comment on these posts and ask questions if you like) that indicate to me there is still a thirst for the basics of the reverse mortgage product, namely how it works and why it's so important to seniors. While we could go into a great deal of content and detail, space will allow me to say just so much here today.

Fitch recorded a decline in commercial real estate loan collateralized debt obligation delinquencies in July but said the figure was misleading and indicated that there may be significant downgrades to all Fitch rated CREL CDOs in the coming months. Fitch said it expects to see high default rates in the sector "as these loans mature into the trough of the current commercial real estate cycle." As a result, the rating agency is finalizing its review methodology for the sector and believes this will result in several downgrades. In July, delinquencies had dropped to 7.6% from 8.2% in June, according to Fitch's CREL CDO Delinquency Index, but the decrease reflected an average of 2.7% of the CDO par balance being lost in distressed asset sales and discounted payoffs. "Had the loans, which were resolved at a loss over the past three months ... remained in the transactions, the CREL DI would have exceeded 9%," Fitch said.

The recent reversal of some positive technical conditions in the CMBS market supports the need for clarification of the Public-Private Investment Program supporting the sector as well the extension of the TALF program, according to a New Oak Capital report. "While I think that the extension of TALF for CMBS into 2010 is a positive, we'll need some more clarity around PPIP in order for the market to get back on track," said Craig Lieberman, managing director and co-head of commercial real estate at NewOak Capital, a New York advisory, asset management, and capital markets firm. He said that contributing to negative technicals seen recently in the market was "news of big CMBS borrowers like Maguire and Moinian handing over the keys on several properties," as well as an earlier announced delay of the PPIP program, followed by a large collateralized debt obligation liquidation.

The Federal Reserve Board has extended the TALF program into next year to see if the special financing facility can finally provide a boost for the commercial mortgage-backed securities market. The Fed noted that the CMBS market is "still impaired" as it extended the Term Asset-Backed Securities Loan Facility for legacy CMBS until March 31 and new CMBS until June 30. The TALF program was due to expire at yearend. But several members of Congress and commercial real estate groups have been urging the Fed to extend the program because of the limited availability of financing for maturing CRE loans. In addition, the TALF program for CMBS has gotten off to a slow start and it has only financed the purchase of $670 million in legacy CMBS so far. The Fed is expected to approve the first new CMBS deals using TALF financing on Thursday (Aug. 20).

Single-family housing starts rose 1.7% in July following a 17% surge in home construction during the previous month. The U.S. Census Bureau reported that single-family housing starts increased at a seasonally adjusted annual rate of 490,000 in July, up from 482,000 in June, as construction activity rose for the fifth consecutive month. The June rate was revised upward from 470,000, which means starts jumped by 17.3% from May to June, higher than the 14.4% the Census Bureau reported last month. The Census Bureau also reported that multifamily starts fell to an all-time low of 80,000 units in July, down 72% from a year ago. "The credit market and overbuilding are hammering multifamily housing construction," IHS Global Insight economist Patrick Newport said. He noted that the securitization market collapsed in 2008 and the banks have tightened credit on commercial real estate mortgages. "Going forward, multifamily starts are nearing a bottom, and should start growing later this year," Mr. Newport said.

After being found guilty of fraud and money laundering charges in connection to participating in a commercial mortgage fraud scheme, Larry P. Nardelli of Tampa, Fla., has been sentenced to 48 months in federal prison and ordered to pay $26.3 million in restitution. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Nardelli and his co-conspirators agreed to purchase and immediately "flip" vacant land for double the money by falsely obtaining loans for the land. Nardelli entered into sham contracts that falsely represented to victim banks that the contract proceeds gave him the equity necessary to purchase the vacant land. The banks unwittingly loaned money for approximately 140% of the value of the land. The conspirators then purchased the land and distributed the excess funds among themselves in various amounts. The loans went unpaid. Two co-conspirators, Michael Tringali and closing attorney John Yanchek previously pleaded guilty and have been sentenced. One conspirator, Neil Mohamed Husani is in Jordan, and efforts are underway to extradite him back to Florida for prosecution.

Farmington Hills, Mich.-based XSite Validation has launched a tool designed to evaluate overall "toxicity" in commercial loan pools. The tool can see into each and every commercial property loan in a portfolio, ranks all performing, non-performing and REO properties from "First to Worst," allows for quick reassessment of the concentration of types of properties within loan portfolios, and provides the "best use" evaluation of every loan portfolio property by presenting the top five potential uses of each property. For every property in a financial institution's portfolio, XSite uses its patent-pending XRI Scoring System, which assesses the "market viability of a property for its current or proposed commercial use, in conjunction with the financial institution's own loan grade/risk factors, to create a unique "Composite XRI Score." XSite's Composite XRI Score gives banks a single measurable that joins the financial viability and the market viability of the commercial property into one "go / no-go" decision-making factor.

Keefe, Bruyette & Woods, New York, has made some changes to the KBW Mortgage Finance Index. Effective Aug. 19, it is deleting homebuilder and mortgage company Centex Corp., Dallas, because it is being acquired by another publicly traded homebuilder, Pulte Homes. Bloomfield Hills, Mich.-based Pulte will see an increase in its shares in the composition of the index as a result of the deal. MGIC Investment Corp., Milwaukee, Wis., will be added to the index as a replacement for Centex. The last change, and the only one not related to the Pulte-Centex deal, is that Ocwen Financial Corp., West Palm Beach, Fla., is having an increase in its shares included in the index as a result of its equity offering.