Origination

Ambac's ratings by Standard & Poor's Corp. appear relatively steady for now, but continuing residential mortgage-backed securities deterioration held to be largely responsible for the company's second quarter loss of close to $2.4 billion could be a concern going forward. Standard & Poor's analysts said they have revised their outlook on Ambac Assurance Corp.'s counterparty credit rating to negative from developing and that their outlook for Ambac Financial Group Inc.'s counterparty credit rating remains negative. But they also noted that they continue to consider the outlook for AAC's financial strength rating outlook to be "developing" because they could raise that rating going forward.

The Federal Home Loan Bank of San Francisco had net income of $303 million for the second quarter of 2009, up from $233 million for the same period last year, as it benefited from $168 million in net gains associated with derivatives, hedged items and financial instruments carried at fair value. However, FHLB-SF also took a non-credit impairment charge of $1.2 billion and a credit impairment charge of $88 million related to non-agency mortgage-backed securities in its held-to-maturity portfolio. The impairment was due to a lack of liquidity in the MBS market affecting the valuation of the securities. As of June 30, 2009, FHLB-SF had a regulatory capital-to-assets ratio of 6.1%, well above its 4% regulatory requirement, and its risk-based capital was $14.6 billion, also well above the $8.2 billion regulatory requirement.

The net loss for Triad Guaranty Inc., Winston-Salem, N.C., ballooned to $359.4 million ($23.91 per share) for the second quarter of 2009, compared with a loss of $55.2 million ($3.68 per share) for the first quarter of 2009 and $198.8 million for the second quarter of 2008 ($13.36 per share). Company president and chief executive Ken Jones said the cure rates on loans in default had a further decline during the second quarter of 2009, plus Triad had higher severity on settled losses. Settled losses increased significantly at the company as more loans from its 2006 and 2007 book of business completed the foreclosure process. Triad increased its loss reserves by $279 million during the quarter. As of June 30, 2009, total insurance in force at Triad, which is in run-off status, fell to $57.5 billion, a decline of just under 5% from March 31, 2009. Net loss and loss adjustment expenses at Triad were $431.4 million for the second quarter of 2009, compared with $101.6 million for the first quarter of 2009 and $292.7 million for the second quarter last year. During the second quarter, Triad recognized benefits of $285.4 million from risk-sharing arrangements, including captive reinsurance programs. This compares with $97.4 million in the first quarter of 2009 and $52.4 million in the second quarter last year.

The Comptroller of the Currency is urging national banks to take a look at the Federal Housing Administration loan program that can be used to restore foreclosed homes and help stabilize neighborhoods. The FHA 203(k) program provides government insured financing for the purchase and renovation of a property in a single loan transaction. OCC is promoting the benefits of FHA 203(k) loans in its "Community Development Insights" magazine. "This product can be used by banks to develop new business, mitigate risk, enhance profitability, as well as assist in the revitalization and stabilization of neighborhoods negatively impacted by the current foreclosure crisis," OCC says in the magazine. FHA commissioner David Stevens said he welcomes OCC's efforts to increase bank participation in the FHA loan program "With so many bank-owned properties in need of repairs, this program offers a great way for homebuyers to finance both the purchase and rehabilitation of these homes," Mr. Stevens said.

Freddie Mac reported a profit of $768 million in the second quarter and positive net worth of $8.2 billion so it will not have to seek additional capital from the Treasury Department this quarter. It is a remarkable turnaround for a company that posted a $9.9 billion loss in the first quarter. But after the paying the Treasury $1.1 billion in dividends for previous capital infusions, Freddie had a net loss per common share of $0.11 for the second quarter. "We are pleased that our financial results allow us to finish the quarter with a positive net worth," Freddie interim chief executive John Koskinen said. But he said the company remains cautious due to the recession and rising foreclosures. Freddie absorbed $5.2 billion in credit-related expenses in the second quarter, compared to $9.1 billion in the first quarter. The serious delinquency rate on its $172 billion Alt-A portfolio hit 9.44% in the second quarter. Overall, 2.9% of the GSE's single-family mortgages are 90 days or more past due. "Second quarter results were driven primarily by $4.3 billion in net interest income mainly due to lower funding costs, as well as $4.2 billion in gains on the company's derivative portfolio," Freddie said.

The Government National Mortgage Association has hired Bank of America to service the roughly $25 billion in FHA receivables it seized from Taylor, Bean & Whitaker last week, according to industry sources. One investment banking official also noted that TBW is a major servicer of Freddie Mac-guaranteed loans and that the GSE may soon make a decision regarding its rights. "They haven't serviced for Fannie in years," said the banker. At the end of March TBW, a non-bank, ranked 13th nationwide among residential servicers with $78.2 billion in receivables, according to the Quarterly Data Report. At press time officials at BoA, GNMA, Freddie Mac and TBW were not commenting or had not returned telephone calls about the matter. Last week the Federal Housing Administration suspended the Ocala, Fla.-based TBW as a lender which then caused it to pull the plug on its wholesale division. Shortly before that, TBW's $300 million financial rescue of its chief warehouse provider, Colonial Bancshares, fell apart after the Alabama bank reported a huge loss. Colonial is now the subject of a federal probe of its warehouse lending operations.

There are signs the housing markets are returning to a more normal state, according to a survey conducted for Relocation.com. The survey, conducted in June, found that 50% of those who moved recently did so to improve their living situation. A Relocation.com survey done in March found the recession had a much larger role in the decision to move. The top reason to move was living in a bigger and/or better home, cited by 26% of respondents. This was followed by better neighborhood, 24%; closer to family/friends, 12%; lower cost of living, 9%; and change in marital status, 6%. Those respondents who moved because of foreclosure or losing their jobs were among the categories in the survey that garnered a response of 3% or less. "Even in the midst of the toughest economy in years, people who are moving are still motivated by the same things that motivated them in the past: to make a better life," says Sharon Asher, founder and chairman of Relocation.com. "Despite the drumbeat of bad news, our survey indicates that consumers are starting to return to actively making positive moving choices, and fewer reactive moves due to the down economy."

United Guaranty Corp., the Greensboro, N.C.-based mortgage guaranty business of American International Group, New York, had an operating loss of $488 million for the second quarter 2009, an improvement over a loss of $518 million for the same period last year. American General Financial Inc., which is where the mortgage lending operation resides, had a second quarter operating loss of $202 million, a fall-off in performance from the $40 million loss for the second quarter of 2008. AIG said this fall-off reflects the sales of real estate portfolios as part of liquidity management efforts and a $22 million increase in the provision for finance receivable losses. AIG Financial Products, which held the toxic securities that ended up placing the parent company in dire straits, posted a $132 million operating loss for the period, much improved over a $6.2 billion operating loss for the second quarter 2008. AIGFP's results include $636 million in unrealized market valuation gains on its super senior credit default swap portfolio and $702 million of interest charges from borrowings from the parent company that are being eliminated in an internal consolidation.

The PMI Group Inc., Walnut Creek, Calif., had a loss of $222.6 million ($2.71 per share) for the second quarter of 2009, a slight improvement over the net loss of $246.3 million ($3.09 per share) for the same period last year. However, the results last year were boosted by a $4.7 million profit from units no longer part of PMI, namely PMI Australia, PMI Asia and PMI Guaranty. Total revenues at its U.S. mortgage insurance operations were $230.8 million for the second quarter of 2009, up from $219.9 million one year prior. The unit was able to improve on its second quarter 2008 loss of $225.9 million, with a loss of $175.8 million for the most recent period. Consolidated losses and loss adjustment expenses for the second quarter of 2009 were $480.8 million, down from $556.1 million for the second quarter of 2008.

Fannie Mae reported a $14.8 billion loss for the second quarter, compared to a $2.3 billion loss a year ago, and the mortgage giant is seeking a $10.7 billion draft from the Treasury Department to maintain a zero net worth. The government sponsored enterprise, which is in conservatorship, absorbed $18.8 billion in credit expenses due to defaults and foreclosures. The company benefited from a change in the accounting rules and recorded a $753 million impairment charge on its Alt-A and subprime private-label securities. In the first quarter, Fannie recognized a $5.7 billion "other than temporary impairment" charge, which contributed to a $23.2 billion loss for that quarter. The GSE also increased its reserves by $13 billion and ended the second quarter with a $54 billion single-family loss reserve. Guaranty fee income fell 5% to $1.7 billion in the second quarter from the previous quarter while net interest income rose 15% to $3.7 billion. Fannie said it is experiencing increasing default rates across its entire guaranty book of business and the serious delinquency rate on its $270 billion Alt-A portfolio hit 11.9% in the second quarter. Overall, 3.9% of the GSE's single-family mortgages are 90 days or more past due, up from 1.7% a year ago.