Origination

UBS during the second quarter still was working on reducing monoline insurance risks that can be traced partially back to U.S. residential real estate finance exposures, but it said in an earnings report that as of July it had agreed to commute certain trades with insurers, mitigating those bond insurance risks. Monoline risk exposures, about one-third of which were linked to credit protection on subprime and other U.S. residential mortgage-backed security collateralized debt obligations, were among "identified risk concentrations" listed in the company's first-quarter financials. But UBS said that during the period and in July it "agreed to commute certain trades with three monoline insurers which significantly decreased remaining exposures." During the second quarter, UBS took a loss of 1.4 billion Swiss francs ($1.3 billion). This was greater than the net loss of 395 million Swiss francs ($372 million) seen during the same period last year but an improvement over the loss of 1.97 billion Swiss francs ($1.86 billion) seen in the first quarter. The company said its second quarter loss "was driven by lower losses on risk positions now exited or in the process of being exited by the investment bank" and "significantly affected" by charges for own credit on financial liabilities designated at fair value, restructuring and goodwill impairment charges in relation to the sale of a unit.

Barclays PLC saw a $1.1 billion loss on its U.S subprime loans during the first half of 2009 but the London banking company still generated £2.98 billion ($5.05 billion) in pretax profit for the period. Overall, Barclays saw about £4.68 billion ($7.93 billion) in total gross losses due largely to real estate and mortgage-related writedowns. The company said in its interim results that £1.44 billion ($2.44 billion) of the losses stemmed from commercial real estate, £654 million ($1.11 billion) came from U.S. subprime credit residential mortgages, £549 million ($930 million) stemmed from monoline insurer-wrapped commercial mortgage-backed securities, £398 million ($674 million) came from alternative-A credit residential mortgages and £256 million ($434 million) came from monoline-wrapped U.S. residential MBS.

Even though Radian Group Inc. had a mortgage insurance provision of $142.8 million because of higher delinquencies, the company still saw net profits of $231.9 million ($2.82 per share) for the second quarter. For the same period last year, the Philadelphia-based company lost $392.5 million ($4.91 per share). Still mortgage insurance claims paid of $167.7 million were lower than Radian forecast. For the third quarter, the company said it expects between $275 million and $300 million in mortgage insurance claims; for the full year, it predicts $1.1 million, down from between $1.2 million and $1.4 million. Radian wrote $5.5 billion of primary new insurance during the quarter. The company trumpeted the fact that nearly all of it was prime quality, with 98.4% having a credit score of 680 or higher. Furthermore, in the 2009 book of business, Radian said there has been a significant decrease in the number of early payment defaults, which shows it has improved its underwriting. The mortgage insurance segment had net income of $13 million, compared with a net loss of $434 million one year ago. Radian's most profitable segment was its financial guaranty business, with net income of $215.7 million, up from $32.5 million for the second quarter of 2008. As of June 30, Radian had a primary insurance default rate of 14.84%, compared with 8.36% on the same day in 2008. Persistency as of the end of the second quarter 2009 was 87%, up from 81.2% a year ago.

Fitch has downgraded 270 bonds from 59 residential mortgage-backed securities transactions to "D." Forty-nine of the transactions are second-lien deals and the rest of the transactions are "scratch and dent" or subprime deals. All of the bonds had previously had CC or C ratings, indicating a default was expected. A D rating indicates a principal writedown has occurred.

Often pointed to as the poster child for real estate excess, the Las Vegas housing market is showing some signs of improvement, local agent Rob Jenson reports in his monthly market study. "Lower interest rates and a drop in the average sales price to under $158,500 for homes priced under $1 million is attracting more bargain-hunting foreclosure and short sale buyers," says Mr. Jenson, whose Jenson Group flies under the Re/Max banner. The recent spate of sales in Sin City's lower price ranges has brought down the inventory to a healthy 5.9-month supply. And if houses under contract are subtracted, the supply drops to 3.1 months. That's the good news. The bad news is that more than four out of five sales are still distressed deals, with foreclosures outselling short sales, seven-to-one, even though there are four times more short-sale properties on the market as REO. Overall, there were nearly 19,000 listings on the market in July, according to Mr. Jenson's "Las Vegas Real Estate Market Report." Some 3,300 properties sold in the month — 2,750 of them under duress — at an average price of $158,392, a drop of $84,620 from July a year ago.

The Mortgage Bankers Association Market Composite Index increased 4.4% on a seasonally adjusted basis for the week ended July 31 when compared with the previous week. The MCI is calculated from the MBA's Weekly Mortgage Applications Survey; starting with this week's release, the group no longer discloses specific application values. On an unadjusted basis, the index increased 4.1% when compared with the previous week and 18% when compared with the same week one year earlier. The Refinance Index increased 7.2% from the previous week. MBA noted this index has increased 35% since hitting its recent low at the end of June. The seasonally adjusted Purchase Index increased 0.9% from one week earlier. The index has experienced little change over the last three weeks, MBA said. The share of refinancing applications increased to 54.2% of total applications, up from 52.6% the previous week. The adjustable-rate mortgage share of activity decreased to 5.4% from 5.5% of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.17% from 5.36%, with points increasing to 1.02 from 0.93 (including the origination fee) for mortgages with an 80% loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs declined 15 basis points to 4.6%, while for one-year adjustable-rate loans, it increased by 1 basis point to 6.67%. The MBA can be found online at http://www.mortgagebankers.org.

After pleading guilty to a $1 million scheme involving the approval and disbursement of two fraudulent home equity loans, four individuals, including two bank insiders, were sentenced to prison. U.S. District Judge Alan S. Gold sentenced Ramon Puentes to 57 months in prison and five years of supervised release, Jorge Nobrega to 27 months and five years of supervised release and Jorge Arrieta to 22 months and five years of supervised release. Sebastian Kishinevsky, who cooperated with the government and assisted with the investigation, received a sentence of six months in prison, six months of home confinement and three years of supervised release. Judge Gold also ordered Puentes and Nobrega to each pay $796,700 in restitution, Arrieta $470,000 and Kishinevsky $326,700. According to Jeffrey H. Sloman, U.S attorney for the Southern District of Florida, the defendants obtained two fraudulent loans, one from Bank of America and one from Wachovia, for $500,000 each. They submitted the loan applications using the stolen identification information of one of the defendant's mother-in-law and supported by fraudulent documents. Each application listed the mother-in-law as the borrower and a home owned by the mother-in-law as collateral. The Bank of America application was submitted to Arrieta, a personal banker at Bank of America. The Wachovia application was submitted to Kishinevsky, a financial specialist at Wachovia. After the loans were approved, the defendants disbursed and shared the proceeds.

The San Francisco Federal Home Loan Bank Cost of Funds Index for June 2009 is 1.599% — a decline of 23 basis points from May's 1.832%. This is the second large abrupt change in direction in COFI in the past two months, with the index reporting its second biggest rise ever between April and May. In calculating the June index, the FHLBank used average total funds of $93.5 billion and total interest expense of $124.5 million. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey for the monthly average commitment rate on one-year adjustable rate mortgage increased 18 basis points between May and June to 4.93%. The monthly average commitment rate for the 30-year fixed rate mortgage is 5.42% in June, up 56 basis points over May.

The latest results from London-based HSBC Holdings PLC show its mortgage business in the United States and two other regions improving in some respects, but runoff of troubled legacy assets still leaves U.S. operations with net losses. HSBC USA Inc. generated $59 million in residential mortgage banking revenue in the three months ended June 30, up from $14 million during the same period a year ago. But the unit as a whole netted a loss of $249 million for the second quarter that was greater than the $174 million loss it took in the second quarter of last year. Its HSBC Finance Corp. unit, which discontinued its real estate-secured lending earlier this year and suffers from its past subprime lending activity, took about a $5.96 billion net loss during the three months ended June 30, compared to approximately $1.44 billion during the same period a year ago. The global banking company as a whole, which reported interim results for the first six months of this year, generated a $5.02 billion profit. This was down 51% from the same period a year ago. North America was the only one of the six world regions the company does business in that did not generate a profit. In addition to the mortgage banking revenue gains noted by HSBC USA, the company said it has seen positive mortgage market developments in the United Kingdom and Hong Kong, where there have been market share gains.

GMAC Financial Services, New York, had an after-tax net loss of $3.9 billion for the second quarter 2008, which includes a $1.6 million loss on the disposition of international mortgage assets and provisions, impairments and reserves on U.S. mortgage assets. The mortgage operations reporting segment had a net loss of $1.84 million compared with a net loss of $1.76 million in the second quarter of 2008. U.S. mortgage loan volume was $18.5 billion, up from $13.2 billion in the first quarter 2009 and $17 billion in the second quarter 2008. GMAC Financial is the parent of Residential Capital LLC; the segment results include the mortgage activity at Ally Bank and ResMor Trust. The international assets sold consisted of ResCap's operations in Australia and Spain. The parent company's net loss includes a $1.2 billion tax charge as part of the conversion from a partnership into a corporation.