Origination

Moody's Investors Services said its negative outlook for Australian residential and commercial mortgage-backed securities and asset-backed securities could persist for another 12 to 18 months. "Although there is no immediate short-term unease with regard to the performance of RMBS collateral, Moody's is nevertheless concerned with the situation over the next 12 to 18 months, as expectations of increased unemployment and an uncertain global economic climate filter through the Australian economy," said Richard Lorenzo, a Moody's vice president and senior analyst. In the CMBS market, "On the supply side, institutional property owners are looking to delever their balance sheets by unloading noncore assets and thus providing a supply overhang in the market," Moody's said. "On the demand side, property investors are facing hurdles in obtaining debt funding from banks which are weary of overexposing themselves to the commercial real estate sector."

Close to $500 billion or 6% of U.S. commercial mortgage-backed securities are currently in special servicing and that amount could double by the end of the year, according to Fitch Ratings. "The resources of special servicers will continue to be stretched, which will intensify scrutiny on their preparedness," said managing director Stephanie Petosa. "Compounding the problem is that many of these loans expected to default are large and complicated loans." However, Fitch said it does not expect to see the same rate of growth in CMBS delinquencies, which it expects to exceed 5% by the end of 2009.

The California real estate commissioner said he would oppose increases in mortgage broker licensing fees that the state Legislature is considering as part of a regulatory reform package. Commissioner Jeff Davi told attendees at the California Association of Mortgage Brokers convention in San Diego he would fight to insure the new regulatory scheme would not drive up the costs for mortgage broker licenses. Higher fees could impact the ability of some brokers to stay in business, he said. The state Legislature is considering a bill to create a financial services regulator that would oversee the mortgage industry and brokers. Right now, mortgage brokers are licensed as real estate brokers.

Refinances tracked by Freddie Mac in the second quarter are expected to cut payments by about $3.4 billion in the coming year. Refinancing borrowers' new interest rates were approximately 1.25% below the old rates on average. "We are anticipating more than one-half of originations to be for refinancing throughout the rest of the year as long as rates stay their current levels of 5.25%," said Freddie Mac vice president and chief economist Frank Nothaft. In the second quarter, cashout refinancing dropped to its lowest share since the third quarter of 2003, according to Freddie's Refinance Report. Sixty two percent of borrowers with a prime credit quality conventional second-lien mortgage either kept the same principal balance or reduced it, up from a revised 57% in the first quarter. The share of refinance loans resulting in new loan amounts that were at least 5% higher than the paid-off second lien mortgage balances fell to a six-year low of 38%. The first-quarter cash-out share was revised down to 43%. "In the second quarter, about $25 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage. This is up a little less than $5 billion from the first quarter volume, but, importantly, the rise reflects the jump in the number of loans refinanced rather than an increase in the amount borrowers are cashing out per loan," said Amy Crews Cutts, Freddie Mac deputy chief economist.

Standard & Poor's Ratings Services has lowered several of Colonial BancGroup's ratings, citing risks linked primarily to its consent to a cease-and-desist order by its regulators. "The rating downgrade largely results from our view that regulatory risk has increased following the company's announcement that it has consented to an order to cease and desist by the Federal Reserve, its primary federal regulator, and the Alabama State Banking Department," S&P credit analyst Robert Hansen said. S&P noted that the cease-and-desist order states that the "company cannot pay any dividends or make any distributions of interest or principal on subordinated debt or trust-preferred securities without the prior written permission of these two regulators. If Colonial BancGroup is not granted permission by these regulators to make interest payments and subsequently misses an interest payment on its subordinated debt, the company's rating would be lowered [to default level]." The company's counterparty credit rating fell to CC from CCC. Its rating on the company's preferred shares fell to C from CC. And its long-term counterparty credit ratings on its subsidiaries fell to CCC- from B-. All short-term ratings on the company and its primary bank remain at C. All ratings remain on CreditWatch with negative implications.

Senate and House appropriators are taking slightly different approaches in trying to cover an $800 million shortfall in the Federal Housing Administration reverse mortgage program. The Senate Appropriations Committee is providing $288 million to cover part of the shortfall, which is based on expected losses due to declining house prices, and requiring HUD to reduce the loan proceeds seniors receive by 5%. House appropriators are not providing any funds for the FHA Home Equity Conversion Mortgage program, but they are instructing the Department of Housing and Urban Development to cover the shortfall by reducing the proceeds on HECMs. Reverse mortgage lenders are opposed to such reductions, claiming it would hurt seniors who can't sell their home, but need a large enough HECM to pay off their existing mortgage. The National Reverse Mortgage Lenders Association is proposing that HUD reduce the upfront mortgage premium on HECMs and increase the annual premium to deal with shortfall. "We are willing to work with HUD to re-engineer the mortgage insurance premium," NRMLA president Peter Bell said.

The Senate passed a bill Thursday evening that provides the Federal Housing Administration with additional loan commitment authority so the FHA can continue to endorse single-family loans through Sept. 30 without interruption. The Senate's action clears the measure so it can be sent to President Obama for his signature. The House passed the bill (H.R. 3357) earlier in the week by a 363-68 vote. The bill provides $85 billion in additional commitment authority for FHA and $100 billon for Ginnie Mae. The Senate passed it by a 79-17 vote. The measure also includes emergency funding for the highway trust fund. FHA warned Congress back in June that it had used 75% of its $315 billion in loan commitment authority and later requested additional commitment authority to avoid a shutdown of the single-family program.

Recently, several U.S. homebuilders, including DR Horton, Ryland Group and Meritage Homes, voluntarily terminated their revolving credit facilities, opting to use cash and equivalents on their balance sheets as the sole source of short-term liquidity, according to Fitch Ratings. In these cases, the actions did not result in any ratings action, but Fitch now says any future cases will be reviewed and could warrant negative ratings action as the cancellation of the revolver does raise concern about a reduction in liquidity and the removal of the bank group oversight. Fitch said in the absence of a revolving credit line, a consistently higher level of cash and equivalents than was typical should be maintained on a homebuilder's balance sheet, especially in these still uncertain times, said lead homebuilding analyst Robert Curran. Fitch expects management will be allocating a certain percentage of cash to serve as standby liquidity, in an amount comparable to a standard revolving credit requirement over and above what is needed for working capital and debt maturities. In addition to the loss of standby liquidity, Fitch said the termination of the bank facility eliminates the oversight of builder operations by bank groups, a useful check on management's appetite for risk. While certain bond indentures have financial and other covenants, the requirements under bank credit facilities are more onerous and would usually be violated in a deteriorating environment ahead of the covenants in place in bond indentures, said the rating agency. Fitch suspects that this issue, in particular, will be an area of concern to bondholders and could result in tighter covenants on new bond offerings going forward.

Wintrust Financial Corp., Lake Forest, Ill., has set another company record for quarterly originations. "Residential mortgage originations for the secondary market continued to be strong in the second quarter, with $1.5 billion in originations," said president and chief executive officer Edward J. Wehmer. "This follows a then-record level of $1.2 billion originated in the first quarter of 2009." He said the mortgages continue to be primarily refinancings. The company as whole generated $6.5 million in net income during the quarter compared to $6.4 million in net income in the first quarter and $11.2 million during the second quarter of last year.

Based on data collected as of June 30 by Lender Processing Services, Inc., new delinquencies dropped to their second lowest level in the last year and the percentage of loans rolling to a more delinquent status declined across all product types. "At current interest rates there is a lowered risk of increased defaults associated with outstanding hybrid adjustable-rate mortgage resets," LPS said in its report. "Liquidity is becoming increasingly available again to borrowers who are in some stage of delinquency. A dramatic improvement in borrower credit quality has created a significant decline in first payment defaults." In its report, LPS said total loan originations for the first half of 2009 were higher than 2008 levels for the same time. Loan originations for Jan. to June 2009 were 2,333,451 versus 2,211,852 for Jan.- June 2008. These findings from the June LPS Mortgage Monitor could be indicators that the nation's housing market may be turning a corner toward recovery. But according to LPS, foreclosure inventories continued to climb while non-current loans, including defaults and foreclosures, rose to 11.44%. Foreclosure starts in June increased 1.6%, while recidivism rates are not yet showing signs of improvement. Jumbo prime loans continue to experience the highest rates of deterioration with rates up 580% since January 2008. The total U.S. loan delinquency rate was 8.58%, a monthly increase of 1.1% and a year-to-year increase of 44%. June's foreclosure rate was 2.86%, a month-to-month increase of 2.5% and a year-to-year increase of 86.1%. States with the most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Ohio and West Virginia. States with the fewest non-current loans are North Dakota, South Dakota, Wyoming, Montana, Alaska, Vermont, Nebraska, Oregon, Colorado and Washington.