Origination

Freddie Mac's issuance of mortgage-backed securities jumped 40% in June, compared to the previous month, and purchases of refinanced loans jumped 25%. The government-sponsored enterprise attributed the surge in business activity due to heavy seasonal deliveries from some of its largest customers. Deliveries of refinancings totaled $50.9 billion in June, up 26% from the previous month, according to the GSE's monthly activity report. In March, refinance loan purchases totaled $52 billion — Freddie's largest refinance month since 2003. MBS issuance came in at $61.1 billion in June — the highest since September 2005 when Freddie issued $62.5 billion in MBS. Meanwhile, delinquencies continue to creep up at the GSE. The delinquency rate on single-family loans (90 days or more or in foreclosure) rose 16 basis points to 2.78% in June, up from 0.93% a year ago.

The Department of Housing and Urban Development is concerned the Federal Housing Administration may have to suspend its single-family loan program later this summer if Congress does not provide the agency with additional loan commitment authority. HUD has submitted a request to Congress for an additional $85 billion in commitment authority to keep the FHA mortgage insurance program running through September 30, a HUD spokesman said. Earlier this year, Congress authorized FHA to insure up to $315 billion in loans in fiscal year 2009, which ends Sept. 30. On June 16, HUD notified Congress that FHA had used up 75% or $236 billion of its commitment authority. As of June 30, FHA had endorsed 1.39 million single-family mortgages - up 83% compared to the first three quarters of FY 2008. The Obama administration is seeking $400 billion in loan commitment authority for FHA in FY 2010.

Tom Neary has resigned as executive vice president and senior managing director of Residential Capital Corp., effective at the end of July. Mr. Neary joined the nation's seventh-largest residential originator a year ago and was brought in by ResCap chairman and CEO Tom Marano. "He resigned for personal reasons," a company spokeswoman confirmed to this newspaper. He is responsible for managing the business risk for ResCap's mortgage servicing rights and oversees its pipeline hedging activities. ResCap is an affiliate of GMAC Financial Services.

The Federal Reserve Board is pushing the mortgage industry toward paying originators a flat fee under a proposed rule but lenders can continue to compensate loan officers and brokers based on the interest rate, according to regulatory experts. At first read, the proposed Truth in Lending Act rule appears to ban yield-spread premiums, which are a form of broker compensation that can be increased by pushing up the interest rate. American Bankers Association senior regulatory counsel Rod Alba points out that the Fed is prohibiting compensation based on the terms and conditions of the loan transaction. "The proposed rule does not appear to ban the practice of compensating the mortgage broker through the interest rate. But it does intend to put limits on the more abusive uses of yield-spread premiums," Mr. Alba said. As proposed, lenders can pay a broker one point, for example, but not a range of one point to two points where brokers have the discretion to increase the mortgage rate and their compensation. In addition, a lender cannot increase a LO or broker's compensation for "steering" borrowers into loans with adjustable rates or prepayment penalties. The Fed also is seeking public comment on allowing lenders to compensate LOs and brokers based on the principal amount of the mortgage. The Fed notes that compensation based on the loan amount is a "common practice today."

Capital Markets Cooperative, Ponte Vedra Beach, Fla., has a new strategic alliance with Freddie Mac. CMC said the alliance will give its members improved pricing on all executions at Freddie Mac's cash window, free introductory use of Freddie's Loan Prospector if members are new users of that automated underwriting service and discounts on training for groups of various sizes. Through its cooperative structure, CMC aims to give mortgage bankers partnered with the group access to economies of scale and methods of execution historically limited to players with larger volumes.

After running a scheme that enticed victims to participate in a bogus real estate investment opportunity in order to get rid of their personal mortgages, Rodney McGill, a radio talk show host and pastor of New Hope Outreach Center in Jensen Beach, Fla., and his wife, Shalonda McGill, a mortgage broker, have been convicted by a jury in Martin County, Fla. According to the Florida attorney general's office, Rodney McGill used his radio program to advertise a contest to become the "Fabulous Five," five "winners" who would receive advice from the pastor on making millions through real estate investments. At least three victims called the radio station and provided their Social Security numbers and other financial information. The McGills showed their victims the properties that had been "selected" especially for them, but the scheme carefully concealed the fact that the McGills owned each of the properties offered up as potential investments. The McGills also encouraged their victims to lie about their income to obtain the mortgages. The defendants stole more than $1 million from banks, paid down their debts and left their straw buyers with ruined credit. Rodney and Shalonda McGill were arrested in September 2008. They will be sentenced in September 2009.

NexBank, a bank which offers commercial mortgage lending and wholesale residential lending based in Dallas, has started a retail residential mortgage unit. The new unit, NexBank Mortgage, Plano, Tex., is being created through a partnership with The Funding Source, a Plano-based mortgage broker. Tish Ashley, founder of The Funding Source, will remain with NexBank as the vice president of the residential mortgage division. All 14 employees of The Funding Source will join NexBank Mortgage, bringing the bank's head count up to 40 in its mortgage business lines vs. zero one year ago. "Mortgages are an important relationship product, and NexBank now has the opportunity to better serve our customers and to enhance future profitability. Retail mortgages will be a key area of growth for NexBank," said its president and chief executive Davis Deadman.

Second quarter 2009 mortgage banking net revenue at Fifth Third Bancorp, Cincinnati, was up 72% over the same quarter last year, $147 million vs. $86 million. The bank set a record for loan production at $6.9 billion, up from $4.9 billion for the first quarter 2009. As a result, Fifth Third had gains on mortgages sold of $161 million. In addition, mortgage-related revenues included a $1 million gain on sale of portfolio loans. Net servicing revenue, before mortgage servicing rights valuation adjustments, was $2 million. The MSR valuation adjustment, including mark-to-market of hedges, was a loss of $16 million. Fifth Third took a net charge off of $626 million, as the company continues to be plagued by losses related to commercial and residential real estate loans in Michigan and Florida. Commercial mortgage net losses were $85 million, 45% from those two states. Those states also represented 45% of the second quarter home equity loan charge-offs of $88 million and 75% of the $112 million of net charge-offs in the residential mortgage portfolio.

The residential mortgage banking segment at PNC Financial Services Group, Pittsburgh, earned $88 million in the second quarter 2009, down from $221 million in the fist quarter of the year. The company blamed lower net mortgage servicing rights hedging gains and reduced loan sales revenue for the decline. Loan originations for the quarter were down slightly from the first quarter, $6.4 billion vs. $6.9 billion in the linked period. Refinancings caused the mortgage servicing rights portfolio to decline from $168 billion at the end of the first quarter to $161 billion as of June 30, 2009. PNC had net charge-offs during the quarter of $795 million, an increase of $364 million over the first quarter. Nonperforming assets as of June 30, 2009 were $4.5 billion, an increase of $1 billion over the first quarter. The increase consisted of $400 million for residential real estate loans and a $400 million increase in nonperforming commercial real estate loans (mainly residential real estate projects).

The second quarter 2009 operating results for Old Republic International Corp., Chicago, were aided by lower production and operating expenses at its mortgage insurance subsidiary and stronger revenue growth at its title insurance unit. Still, the company had an operating loss of $49.6 million (down slightly from $49.9 million one year ago) and a net loss of $15.8 million, compared with $364.7 million one year ago. ORI said it also benefited from deferred income tax credits that could not be recognized previously. Republic Mortgage Insurance Co. had a pretax operating loss of $137.9 million, an improvement over the second quarter 2008's loss of $140.7 million. The claims ratio increased to 197.7% for the most recent period, up from 192.5% one year prior. Total primary insurance written for the quarter was $2.5 billion, down from under $6 billion one year ago. The delinquency ratio for the primary channel was 12.91% and the bulk channel 24.57%, vs. 6.92% and 11.29% one year prior. Meanwhile, the title insurance unit had an operating profit for the first time since the second quarter of 2007. The pretax operating income was $5.6 million, compared with a loss of $4.5 million one year ago, as Old Republic Title Insurance Co. benefited from the refinance boom and gains in market share as a result of industry "dislocations and consolidations."