Origination

Troubled warehouse lender Colonial BancGroup of Alabama has agreed to sell some of its Nevada assets — including its branch network there and $492 million in loans — to Global Consumer Acquisition Corp. of New York. The sale comes amid unconfirmed reports that the bank's recapitalization plans are moving slowly and may have hit a snag. The lead investor in the recap plan is Taylor, Bean & Whitaker of Ocala, Fla., which recently declined to comment on the situation. If the sale to GCAC proceeds as planned the bank will receive a $28 million premium for its deposits. At press time Colonial's shares were up 15% on the day to 72 cents. Its 52-week high is $10.50, its low 29 cents.

The proposed Consumer Financial Protection Agency would draw personnel and assessment fees from the existing federal banking agencies to staff and pay for its operations, according to Treasury assistant secretary Michael Barr. Under the legislative proposal, the CFPA would have broad authority to assess fees on consumer lenders, Mr. Barr told a Congressional panel on Tuesday. But he noted that community banks may not see an increase in fees because they already pay assessments to the federal banking agencies for consumer compliance exams and regulation. "We don't anticipate it will result in an increase in fees," he predicted. "It will likely result in a reduction in fees," as the consumer protection functions of the agencies are consolidated into one agency. Senate Banking Committee chairman Christopher Dodd, D-Conn., said he strongly supports the concept of a consumer protection agency that will level the playing field for banks and non-banks when it comes to regulation and enforcement. The chairman stressed that he does not want to see community banks "saddled" with additional costs and fees.

The Obama administration is planning to release a proposal for restructuring Fannie Mae and Freddie Mac in February when the President sends his budget to Congress. "Between now and then, we will be holding a series of public meetings as well as engaging in our own internal deliberations," Treasury assistant secretary Michael Barr told a Senate panel. The Bush administration forced Fannie and Freddie into conservatorships in September 2008 when it became clear the two would not able to finance their operations without government support. Mr. Barr urged the Senate Banking Committee to move ahead and pass the administration's proposals to create Consumer Financial Protection Agency and other financial regulatory reforms before addressing the GSEs. "We could move forward expeditiously on financial reform measures and then turn to government sponsored enterprises in February," he testified. The Treasury assistant secretary also noted that the administration will soon send up a legislative draft of its proposal to create a systemic regulator for the largest financial institutions. The capital and liquidity requirements will take away "any incentive to be large," he said.

The Treasury Department has earmarked another $486 million in American Recovery and Reinvestment Act funding for the construction and renovation of affordable housing in 12 states. Treasury deputy secretary Neal Wolin said the $3 billion total stimulus program is designed to contribute to economic stability, "one community at a time" through the development of affordable housing and creation of much needed jobs. The department has granted $36 million to Alabama; $29 million to Arkansas; $34 million to Connecticut; $76 million to Georgia; $114 million to Louisiana; $44 million to Maryland; $51 million to Massachusetts and $16 to Montana, $38 million to New Mexico; $20 million to the Virgin Islands; $10 million to Vermont and $17 million for New Hampshire, which had already received $11 million under the program. Treasury is expected to award another round of grants in the coming weeks.

FBR Capital Markets has raised its ratings on PHH Corp., Mt. Laurel, N.J. to "outperform" because of improvement in its mortgage banking fundamentals and the change to its management team.The leadership change occurred as a result of a successful proxy challenge by Pennant Capital Management LLC, Chatham, N.J. " With respect to mortgage banking, gain-on-sale margins have held up surprisingly well over the first half of 2009 due to less competition in the mortgage origination space; we expect margins to remain strong throughout the year; however, volumes will be significantly lower in the second half of the year due to higher rates," said analysts Paul J. Miller Jr., William Wallace and Jessica Halenda. The analysts at the Arlington, Va., firm said they expect the new management team, led by acting chief executive George Kilroy, to have a focus on creating shareholder value. FBR has assigned a price target of $23 per share for PHH, up from $13. Their valuation for the mortgage banking business is $15, based on the company's first quarter tangible book value of $22.50. The remaining $7.50 is from the fleet management business.

A report from A.M. Best Co., Oldwick, N.J., found the property/casualty segment of the insurance business had an underwriting loss of approximately $800 million in the first quarter of 2009 in large part because of the significant losses reported by mortgage and financial guaranty insurers. The mortgage and financial guaranty segments reported an underwriting loss of $1.9 billion and posted a combined ratio of 220.8, adding approximately two percentage points to the P/C industry's combined ratio; this ratio is a measure of underwriting profitability. Historically, these businesses add less than one percentage point to the combined ratio. The Best report said although the mortgage insurance and financial guaranty business represent just 1% of P/C net premiums written in the first quarter, the poor performance hurt what was otherwise a profitable underwriting quarter. Still the first quarter 2009 results were an improvement of the first quarter 2008 results of a $3.3 billion loss and a combined ratio of 305.1.

Nearly 60% of homebuilders are running into problems with appraisals and 26% of the builders surveyed said they have seen sales contracts fall through because the appraisals are coming in below the contract price, according to the National Association of Home Builders. The "biggest problem," NAHB says is that appraisers are using foreclosures and distressed sales as comparables for new single-family homes. Freddie Mac has reiterated in a July 10 Bulletin that it does not require appraisers to use foreclosures or short sales as comparables. And appraisers must certify that they are using comparables "most similar" to the property. NAHB called this a "step in the right direction." But Freddie did not rule out the use of distressed sales as comparables. "If the appraiser determines these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use," the bulletin says.

A survey conducted for researchers at the University of Chicago and Northwestern University found that fewer Americans feel that home prices in their area will decrease in the next year than did at the end of last year. The findings were part of the Chicago Booth/Kellogg School Financial Trust Index. In December 2008, 47% of the respondents to the survey felt home prices in their local market would decline in the next year. By March 2008, that number fell to 37% and in the most recent survey, the number was 26%. Paola Sapienza of the Kellogg School of Management at Northwestern said, "In only six months we've seen marked improvement in confidence toward home values. In fact, 75% of the people who changed their opinion during this time period now think house prices will remain stable, while the remaining fourth think that house prices will rise." The Financial Trust Index increased from 19% in the first quarter to 21% for the second quarter as the researchers found an increase in the percentage of Americans who trust their banks and bankers, from 29% to 34% during that timeframe.

Banks are holding up loan modifications by refusing to subordinate or extinguish second liens that are "virtually worthless," according to two powerful banking committee chairmen who want federal regulators to intervene. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., contend that the banks don't want to recognize their losses on second liens and they are preventing borrowers with underwater first mortgages from refinancing under the FHA Hope for Homeowners program. "Carrying these loans at potentially inflated prices may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus stand in the way of increasing participation in the H4H program," the chairmen say in a letter to the banking and thrift regulators. "We urge you and your staff to look into this issue as expeditiously as possible to ensure that we can achieve the vital goal of the H4H to help American families build equity and keep their homes," the July 10 letter says.

Freddie Mac has slashed its origination forecast for the third quarter by $265 billion mainly due to a drop off in refinancings. Freddie's latest housing market forecast shows that loan production in the third quarter coming in at $625 billion, down from its $890 billion estimate a month ago. All of the reduction in loan production comes from conventional loans that Freddie and Fannie Mae purchase. The new forecast shows a slight pickup in originations of Federal Housing Administration and Department of Veterans Affairs-guaranteed loans. The government sponsored enterprise now is forecasting that lenders will originate $2.3 trillion in single-family loans in 2009, down $400 billion from its previous forecast. The Mortgage Bankers Association recently cut its 2009 origination forecast by $700 billion to $2.03 trillion.