Origination

The majority of experts are divided as to whether the downward trend seen in long-term mortgage rates this week will continue or stabilize, according to a Bankrate survey released July 2. There are 46% of the respondents who foresee a further decline while another 46% predict stability. The remaining 8% anticipate an increase. The average rate for a 30-year conforming, fixed-rate mortgage slid to 5.32% from 5.42% in the most recent week, according to the Freddie Mac Primary Mortgage Market Survey. The move brings the average 30-year rate to about one-quarter of a percentage point below its June 11 peak, said Frank Nothaft, Freddie Mac vice president and chief economist. Mortgage researchers at Credit Suisse said in a report that they believes the 30-year rate would have to drop below 5% again "to trigger a renewed refi surge." According to Freddie Mac, the average rate for 15-year FRMs and five-year Treasury-indexed hybrid adjustables also fell during the week ending July 2. The former dropped to 4.77% from 4.87%, and the latter declined to 4.88% from 4.99%. In contrast to the other mortgage rates Freddie Mac tracks, the average rate for one-year Treasury-indexed adjustable-rate mortgages rose slightly in the most recent week to 4.94% from 4.93%. All rates tracked by Freddie were down from a year ago when the average one-year Treasury ARM rate was 5.17%, the average five-year Treasury hybrid rate was 4.99%, the average 15-year rate was 5.92% and the average 30-year rate was 6.35%. Average points were 0.6 for one-year Treasury ARMs and 0.7 for the other types of mortgage rates Freddie tracks.

The Title/Appraisal Vendor Management Association has sent a three-page letter to the National Association of Mortgage Brokers stating its attacks on appraisal management companies in the fight over the Home Valuation Code of Conduct are baseless. "Everyone in the industry knows there were serious problems with the collateral valuation part of the business," said Jeff Schurman, TAVMA executive director. "Maintaining an arms-length relationship between the loan originator and appraiser is the centerpiece of the HVCC. To characterize AMCs as the centerpiece of the Code is simply false." He added that there is no tangible data to suggest that AMCs are the problem. Instead, the real issue is that New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac felt that loan originators whose compensation depended upon the loan closing were trying to improperly influence appraisers, Mr. Schurman said.

The Department of Housing and Urban Development is revising its appraisal policies on Federal Housing Administration-insured loans with respect to appraisal management companies, according to an agency spokesman. Appraisal groups have been complaining that HUD's restrictions on appraisal fees and the lenders' increasing reliance on AMCs is driving many experienced appraisers away from taking assignments that involve Federal Housing Administration-insured loans. "The loss of these seasoned professionals is adding unnecessary and substantial risk to the FHA program," according to four appraisal trade groups which sent a letter to HUD secretary Shaun Donovan. "We already have a mortgagee letter in the clearance process addressing this issue," the HUD spokesman said. FHA borrowers are expected to pay no more than the "customary fee" for an appraisal, according to a 1997 HUD mortgagee letter on appraisal management companies. To cover their management fees, AMC hires appraisers that will accept a reduced fee, according to the appraisal coalition. As a result, "the consumer is receiving a much lower level of service - often from appraisers who do not know the local market - in many cases," the coalition says in its letter to HUD. The Appraisal Institute, American Society of Appraisers, American Society of Farm and Rural Appraisers and National Association of Independent Fee Appraisers signed the letter.

Industry groups are backing an Obama administration plan to simplify mortgage disclosures and make them more consumer friendly but first the trades want the Department of Housing and Urban Development to kill a Real Estate Settlement Procedures Act rule that is due to go into effect Jan. 1, 2010. The administration has endorsed the concept of merging the RESPA disclosures and the Federal Reserve Board's Truth in Lending Act disclosures into a single document as part of its legislative proposal to reform the regulatory system. "We believe development of a simple, single RESPA/TILA disclosure is achievable, and that such an effort can be undertaken and completed far sooner than broader legislative efforts to reform regulation of the financial industry," the industry groups say in a July 1 letter to top administration officials. To move this process along, the RESPA rule should be withdrawn and HUD and the Fed should commence a joint rulemaking effort, according to the letter, which was signed by 10 associations. Signers include: American Bankers Association, American Escrow Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, National Association of Mortgage Brokers and Real Estate Settlement Providers Council.

Fannie Mae and Freddie Mac have received the green light from their regulator to refinance underwater homeowners with loan-to value ratios as high as 125%. The special refinancing plan that Obama administration officials unveiled in February limited the refinancing option to loans with LTV ratios of 80% to 105%. But the 105% LTV limit would not offer any relief for borrowers who have seen the values of their home erode by 15% to 30%. "The higher LTV refinancings will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates," Federal Housing Finance Agency director James Lockhart said. Fannie Mae said it would accept delivery of the higher LTV loans starting Sept. 1. A Freddie Mac spokesman said it would start accepting the loans "now." The GSE financing program is only available to borrowers with loans that are owned or guaranteed by Fannie and Freddie. They also have to be current on their mortgage payments. "On the 105%-125% LTV loans, lenders can either sell us the loans for cash or deliver them into an MBS execution to be sold to other investors," a Fannie spokesman said.

The recent rise in interest rates has apparently brought a crashing halt to the rapid decline in the Eleventh Federal Home Loan District Cost of Funds Index. In fact, COFI, a weighted average of the cost of mortgage funds for thrifts that belong to the Federal Home Loan Bank of San Francisco, had its second largest increase ever between April and May. The index for May is 1.832%, a rise of some 45 basis points over April's 1.380%, which was the all-time low point. In a five-month period prior to May, COFI fell 177.5 basis points. The only larger increase in COFI, based on data from the FHLB-SF website, occurred between May and June in 1982, when the index rose 51 basis points. Between September and October in 2008, what is now the fourth largest all-time increase in COFI took place, as the index increased by 36 basis points.

May was the worst month of the year so far in terms of primary new insurance written by the members of the Mortgage Insurance Cos. of America. In addition, the cure/default ratio plummeted to the second lowest level of the year. There was $6.9 billion of primary new insurance written (just $19 million in the bulk channel), compared with $7.8 billion ($5.7 million bulk) in April and $15.5 billion in May 2008 ($3.7 million bulk). The May 2008 data does not include information from Radian Guaranty, but does from Triad Guaranty, the smallest of the MIs, which is now in run-off. The amount of primary insurance in force declined from $932 billion at the end of April to $922 billion one month later. New pool risk written was $22.8 million. The cure/default ratio for May was 59.8%, compared with April's 72.2%. There were 52,590 cures and 87,904 defaults in May.

A report from analysts at Keefe, Bruyette and Woods said the decline in this week's refinance component of the Mortgage Bankers Association Market Composite Index suggests that any benefit from the Federal Reserve's agency mortgage-backed securities purchase program has largely dissipated. The MCI, an overall measure of mortgage applications, was 444.8, a decrease of 18.9% on a seasonally adjusted basis for the week ending June 26, 2009, when compared with 548.2 one week earlier. The refinance index decreased 30.0% to 1482.2 from 2116.3 the previous week. KBW analysts Bose George and Jade Rahmani pointed out the refi index is now near the level it was at the time the Fed announced the program at the end of November. They also pointed out the overall index is at its 2009 low and down 80% from its highest point for the year. The seasonally adjusted Purchase Index decreased 4.5% to 267.7 from 280.3 one week earlier. On an unadjusted basis, the index decreased 18.5% compared with the previous week and decreased 7.4% compared with the same week one year earlier. There was a decline in the share of refi applications to 46.4%, down from 54.0% the previous week, while the share of adjustable-rate mortgages applications increased to 4.3% from 4.1% for the previous week, the MBA said. There was a decrease in the average contract interest rate for 30-year fixed-rate mortgages to 5.34% from 5.44%, with points (including the origination fee) increasing to 1.12 from 0.99 for loans with 80% loan-to-value ratios, the association said. The MBA can be found online at http://www.mortgagebankers.org.

Existing home sales bottomed out in the first quarter and sales should be up 3% when the final numbers come in for the second quarter, according to National Association of Realtors. NAR economists are forecasting that sales will total 4.72 million in the second quarter and rise another 5% in the third quarter. Housing affordability is at historic highs and the first-time home buyer tax credit is fueling demand. "Strong activity by entry level buyers is helping absorb inventory and [allowing] some existing owners to make a trade," said NAR chief economist Lawrence Yun. NAR pending sales rose ever so slightly in May to 90.7, up from 90.6 in April. The index tracks signings of sales contracts and it is a forward-looking indicator of existing home sales. But the Realtors are concerned that appraisal issues are hindering some sales. "Closed existing home sales have improved but are coming in lower than expected because some contracts are delayed or falling through," Mr. Yun said. NAR wants regulators to suspend the implementation of a new GSE appraisal code that went into effect May 1 that it blames for appraisal issues. Other market participants and observers say the problem may be driven less by the code's implementation and more by lower recent market prices and foreclosure sales.

In an effort to pre-empt plans to bring credit unions under a new Consumer Financial Protection Agency, National Credit Union Administration chairman Michael Fryzel has proposed the creation of the agency's own consumer protection office. NCUA currently has authority over products and services offered by credit unions but rarely, if ever, determines whether they comply with consumer laws and regulations, leaving that to other agencies such as the Federal Reserve, Federal Trade Commission of the Securities and Exchange Commission. The new NCUA office would monitor compliance with mortgage laws and disclosures, credit card rules and regulations, and investment products sold by credit unions.