Origination

There is a disconnect between how the market prices residential mortgage-backed securities and their intrinsic value, according to a recent study by Fitch Solutions to gauge the factors driving the valuations of RMBS tranches. The case study, entitled, "What Moves RMBS Tranche Values? A Case Study," compared observed valuations of RMBS bonds in the market with internally derived discounted cash flow valuations based on a range of default and loss assumptions. One goal of the study was to find the loss assumptions that would cause the modeled price to converge with the market price. According to the report, the market expectation regarding future losses is on average 32%, which can be decomposed into a pool default rate of 40%, with 80% loss severity. Vintage and performance are key determinants. "With structural features clearly having an impact on price sensitivity, it is now more important than ever to understand slight nuances from deal-to deal through in-depth cash flow modeling," said Richard Hrvatin, Fitch managing director and author of the report.

Lennar Corp. of Miami, the third-largest home builder in the U.S., reported a wider second-quarter loss as sales fell and the company wrote down land it no longer plans to build on. Company CEO Stuart Miller said the housing market is not recovering. Lennar said its net loss for the quarter ending May 31 rose to $125.2 million, from $120.9 million a year earlier. Revenue dropped 21%, to $891.9 million.

Growing uncertainty about Federal Reserve Board Chairman Ben Bernanke's role in pushing Bank of America Corp. to go through with its deal to buy Merrill Lynch & Co. is likely to delay regulatory restructuring plans and give ammunition to those seeking to prevent the central bank from receiving more power. According to a report in American Banker, the White House said it hopes to finalize by yearend a regulatory revamp that would give the Fed sweeping new powers over the country's largest firms. Also on the drawing board is the creation of a new consumer protection agency that would have oversight over most mortgage origination laws and regulations. Meanwhile, lawmakers from both parties said they were unwilling to give the Fed more authority until questions over Bernanke's role in the Bank of America-Merrill deal were answered. BoA is now the nation's second largest mortgage banker, thanks to its purchase last year of Countrywide Financial Corp.

The Senate Banking Committee has approved the nomination of David Stevens to be the new Federal Housing Administration commissioner, clearing the way for his confirmation by the full Senate. Mr. Stevens' nomination had been held up for several months due to alleged Real Estate Settlement Procedures Act violations by his former employer, Long & Foster — a mid-Atlantic real estate brokerage firm. The RESPA complaints did not name Mr. Stevens and HUD secretary Shaun Donovan continued to support him, claiming his experience as an executive at Freddie Mac and Wells Fargo Home Loans is needed at FHA. The committee approved Mr. Steven's nomination by a voice vote late Thursday afternoon. The Senate adjourned a few hours later so his confirmation will be pending when the senators return from their 4th of July recess on July 6.

The Lending Partners, a Texas-based non-bank lender, is expanding into the southeast market and has hired a regional sales manager to accomplish the goal. Currently the mortgage banker, which has focused mostly on the North Texas market, is operating at a run-rate of $60 million a month. Once its southeastern expansion is complete it hopes to be funding $100 million a month. Luke Strawn, vice president of business development for the lender, said TLP depends on warehouse lines of credit for funding. He said it's a "daily struggle" managing its warehouse needs but the firm is using several small Texas banks as participants. To expand into southeastern states such as Arkansas, Georgia, Kentucky, Mississippi, and Tennessee TLP hired Jared M. Ward as regional sales manager. The company relies on joint ventures with Realtors and builders.

Freddie Mac said loan delinquencies on its portfolio and guarantee book of business rose to 2.01% in May, an 8% uptick from the previous month, but a 229% increase from the same period last year. The increase in delinquencies is not surprising given the deteriorating condition of home values and the rising unemployment rate. Meanwhile, Freddie Mac said it bought $50.2 billion in mortgages during May, a 13% decline from the previous month, and a 23% drop from May 2008. However, purchases are much improved from January and February of this year. In May it issued $43.7 billion in MBS (participation certificates) compared to $51 billion in April. A year ago in May it issued $47.3 billion in PCs.

Two Congressmen have introduced legislation that would place an 18-month moratorium on the Home Mortgage Valuation Code of Conduct, a Fannie Mae/Freddie Mac edict that — among other things — bans loan brokers and loan officers from directly ordering appraisals. The bill specifically directs the Federal Housing Finance Agency to suspend the HVCC that went into effect May 1 for 18 months. The National Association of Mortgage Brokers claims the HVCC is delaying closings and costing it business. Brokers also have complained about being forced to pay high fees to appraisal management companies. "This ill-thought out code is basically damaging the economy. It will rob consumers of the low rates that are available now," said NAMB executive director Roy DeLoach. However, it's unclear where the bill goes from here. The legislation was introduced on Thursday night by Rep. Travis W. Childers, D., Miss., and Rep. Gary G. Miller, R., Calif.

The Senate Banking Committee has approved the nomination of David Stevens to be the new Federal Housing Administration commissioner, clearing the way for his confirmation by the full Senate. Mr. Stevens' nomination has been held up for several months due to alleged Real Estate Settlement Procedures Act violations by his former employer, Long & Foster — a mid-Atlantic real estate brokerage firm. The RESPA complaints did not name Mr. Stevens and HUD secretary Shaun Donovan continued to support him, claiming his experience as an executive at Freddie Mac and Wells Fargo Home Loan is really needed at FHA. The committee approved Mr. Steven's nomination by a voice vote late Thursday afternoon. The Senate adjourned a few hours later so his confirmation will be pending when the senators return from their 4th of July recess on July 6.

Doing its part to help promote the aims of the Homeowner Affordability and Stability Plan, Radian Guaranty Inc., Philadelphia, has created a program which helps qualify borrowers for traditional refinances on loans not currently serviced by their present lender, even with today's declining home process and tighter lending standards. The new program enables Radian to transfer a homeowner's existing mortgage insurance policy to any new loan that meets the policy's more flexible eligibility criteria, making it easier for homeowners to refinance their existing mortgage into a more predictable loan type and/or take advantage of today's lower interest rates to lower their monthly payment. This, in turn, helps more borrowers avoid default and/or foreclosure and remain in their homes.

Irvine, Calif.-based Loan-Score Decisioning Systems has completed the necessary integration for lenders to connect to the Federal Housing Administration's TOTAL Scorecard platform directly from its automated underwriting system. Specifically, lenders that are using Loan-Score's product and pricing engine and AUS are able to able to instantly return decisions to loan officers or brokers electronically with this integration. In order to attain results from TOTAL Scorecard, lenders must use an AUS to connect to the system. Because Loan-Score is now an FHA integrated AUS, their clients' end users are able to hit TOTAL Scorecard for instant decisioning.