Origination

Net worth requirements for Federal Housing Administration lenders and brokers need to be raised, Mortgage Bankers Association David Kittle said at a House Financial Services subcommittee hearing. Higher requirements, he said, allow for lenders and brokers to be held accountable for their actions. "Specifically, we recommend that mortgage bankers should have a minimum corporate net worth of the greater of $500,000 or 1% of FHA loan volume up to a maximum of $1.5 million. Mortgage brokers should have a minimum corporate net worth of the greater of $150,000 or half of one percent of FHA loan volume up to the minimum for mortgage bankers. MBA supports mortgage bankers and brokers maintaining a bond sufficient to provide reasonable protection to consumers and taxpayers," Mr. Kittle's prepared testimony said. He added MBA supports a permanent increase in the FHA limit to $625,500, and in high-cost area, it should be raised to $729,750.

Flagging refinance volumes are expected to get a slight boost from the first drop seen in the average weekly 30-year mortgage rate tracked by the Freddie Mac Primary Mortgage Market Survey since May 20. The drop to 5.38% from 5.59% the previous week reversed part of the weekly primary market rate's recent increase from 4.82% since the second half of May. This is something Credit Suisse researchers said should result in "a modest pickup in refi activity." However, they said they believe that the 30-year rate would have to drop below 5.00% "to trigger a renewed surge in refi activity." Shorter-term rates tracked by Freddie Mac all fell below 5.00% during the week ended June 18, with the average 15-year fixed-rate mortgage rate dropping to 4.89% from 5.06% the previous week; the average five-year Treasury-indexed hybrid adjustable-rate mortgage rate sliding to 4.97% from 5.17% and the average one-year Treasury ARM rate declining to 4.95% from 5.04%. Points for FRMs averaged 0.7 and points for ARMs averaged 0.6. Average 15- and 30-year fixed rates remain below the levels of last year when they were 6.02% and 6.42%, respectively. The five-year Treasury ARM at the same time last year was 5.89% and the one-year Treasury ARM was 5.19%. Pressuring all rates lower in the past week have been "reports of benign inflation figures," according to Frank Nothaft, Freddie Mac's vice president and chief economist. "It's still too early to tell whether the decline in housing has hit bottom yet," he added, noting that recent market indicators have been mixed.

Mortgage market players and other securitization market participants say they largely agree with the Obama Administration plan's aims but have some concerns about the way in which it plans to realign incentives and its global context. "While we support policy initiatives to align economic incentives among securitization market participants and to achieve greater risk transparency, we believe that mandated retention of risk by asset originators and securitization sponsors may not be the most effective way to achieve this goal," said American Securitization Forum executive director George Miller in response to the regulatory reform proposal. "To the extent risk retention is required, we believe provisions must be designed carefully to avoid undue restrictions on the ability to fund consumer and business lending via securitization, which could impair broader economic recovery." He also noted that "international consistency on this topic is critically important" given the global nature of the capital markets and the fact that European policymakers also have been working on risk retention policies. "We acknowledge that there were misuses of securitization that need to be corrected," Mr. Miller said. "However securitization is a central means of delivering affordable credit to consumers and businesses that has produced ... benefits over the past 40 years [that] include increased availability and reduced cost of financing for mortgage loans."

The National Association of Mortgage Brokers said the financial reform plan proposed by President Obama is flawed because it attempts to tie mortgage broker compensation to the long-term performance of securitized loans. The proposal shifts the risk of poor underwriting from the mortgage lender to the mortgage broker "without an increase in compensation for that shift," said NAMB president Marc Savitt in a statement. The group said it welcomes transparency and the proposed Consumer Financial Protection Agency would provide that and level the playing field. However, "proposals to standardize mortgage products could have serious consequences for consumers shopping to find the most suitable and cost effective loan," Mr. Savitt said. The Center for Responsible Lending said it supports the creation of CFMA. "The same rules must apply to similar products across all financial institutions. Such consistency is only fair. And we strongly support the position that states must be free to make and enforce laws that are even stronger than those set by the federal agency when they determine that's necessary to protect their own residents," said CRL president Michael Calhoun.

Performance deterioration seen in commercial mortgage-backed securities and multifamily transactions in Europe, the Middle East and Africa during the first quarter is expected to continue, Moody's Investors Service said in a report Wednesday, citing upcoming refinancing risks. "While the refinancing exposure of EMEA CMBS in 2009 and 2010 is still remote, one has to look further ahead," said Deniz Yegenaga, a Moody's associate analyst and co-author of the report. "Given the most recent commercial property market performance and the anticipation of further property value declines, also loans that mature after 2010 will be highly levered on their refinancing date and will most likely experience difficulties to repay. In addition, the significantly declining property values increase the loss upon default of commercial real estate loans." During the first quarter, the number of loans "subject to an event of default" came close to doubling, Moody's said. The rating agency downgraded 13 classes of notes in nine transactions and placed 23 classes of notes in six transactions on review for possible downgrade during the period. It also upgraded three classes of notes in two transactions during the quarter.

Spring is in the air in the Houston metro area, where the number of single-family house sales in May was the most of any month so far this year, according to the local Realtors group. While single-family sales for May were still 21.2% below that of the same month last year, the average price climbed to $213,474, the highest it's been since August. Another promising sign, says the Houston Association of Realtors: foreclosure sales continued to shrink in May. Repossessions accounted for just 20% of all sales in the month, compared to 34% in January, 28% in February, 24.5% in March and 23.6% in April. Overall, 5,539 properties of all types, totaling $1.1 billion, changed hands in the metro area in May. "The more I speak with real estate associations around the country, the more I appreciate the strength with which the Houston market has weathered the economic downturn," said HAR Chair Vicki Fullerton, a RE/MAX broker in The Woodlands. "Our current housing climate has been performing at about 2004 levels while other regions of the U.S. are suffering what Houston endured back in the 1980s." However, month-end pending sales — those listings expected to close within the next 30 days — totaled just 3,637, which was 24.7% lower than last year, suggesting a decline in sales when the June numbers are tallied.

Standard & Poor's is dropping Colonial BancGroup Inc., Montgomery, Ala. — a major mortgage warehouse lender — from the S&P MidCap 400 index after the close of trading on June 23. In its statement, S&P said Colonial had a market capitalization of approximately $206 million at the close of trading on June 16, where the minimum market cap needed to be a part of that index is currently $750 million. It will be replaced in the MidCap 400 by S&P SmallCap 600 constituent WMS Industries Inc., a provider of gaming products to the legalized gaming industry. As of late morning on June 17, Colonial's common stock was trading at $0.92 per share, a decline of $0.10 from the previous day's close.

A slight decrease in the average 30-year mortgage rate for the week ended June 12 had no impact on applications as the Mortgage Bankers Association Weekly Applications Survey Market Composite Index fell nearly 16% on a seasonally adjusted basis. The MCI, an overall measure of mortgage applications, was 514.4, compared with 611.0 one week earlier, continuing the downward trend of recent weeks. The refinance index decreased 23.3% to 1998.1 from 2605.7 the previous week while the seasonally adjusted purchase index decreased 3.5% to 261.2 from 270.7 one week earlier. Moreover, the share of refi applications continued to fall, to 54.1%, down from 59.4% the previous week. On an unadjusted basis, the index decreased 15.8% compared with the previous week and increased 0.3% compared with the same week one year earlier. The rising mortgage rates of recent weeks have contributed to an increase in adjustable-rate mortgage applications, up to 4.3%, from 3.4% for the previous week, the MBA said. There was a decrease in the average contract interest rate for 30-year fixed-rate mortgages to 5.50% from 5.57%, with points (including the origination fee) dropping 20 basis points to 0.89 from 1.09 for loans with 80% loan-to-value ratios, according to the association. The MBA can be found online at http://www.mortgagebankers.org.

The Federal Reserve's purchases of mortgage-backed securities are affecting the supply-demand balance of MBS collateral in the repurchase markets, according to a Barclays Capital report. This has narrowed the one-month term repo MBS spread to Treasury collateral to 2 basis points from 14 bps in March when the Fed began its purchases, according to a June 15 report by Joseph Abate, a U.S. fixed income strategist at Barclays Capital. "At the same time, usage of the Federal Reserve's [Term Securities Lending Facility] for schedule one collateral (essentially MBS) has evaporated, with no bids at any of the collateral swap auctions for several weeks," said Mr. Abate, in his Weekly Collateral Update report.

The White House late Tuesday unveiled its plan to overhaul the nation's financial regulatory system, a blueprint that would create a new government body — the Consumer Financial Protection Agency — with sweeping oversight and enforcement powers over all aspects of the origination process, including several bedrock laws that govern how lenders interface with consumers. "This a sweeping change to how things are done now," said Howard Glaser of the Glaser Group. He noted that the CFPA would be empowered to enforce the Real Estate Settlement Procedures Act, the Home Ownership and Equity Protection Act, the Home Mortgage Disclosure Act, and even certain aspects of the Community Reinvestment Act. The plan states that, "Consumers should have clear disclosure regarding the consequences of their financial decisions." The plan notes that the White House wants to require lenders to offer 30-year fixed-rate "vanilla" loans to consumers with streamlined pricing. Mr. Glaser said the creation of the CFPA might level the playing field for independent non-bank lenders who are getting "short shrift" from the Federal Reserve. He encouraged the mortgage industry to embrace the plan "to bring certainty and clarity back" to the home lending market.