Origination

Residential lenders funded just $8.8 billion in interest-only loans during the first quarter, a 72% decline from the same period last year, according to figures compiled by National Mortgage News. The fall-off in IO production was not surprising given the rising popularity of FHA-backed mortgages and the rush by borrowers to lock-in low fixed-rate loans that can be sold to Fannie Mae and Freddie Mac. Wells Fargo & Co., San Francisco, ranked first among all IO lenders, producing $2.39 billion, a 69% decline from 1Q08. Just one lender among the top 20 IO producers showed an increase in production. The rankings appear in NMN's Alternative Products Quarterly Data Report.

Citing the uncertainty of its strategic direction, as well as overall concerns about the mortgage insurance business, Fitch Ratings, New York, has assigned United Guaranty Residential Insurance Co., Greensboro, N.C., a negative outlook. Fitch has affirmed the "BBB" insurer financial strength rating of the company, saying it reflects its view on UGRIC's risk profile and capitalization, including existing support agreements and a recently executed reinsurance agreement with MG Reinsurance. The statement from Fitch also noted that Eric Martinez — who United Guranty Corp.'s ultimate corporate parent AIG recently appointed as chief executive of UGC — "is part of the management team tasked with restructuring and/or disposing of businesses and assets as part of AIG's effort to repay U.S. government funds. For the past two months, [Mr.] Martinez has led a comprehensive strategic review for UGC. Should UGC be placed into run-off and/or if steps are taken to reduce current levels of capital and/or capital support, then additional negative rating action may result."

Fitch Ratings has downgraded its rating on Colonial Bancgroup — the nation's largest warehouse provider to non-banks — saying a new federal cease and desist order against the Alabama bank may have a negative impact on a $300 million investment in the company. At press time the bank had not commented on the Fitch note. The C&D order from the Federal Deposit Insurance Corp. and state regulators requires it to increase Colonial Bank's Tier I capital ratio to 8% by the end of September. Recently, mortgage banker Taylor, Bean & Whitaker finalized its commitment to pump $300 million of equity into Colonial. Once Colonial receives the equity it will then be eligible for $550 million in Troubled Asset Relief Funds from the Treasury Department. TBW has several investment partners on the deal. Colonial's stock continues to sell for less than $1 and was down 27% in trading to 88 cents Wednesday afternoon. The Alabama-based bank — stung by large commercial real estate loans — reported a net loss of $168 million for the quarter ended March 31.

National home prices tracked monthly by Integrated Asset Services LLC's IAS360 House Price Index have ceased falling and stabilized for the first time in 10 months. For the nation as a whole, the index found virtually no change in prices between April and March. The index last registered a month-to-month increase in prices in June 2008 when they rose 0.16%. Since that time home prices nationally have dropped by 13.3%. Within the country's four main regions, only the South saw a slight decline of 0.3% in the latest month-to-month period. Prices in the Northeast jumped the most, at 0.6%, while prices in the Midwest inched up by 0.1% and prices in the West remained stable. "It's too soon to call this a turn in the housing market, particularly given all the political and regulatory uncertainties," said Dave McCarthy, president and chief executive officer of Integrated Asset Services, Denver. "I think that we're still in for some difficult spells ahead, but we are seeing a certain kind of pricing equilibrium in several important markets. That's encouraging for the long term."

The market share of refinancings has dropped to its lowest point since November 2008, according to the Mortgage Bankers Association. The group's Weekly Applications Survey Market Composite Index, an overall measure of mortgage applications, fell over 7% on a seasonally adjusted basis. Refis only made up 59.4% of total applications, down from 62.4% the previous week, as mortgage rates continued their sharp rise. As a result of the drop in refis, for the week ended June 5, the MCI was 611.0, compared with 658.7 one week earlier. However, rising rates have not had a negative impact on purchase activity, according to the survey. While the refinance index decreased 11.8% to 2605.7 from 2953.6 the previous week, the seasonally adjusted purchase index increased 1.1% to 270.7 from 267.7 one week earlier. On an unadjusted basis, the index increased 15.7% compared with the previous week and increased 7.6% compared with the same week one year earlier. Adjustable-rate mortgages accounted for 3.4% of applications, up from 3% for the previous week, the MBA said. There was an increase in the average contract interest rate for 30-year fixed-rate mortgages to 5.57% from 5.25%, with points (including the origination fee) increasing to 1.09 from 1.02 for loans with 80% loan-to-value ratios, according to the association. The MBA can be found online at http://www.mortgagebankers.org.

By now you've probably seen the recent article in the USA Today newspaper that focuses on the difficulty many seniors are facing today (A Cloud Over Retirement, June 5-7). Namely, the struggle to make the mortgage payments when "something" happens.

Comptroller of the Currency John Dugan is urging HUD to require escrow accounts for tax and insurance on FHA-insured reverse mortgages while the banking regulators work on consumer protection guidelines. The Federal Housing Administration-insured home equity conversion mortgage is the predominant reverse mortgage product in the nation, Mr. Dugan told an American Bankers Association compliance conference. The reverse market is expected to grow substantially in coming years, he said, and "it is a product fraught with consumer concerns." He noted that seniors can receive the loan proceeds in one lump-sum payment and failure to pay taxes and insurance during the life of the loan can lead to foreclosure. "I think it would be a major step forward for HUD to issue guidelines or requirements addressing the escrow issue for HECMs, and I would like to begin dialogue with them on the issue," the Comptroller said.

Mark Hammond will step down as president and chief executive of Flagstar Bancorp — one of the nation's largest wholesale lenders — by the end of January, the company disclosed. The lender, the nation's eighth largest wholesaler according to the Quarterly Data Report, said it will conduct a search for a new president and chief executive and consider both internal and external candidates. Mr. Hammond has been Flagstar's president since 1995 and its CEO since 2002. He started the company in 1987. He will retain his position as vice chairman of the board of both the holding company and its thrift affiliate. Mr. Hammond also will remain as a "non-officer executive advisor" to Flagstar.

Francis Creighton, a top lobbyist for the Mortgage Bankers Association, is departing the trade group to take a job on Capital Hill, National Mortgage News has learned. A source familiar with the matter said Mr. Creighton, a vice president who is MBA's top liaison with elected officials, has accepted a chief of staff position with Rep. Chris Murphy, D-Conn. He informed the trade group of his plans last Friday. He will officially depart MBA within a few weeks. Mr. Creighton was promoted to VP in late 2006. He previously served as director of government affairs for MBA. During his career he also worked as a legislative director to Rep. Steve Israel of New York.

Thanks to record low interest rates, residential lenders funded $466 billion in product during the first quarter, a 68% jump from the dismal fourth quarter, according to exclusive survey figures compiled by National Mortgage News. Refinancings and fixed-rate production dominated the business and many lenders are now reporting strong profits. Also, this newspaper found that among the mega-lenders, firms that still use loan brokers were out-producing their competitors. For instance, Wells Fargo & Co., and Bank of America, ranked first and second, respectively, in originations during the period, with gains of 50% and 133% compared to the 1Q 2008. Both still have a wholesale/broker presence. But the number three and four ranked funders — Chase and CitiMortgage — saw their volumes fall 28% and 40%, respectively. Chase has exited wholesale with Citi scaling way back. (For the full story and rankings see the Monday edition of NMN.)