Origination

A House-passed mortgage reform bill makes it tough for borrowers to get traditional adjustable-rate mortgages that are considered safe enough so lenders don't have to retain 5% of the credit risk when they sell or securitize the ARM. Originally the bill (H.R. 1728) provided this exemption or safe harbor only for prime fixed-rate mortgages and mortgages guaranteed by government entities. But the House expanded the safe harbor to include ARMs - provided borrowers are qualified at the fully indexed rate at the end of seven years. So a borrower taking out a 5/1 hybrid ARM with 2% annual interest rate adjustment cap must be able to afford a 9% interest rate. "There are provisions that limit consumer choice and credit availability for garden variety prime products that have not been associated with any of the problems that previously existed with subprime lending," said Robert Davis, executive vice president for the American Bankers Association. The House passed H.R. 1728 by a 300-114 vote last Thursday (May 7).

The Federal Reserve Bank of New York has invested at least $248.3 billion in MBS and debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, according to a budget addendum released Monday by the White House.The figure represents asset and debt purchases as of March 31. A spokeswoman for the New York Fed was asked to provide an updated figure for the end of April but at press time had not gotten back to National Mortgage News. The MBS (Fannie/Freddie guaranteed) bought by the government total $201.5 billion, with the debt at $46.8 billion. The debt number includes $11.1 billion in bonds issued by various FHLBs. In the new "Analytical Perspectives, Budget of the U.S. Government" the White House also discusses the future of the GSEs, mentioning — as one option — their dissolution.

The Senate has confirmed Ron Sims to be the deputy secretary and second in command at the Department of Housing and Urban Development. Mr. Sims is the former executive of King County, Washington, and has plenty of experience in urban affairs. Meanwhile, the HUD secretary continues to support David Stevens to be the new Federal Housing Administration commissioner. But the Senate Banking Committee is holding up his confirmation due to a RESPA lawsuit filed against his former employer -- the real estate brokerage firm Long and Foster. Stevens' supporters are hoping he will be confirmed before the Senate adjourns for the Memorial Day recess.

The U.S. mortgage insurance business of Genworth Financial Inc. had a net operating loss of $135 million for the first quarter, as higher captive reinsurance benefits were more than offset by higher incurred losses. The first quarter loss was substantially higher than the $36 million net operating loss the unit had in the first quarter 2008. Gross losses before the impact of captive reinsurance benefits were $522 million. The Richmond, Va., insurer benefited from $119 million (on a pre-tax basis) of captive reinsurance coverage. Paid claims were $205 million for the quarter, up by $121 million over the first quarter 2008, while average paid claim leaped to $55,500, versus $42,200 one year ago. Genworth approved approximately 5,800 workouts, which resulted in $57 million of reduced loss exposure. New insurance written was substantially down from the previous year, $3.6 billion in the first quarter 2009 ($2.5 billion flow, $1.1 billion bulk), compared with $15.1 billion (all but $0.1 billion flow) one year prior. Genworth chief financial officer Ronald Joelson expects to see an increase in new insurance written during the rest of 2009. "New business levels are expected to trend up from the first quarter as we have the capital flexibility to take advantage of strengthening market conditions," he said. The parent company lost $469 million ($1.08 per share) for the quarter.

In a hypothetical situation in which the economy is worse than expected over the next two years, the 19 bank holding companies participating in federal "stress tests" would find first-lien mortgages to be responsible for about one-sixth of the losses they would cumulatively have to absorb. This category of losses, estimated to represent $102.3 billion of a total $599.2 billion in losses under the "more adverse" scenario for the BHCs, was the largest in the Supervisory Capital Assessment Program report. The next largest category was second/junior lien mortgages, which was estimated in the scenario to potentially account for $83.2 billion of losses. Commercial real estate loans was the fourth largest category of potential losses, behind commercial and industrial loans. Potential losses tied to these categories were respectively estimated at $53 billion and $60.1 billion.

1st Metropolitan Mortgage, Charlotte, N.C., a top ranked loan broker, has confirmed that it reached a deal to merge with another lender and then become part of Hestia Financial of Dallas. Daniel Jacobs, president of 1st Metropolitan, told National Mortgage News that "we've signed a deal." The move will allow 1st Metro to become a mortgage banking firm. No price was disclosed. The deal could close within 30 to 90 days, depending on regulatory approvals. (For the full story see the Monday edition of NMN.)

Fannie Mae posted a $23.2 billion loss in the first quarter and is asking the Treasury Department for $19 billion in new assistance so it can maintain a positive net worth position as its real estate owned portfolio continues to grow dramatically. At-year end Fannie Mae owned 62,371 homes, a 44% increase over the past 12 months. It reported that its guaranty book of business has $145 billion in non-performing mortgages — a 12-fold increase from the same period last year. In posting yet another enormous loss, Fannie blamed the poor performance on the nation's housing depression which caused it to take impairments on its MBS holdings, and increased credit reserves. In the same quarter last year the GSE lost $2.5 billion. Even though the industry is in the throes of a refi boom, Fannie's guaranty fee income (money it receives from its seller/servicers) actually fell in the first quarter by 37% to $1.8 billion. In 4Q Fannie had 'g-fee' income of $2.8 billion. It blamed the decline in g-fees on revenue recognition factors, including expected prepayment rates. Fannie has been a ward of the government since early September 2008.

The Mortgage Bankers Association has developed a warehouse lending proposal that could be administrated by Ginnie Mae if the agency receives Treasury Department approval. MBA, which has been working closely with the Government National Mortgage Association in developing the proposal, has sent Treasury Secretary Timothy Geithner an outline of the program along with a term sheet. The proposal calls for Treasury to initiate a temporary lending facility administered by Ginnie Mae to provide warehouse loans to lenders making Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service guaranteed loans. "MBA would like to meet with you in order to obtain Treasury's input and refine the proposal," MBA chief John Courson says in a letter to secretary Geithner. "Treasury has not made a commitment to the proposed program," an MBA spokesman said.

A few months after announcing its exit from warehouse lending, JPMorgan Chase has decided to stay in the business after all, National Mortgage News has learned. However, the mega bank only plans to provide lines of credit to just a handful of non-bank customers that tend to sell loans to it on a correspondent basis. A warehouse borrower familiar with the about-face said "they are moving the warehouse group to their commercial banking division." (A JPM spokesman confirmed this.) For full details see the Monday print edition of NMN.

The House on Thursday passed a mortgage reform bill by a 300-114 vote that curbs incentivized payments to originators and which could totally ban yield spread premium payments — the main source of income for all loan brokers. The National Association of Mortgage Brokers is concerned that the bill "does not preserve consumers' financing options when working with a mortgage broker," NAMB president Marc Savitt said. NAMB chief lobbyist Roy DeLoach said the language in the bill is "very confusing." The wording suggests that a broker's commission and fees cannot be financed into the mortgage interest rate as a YSP and paid to the broker at the closing table. If true, the consumer would have to pay the broker with cash, which would make it very difficult for brokers to compete with banks, NAMB believes. Mr. DeLoach noted the bill still allows banks to receive servicing released premiums when they sell loans to investors and SRPs can be incentivized. "So all the incentivized payments are not going to be removed from the mortgage market," he said.