Origination

Analysts at FBR Capital Markets are making what they call the "bull case" that MGIC Investment Corp., Milwaukee, will not have to undertake a capital raise that would be highly dilutive to current shareholders. Steve Stelmach and Amy DeBone noted that MGIC had a relatively high rate, 20%, of policy rescissions in the first quarter. The case against a capital raise is by the company's current capital proving sufficient or by MGIC entering a hibernation period in which little to no new business is written. "We note that 20% is relatively high and, if sustainable, could have a material impact on lowering ultimate loss assumptions and could move MGIC toward profitability sooner than forecasted. We note that our own estimates incorporate modest profitability returning in the second half of 2009, an improvement from our prior estimates," the analysts said. While it is still too early to make the call on the need for more capital, the analysts said they were "highly encouraged" by the rate of rescissions.

The mortgage reform bill approved by the House Financial Services Committee directs the Department of Housing and Urban Development to withdraw the Real Estate Settlement Procedures Act rule that was issued by the previous administration shortly after the November elections. The committee approved an amendment by Rep. Judy Biggert, R-Ill., that directs HUD to work with the Federal Reserve Board in issuing mortgage disclosures that are "complementary" and don't confuse consumers that are applying for a mortgage. HUD is responsible for designing mortgage disclosures under RESPA and the Fed has similar responsibilities under the Truth in Lending Act. Ideally lenders would like to see a single RESPA/TILA disclosure. Nine industry groups backed the Biggert amendment. Meanwhile, the committee narrowly defeated an amendment by Rep. Gary Miller, R- Calif., to postpone for 12 months the implementation of the Home Valuation Code of Conduct. HVCC affects appraisals on all loans sold to Fannie Mae and Freddie Mac. Starting May 1, lenders must comply with HVCC that the government-sponsored enterprises agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo.

The House Financial Services Committee has passed by a 49-21 vote a mortgage reform bill that favors the origination of prime fixed-rate mortgages and discourages subprime and nontraditional lending. The basic premise of the bill (H.R. 1728) is to require lenders to retain 5% of the credit risk on "nonqualified" mortgages that are sold or securitized. However, the committee expanded the definition of "qualified mortgages" to include government insured mortgages, such as Federal Housing Administration loans, and loans purchased or securitized by Fannie Mae and Freddie Mac. Lenders don't have to retain capital against qualified mortgages. The committee also approved an amendment by Rep. Leonard Lance, R -N.J., that would ensure all jumbo loans aren't considered subprime because of their high interest rates. In addition, the bill gives federal regulators the discretion to make exceptions to the 5% credit risk retention requirement. The full House of Representatives is expected to vote on the bill on May 7.

U.S. District Judge James S. Moody has sentenced a St. Petersburg, Fla. mortgage broker who pled guilty to fraud charges to five years in federal prison. The broker, Victor Thomas Clavizzao, also was sentenced to pay more than $2 million in restitution, as well as to forfeit an additional $6 million. According to court documents, Clavizzao acted as mortgage broker in the purchase of 13 different properties and conspired with Mark Lepzinski, a property flipper from Clearwater, Fla., to submit false and fraudulent information to various lenders in order to induce the lenders to fund bad loans. U.S. District Judge James D. Whittemore previously sentenced Lepzinski to 13 months in prison for his role in the conspiracy.

Deutsche Bank in a profitable first quarter took another 1.0 billion euros ($1.3 billion) in partially mortgage-related sales and trading writedowns as well as a 500 million euro ($663 million) impairment charge on a resort and casino property and said it may see a rebound in its fortunes in the medium term. DB's total debt sales and trading markdowns were dominated by provisions against the mononline insurance segment. There were 1.4 billion euros ($1.9 billion) of writedowns in this category during the same period a year ago. During last year's first quarter, these were dominated by exposures to residential mortgage-backed securities and commercial real estate loans. The company generated 1.2 billion euros ($1.6 billion) in net income in the first quarter, up from a net loss of 141 million euros ($187 million) during the same period a year ago.

Fidelity National Financial Inc.'s business is picking up thanks to the refinance wave, but the time it is taking to close orders is slowing and losses on recent acquisitions are putting a drag on its earnings. "We saw a surge in open order volumes in the first three weeks of April, nearing their highest levels of 2009," chairman William P. Foley II said. The increase in refis has resulted in an increase in the time it takes to close an order, he said. The Jacksonville, Fla.-based company's direct orders opened rose to 746,400 in the first quarter from 562,000 during the same period a year ago. The former LandAmerica title operations now owned by FNF had pre-tax operating losses for two of the three months of the first quarter and that contributed to a net loss of $12.4 million ($0.06 per share) for the entire operation. Mr. Foley said the legacy FNF business was profitable all three months of the first quarter, but the operations of Lawyers Title and Commonwealth Title lost $17 million in January and $5 million in February on pre-tax basis. Mr. Foley added that FNF realized $231 million in run-rate cost savings from the former LandAmerica operations by the end of the quarter, up from its original estimate of $150 million and a revised estimate of $225 million. FNF recently closed a public offering of its common stock, which raised net proceeds of $331 million. While $135 million will be used to repay its existing credit facility, the company is considering using the rest to repurchase "a meaningful amount" of its bonds. If both actions are completed, FNF will reduce its debt to capital ratio from approximately 32% to near 25%.

Lately, it has been as refinancings go, so goes the total number of applications for new mortgages and the past week was no exception. The number of refinancings declined by 18.1% on a seasonally adjusted basis to 960.6 from 1172.2, according to the Market Composite Index, an overall measure of mortgage applications, for the week ended April 24. The index is compiled from the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Refinance Index fell by 21.9% to 5108.2 from 6540.7 in the previous week. The seasonally adjusted Purchase Index decreased 0.6% to 251.6 from 253.0 one week earlier. The Conventional Purchase Index decreased 1.4% while the Government Purchase Index increased 0.8%. On an unadjusted basis, the MCI decreased 17.4% compared with the previous week and increased 62.7% compared with the same week one year earlier. Refinancings decreased to 75.3% of total applications from 79.7% the previous week, while adjustable-rate mortgages accounted for 2.1% of applications, an increase from 1.4% the week prior, the MBA said. There was a decrease in the average contract interest rate for 30-year fixed-rate mortgages to 4.62% from 4.73%, with points (including the origination fee) increasing to 1.14 from 1.12 for loans with 80% loan-to-value ratios, the association said. The MBA can be found online at http://www.mortgagebankers.org.

Fair Isaac — the company behind the most commonly used credit scoring system in the nation — has launched a new website that tells consumers if they qualify for a Fannie Mae or Freddie Mac loan modification under the Obama Administration's plan. The website asks the borrower 15 basic questions about their mortgage including the identity of their servicer. The GSEs launched similar initiatives a few weeks ago. The "Making Home Affordable" effort aims to modify or refinance up to 9 million GSE borrowers who are either underwater on their loans or have little in the way of refi options.

Global DMS LLC, Lansdale, PA, a commercial and residential real estate valuation software solutions provider since 1999, said it considers many lenders and correspondents to be not fully prepared to comply with the Home Valuation Code of Conduct, which goes into effect on May 1. Global DMS executives said "widespread misconceptions are leaving lenders and correspondents exposed to possible HVCC violations." One example, judging from the "numerous calls" president Vladimir Bien-Aime said the company has recently received from companies trying to get ready, is that, "quite a few" are under the impression that using an appraisal management company will eliminate their liability in HVCC compliance, and he said that leaves them exposed to compliance violations. Further, some lenders are not aware that if they follow HVCC guidelines they can also use independent appraisers and still be HVCC compliant. Other misconceptions include the belief that it will require a huge capital investment to become HVCC-compliant, or that COD payments are still widely accepted. In fact, he said, compliance costs are low and COD payments are going away, "so lenders and correspondents are going to have to manage prepayments in addition to managing the appraisal process."

Former American Home Mortgage founder and CEO Michael Strauss — who is now running a loan modification startup — has agreed to pay the Securities and Exchange Commission $2.45 million to settle a slew of allegations including one where he had others turn company losses into "fictional" profits. Mr. Strauss, who could not be reached for comment, also agreed not to serve as an officer or director of a publicly traded company for five years. The SEC also brought charges against two other former AmHome executives, Stephen Hozie (CFO), and Robert Bernstein. Both could not be reached for comment and have yet to settle. Two former officers of AmHome (once a publicly traded REIT) told National Mortgage News that they have been contacted by the FBI concerning AmHome's operations. Mr. Strauss' new loan modification company is called InstaModify and according to its website has offices in East Meadow, N.Y., and Irvine, Calif. This publication left a message for Mr. Strauss at the East Meadow office and had received no response at press time. A prime and alt-A lender/servicer, AmHome filed for bankruptcy in the summer of 2007, costing investors hundreds of millions of dollars.