Origination

Five Florida residents have been arrested for their alleged involvement in a criminal mortgage fraud operation that defrauded several financial institutions of $4.5 million. Emerio Lima, Inocencia Soto, Pedro Fornos and Josefa Herrera, all from Miami, and Stephen Zalka of Parkland, Fla., are facing charges of organized fraud, mortgage fraud and grand theft. They allegedly recruited straw buyers who lent their names and credit to purchase numerous properties. They were told that they wouldn't have to make any mortgage payments, since the properties would be flipped in a few months. The scheme also included a certified public accountant who allegedly provided falsified employment verification letters for the straw buyers. With the straw buyers lined up, HUD-1 statements with inflated sales prices were submitted to lenders for funding. The title agent, acting on behalf of the other co-conspirators, allegedly transferred the funds into a bank account of either a third party or a shell company controlled by one of the co-conspirators. The arrest affidavit identifies nine properties located in Miami-Dade, Broward, Lee and Charlotte counties, which were allegedly used by the defendants to facilitate their scheme. Most of the properties are now in foreclosure. The five defendants were unavailable for comment. According to the Attorney General's Office of Statewide Prosecution, the investigation is ongoing and additional arrests are expected.

The House Financial Services Committee is holding a hearing April 23 on a regulatory reform bill that would restrict nonprime mortgage lending and lender compensation. Committee chairman Barney Frank, D- Mass., originally wanted the committee to mark up and approve the bill (H.R. 1728) before Congress left April 6 for its two-week break. But the chairman agreed to postpone the markup due to objections by committee Republicans and industry groups. Now it appears the committee markup will be April 28 or April 29. The mortgage reform bill (H.R. 1728) requires lenders to retain 5% of the credit risk when they sell single-family loans that are not prime fixed-rate mortgages to investors. Lenders say the 5% is too high and they are looking for some middle on the risk retention issue. H.R. 1728 also restricts yield spread premiums and mortgage bankers are concerned the language is ambiguous and could restrict servicing release premiums.

GMAC Mortgage said it is hiring new staffers at its nationwide lending and servicing centers.On April 13, the company joined the Home Affordable Modification Program and the hires are needed to accommodate the increase in loan modifications, as well as the recent surge in refinance activity. Even before becoming formally part of the program, the Fort Washington, Pa., based company sent out more than 100,000 financial packages to homeowners who are potentially eligible for modifications under the new program. While the press release issued by GMAC Mortgage did not give a number for the new hires, other published reports say the company is adding 1,000 people. A call to GMAC Mortgage for confirmation was not returned by deadline.

BB&T Corp., Winston-Salem, N.C., saw its mortgage-related revenues in the first quarter of this year increase by 218.6% when compared with the same period in 2008.The $188 million of mortgage-related revenues included an increase of $30 million in the value of its mortgage servicing rights when compared with the first quarter 2008. The MSR increase was because its hedge outperformed the decline in the value of the asset. Excluding the impact of this item, mortgage banking income increased $99 million or 162.3% over the same period last year. BB&T had $7.4 billion in mortgage loan originations in the first quarter 2009, more than double the $3.6 billion it did in the fourth quarter 2008. However, nonperforming asset levels and charge-offs increased, driven by continued deterioration in housing-related credit. The company said the largest concentration of credit issues are in Georgia, Florida and the District of Columbia metropolitan area. BB&T had net income of $318 million, including $271 million of net income available to common shareholders ($0.48 per share), compared with net income of $428 million ($0.78 per share) one year prior.

Citigroup reported $1.9 billion in net credit losses on its residential mortgage portfolio in the first quarter, up from $887 million a year ago, due to a "continued rise" in delinquencies, the company said. The New York-based banking giant said the percentage of first mortgages 90 days or more past due jumped to 7.15%, up from 3% in first quarter of 2008. The single-family loans that Citi owns with FICO scores below 620 have a 13.7% serious delinquency rate. Meanwhile, Citigroup has a 3.25% serious delinquency rate on its home equity loans as of March 31, up from 1.45% a year ago. Citigroup said it originated $22.4 billion in residential mortgages in the first quarter, up from $16.6 billion in the previous quarter, but down 40% from the first quarter of 2008. Overall, Citigroup's North American consumer and mortgage banking units reported a $178 million loss for the first quarter. The company does not break out losses due to its residential mortgage business.

The fourth and final defendant involved with a scheme targeting Maryland homeowners facing foreclosure via local television ads has pleaded guilty to related charges. Earnest Lewis of Takoma Park, Md., admitted in U.S. District Court to participating in a scheme were his brother Michael K. Lewis aired television advertisements that targeted financially vulnerable individuals, representing that he could improve their credit, save their homes from foreclosure and assist them with bankruptcy. The co-conspirators fraudulently told the homeowners that they had to sign their homes over to Earnest Lewis and, in turn, he would use his credit to temporarily refinance their homes. They could repurchase the homes in a year, or once they regained their financial footing. During the interim, they could remain in their homes by paying "rent" and fees to Earnest Lewis by having their bank accounts directly debited by an account belonging to another co-conspirator. Co-conspirators Michael Lewis, Cheryl Brooke and Winston Thomas have also all pleaded guilty to participating in this scheme.

Generation Mortgage Company, Atlanta, closed 1,405 government backed 'Home Equity Conversion Mortgages' (HECMs) in the first quarter of 2009, a 233% increase from the first quarter of 2008.GMC says it is the nation's sixth largest funder of reverse mortgages. Company president Joe Morris said higher loan limits for reverses (HECMs) "provide greater liquidity in homes with higher values. This in turn makes the reverse mortgage more attractive than ever before for older boomers and seniors seeking greater financial independence."

Residential mortgage originations at Wells Fargo and other banks receiving TARP assistance rose at a "healthy" clip in February from January, according to a monthly lending survey compiled by the Treasury Department.Single-family originations at Wells Fargo, for instance, totaled $34.8 billion in February, a 45% increase from the previous month. The bank ended the month with $75 billion of mortgages in its pipeline, according to the Treasury survey. Led by refinancings, the median increase in residential mortgage originations across the 21 TARP banks rose at a "healthy" rate, the lending survey says. Bank of America originated $28.7 billion in single-family loans in February, up 25% from January. Refinancings totaled $22.3 billion. Refinancings at Wells Fargo totaled $28.5 billion. Due to the large pipeline, the San Francisco-based bank said "strong funding levels are expected in March."

Homebuyer traffic is beginning to pick up in certain parts of the country, a sign that lower interest rates and tax credits are working, according to the Federal Reserve's new 'Beige Book.'Still, the government reports that residential prices, overall, are weak with home values and construction "still falling in most areas." The Fed reported this one positive note: "better-than-expected" buyer traffic led to a scattered pickup in sales in a number of its 12 regional districts. Districts seeing an increase in homebuyers include Atlanta, Kansas City, Minneapolis, Richmond and San Francisco. In the commercial real estate sector the outlook is negative: "Nonresidential real estate conditions to deteriorate," the Fed says. "Difficulty obtaining commercial real estate financing was constraining construction and investment activity." The government notes, however, that "Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement."

Even though JPMorgan Chase earned $2.1 billion in the first quarter, its consumer and mortgage lending group lost $389 million during the same period due to loan servicing and credit charges and higher mortgage costs tied to loan modifications.In particular the company singled out higher servicing costs and MSR "risk management results." JPM CEO Jamie Dimon said the banking giant "benefited from underlying growth" in, among other things, higher mortgage refinancing volumes. Mortgage production revenue for JPMorgan Chase was $481 million, as wider margins on new originations were offset partially by an increase in reserves for the repurchase of previously sold loans and lower mortgage origination volumes. Even though the consumer and mortgage unit lost money, net mortgage servicing revenue totaled $1.2 billion, compared to $1 billion a year ago. JPM said it also bought $34 billion in mortgage-backed securities, and has prevented 150,000 foreclosures since October 2008.