Origination

The trustee for bankrupt subprime giant New Century Financial Corp. is suing the lender's auditor, KPMG, for $1 billion in damages, charging that it abetted the firm in misstating its true financial condition. Among other things, the trustee accuses the auditor with negligence noting that KPMG "did not act as a watchdog." The bankruptcy trustee is represented by the California law firm of Thomas, Alexander & Forrester, which filed claims in New York and California. New Century, whose shares once traded as high as $55, collapsed in the spring of 2007, wiping out shareholders. At its peak, the nation's second largest subprime lender had a market capitalization of almost $3 billion. KPMG issued a statement denying that it was responsible for New Century's collapse, saying it acted "in accordance with professional standards." The accounting firm said it would vigorously fight the lawsuits. A report issued last summer said creditors of NCFC are owed as much as $1.6 billion. KPMG's predecessor firms were sued for negligence by federal regulators during the S&L crisis. Some of those claims were settled out of court.

The average rate for a 30-year fixed-rate mortgage fell to 4.78% during the week ending April 2 hitting another survey-record low, according to the Freddie Mac Primary Mortgage Market Survey. The rate fell seven basis points from 4.85% the previous week. Freddie Mac started tracking the 30-year fixed-rate in 1971. A year ago the average 30-year FRM rate was 5.88%. "Mortgage rates followed other interest rates lower this week amid reports of slower economic growth," said Frank Nothaft, Freddie Mac vice president and chief economist. The 15-year FRM rate averaged 4.52% in the most recent week, down from the previous week when it averaged 4.58%. A year ago at this time, the 15-year FRM rate averaged 5.42%. The 15-year FRM rate has never been lower since Freddie Mac began tracking it in 1991. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.92%, down from the previous week when it averaged 4.96%. A year ago, the five-year Treasury-indexed hybrid ARM rate averaged 5.59%. This five-year hybrid rate has never been lower since Freddie Mac began tracking it in 2005. The average rate for one-year Treasury-indexed ARMs averaged 4.75%, down from the previous week when it averaged 4.85%. At this time last year, the one-year ARM rate averaged 5.19%. The one-year ARM has not been lower since the week ending Sept. 29, 2005, when it averaged 4.68%.

Concerned that "bad actors" may be originating or brokering Federal Housing Administration-insured loans, Housing secretary Shaun Donovan said the government is sending out "SWAT teams" unannounced to check up on problem lenders. In Senate testimony on April 2, Mr. Donovan acknowledged that the number of FHA-approved brokers now stands at 36,000 compared to just 16,000 in mid-2007. The number of FHA approved lenders has grown by 525% since 2006 to 3,300. Senators serving on a HUD subcommittee fear that FHA delinquency rates are rising rapidly and that problem lenders that used to fund subprime mortgages are now facilitating FHA products. Mr. Donovan admitted that early payment defaults on FHA loans "have increased substantially" but said the growth in problem loans is slower than the overall growth in FHA fundings. He blamed rising EPDs on the economy and job losses.

Lend America, Melville, N.Y., is further expanding its growing servicing efforts by launching a Fannie Mae servicing initiative. The retail lender, which produced over $450 million in new originations during the first quarter of this year, now expects it will be a $1 billion servicer by the end of the second quarter and a $2 billion servicer by year-end. Chief business strategist Michael Ashley said the $2 billion figure represents a 33% increase from the company's previous forecast. Lend America also is a Ginnie Mae servicer and already more than doubled its servicing portfolio in the first quarter 2009 to over $500 million compared to $223 million as of Dec. 31, 2008.

HUD issued another mortgagee letter that reiterates its policies on counseling for seniors who apply for a government-insured home equity conversion mortgage and adds several new requirements. That letter (ML 2009-10) repeats the admonition that lenders are "strictly prohibited" from assisting would-be borrowers in scheduling counseling. HUD says it is aware of instances in which lenders have dialed a counseling agency and then handed the phone to the borrower to schedule counseling. In other cases, the lender has entered the borrower's contact information into a web-based system, which automatically put that borrower's name in a queue to be called by a counselor. The letter says borrowers must take the initiative when it comes to contacting a counseling agency. Contact must be on the borrower's "own terms, when he or she is comfortable," HUD warns. Lenders are allowed to provide a list of possible agencies, but if they do so, the list must contain at least 10 choices and be given to each and every client.

In response to lenders' requests for additional guidance, the Department of Housing and Urban Development has published a new mortgagee letter that sets a maximum claim amount on the new HECM for Purchase product. The latest directive (ML 2009-11) says the max claim amount will be the lesser of either the home's appraised value, its selling price or the FHA loan limit. It also says the calculation applies to all one-to-four unit properties, and advises that neither the estimate of closing costs nor the initial mortgage insurance premium is to be used in determining the claim amount. HECM for Purchase, which was authorized by the Housing and Economic Recovery Act of 2008, is a form of reverse mortgage that allows seniors 62 or older to move down the housing ladder by selling one house and purchasing another while incurring only one set of closing costs. But the new memo makes it clear that borrowers can have only one principal residence. If borrowers intend to retain their existing house as a rental property, lenders are required to guard against "buy and bail" situations. In addition, major property deficiencies outlined in a previous mortgage letter — no running water, leaking roof, lack of heat and building code violations, to name a few — must be repaired prior to closing.

Home values will continue to suffer through year-end 2010 with most metropolitan statistical areas facing an increased risk of lower prices, according to a new report issued by PMI Mortgage Insurance, Walnut Creek, Calif. PMI says 21 of the nation's 50 largest MSAs "are now in the highest risk category, signifying the highest probability of lower house prices by the end of the fourth quarter of 2010" relative to year-end 2008. But there could be some good news, PMI says: 212 MSAs have a "minimal-to-low risk of lower prices in two years." (The U.S. is divided into 381 MSAs.) PMI, the nation's second largest MI as measured by policies-in-force, published its findings in its "First Quarter 2009 Economic and Real Estate Trends Report."

The private mortgage insurance industry was another beneficiary of low interest rates between January and February when members of the Mortgage Insurance Cos. of America saw an increase of nearly $1.4 billion in the total primary new insurance written. There was $8.47 billion of traditional and $14.6 million of bulk primary new insurance written in February, compared with $7.11 billion, all in the traditional channel, written in January. In February 2008, there was $19.2 billion in total primary new insurance written; this data, however, includes activity from Triad Guaranty Insurance Corp., now in run-off, and does not include Radian Guaranty, which had yet to rejoin the organization. The number of applications received fell from 71,130 in January to 73,109 in February. The amount of primary new insurance in force decreased for the second consecutive month, from $949.3 billion in January to $944.9 billion in February. The amount of new pool risk written in February was $11.8 million. The cure/default ratio was at its highest point since last March, at 75.5%, with 67,767 cures and 89,722 defaults. It is the first time since Radian's data has been added back into the report that the number of defaults for a month was under 100,000.

While not as huge an increase as in the week prior, refinancings drove another overall rise mortgage applications, according to the Mortgage Bankers Association. The MBA's Market Composite Index increased 3.9% on a seasonally adjusted basis to 1194.4 from 1159.4 for the week ended March 27, according to the group's Weekly Mortgage Applications Survey. During the week, the average contract interest rate for 30-year fixed-rate mortgages fell to a record low for the survey to 4.61% from 4.63%, making it four consecutive weeks with rates under 5%; points (including the origination fee) decreased to 1.03 from 1.13 for loans with 80% loan-to-value ratios, the association said. On an unadjusted basis, the index increased 2.9% compared with the previous week and 68.8% compared with the same week one year earlier. The Purchase Index had a modest increase of 0.1% to 268.0 from 267.8 one week earlier on a seasonally adjusted basis, while the Refinance Index increased 3.7% to 6600.1 from 6363.2 the week prior. Refinancings increased to 79.1% of total applications from 78.5% the previous week, while adjustable-rate mortgages accounted for 1.5% of applications, up from 1.4% the week prior, the MBA said. The MBA can be found online at http://www.mortgagebankers.org.

Thornburg Mortgage Inc., Santa Fe, N.M., has made plans to discontinue operations after winding down through a bankruptcy filing and a series of asset sales and liquidations, ending a struggle to survive the non-agency liquidity crisis that started in 2007. Remaining assets are slated to be sold or liquidated with the assistance of Houlihan Lokey Howard & Zukin Capital Inc. The company already has agreed to transfer its mortgage servicing rights, which were granted to certain Wall Street firm counterparties as security for TM's obligations under their respective financing agreements. The counterparties are JPMorgan Chase Funding Inc. (formerly Bear Stearns Investment Products Inc.), Citigroup Global Markets Ltd., Credit Suisse Securities (USA) LLC, Credit Suisse International, Greenwich Capital Markets Inc., Greenwich Capital Derivatives Inc., The Royal Bank of Scotland plc and UBS AG. The counterparties have agreed to grant the company additional forbearance from demanding payment on deficiency claims under their various financing agreements through April 30, or earlier if certain events occur. But in exchange for the continued forbearance TM has agreed that the remaining counterparties who have not previously taken possession of their collateral under their respective financing agreements may do so at their discretion. The company said it will not be able to make certain senior subordinated notes payments but has a 30-day grace period before it defaults on these. It does not expect to file its 10-K annual report with the Securities and Exchange Commission. Thornburg Investment Management, which is co-located with TM and has the same chairman as TM, is a separate legal entity and said it would not be affected by TM's situation.