Origination

Sales of single-family existing homes rose 4.4% in February from the previous month and sales may be stabilizing as the spring selling season begins. The National Association of Realtors reported that sales of existing SF homes rose from a seasonally adjusted annual rate of 4.05 million in January to 4.23 million in February. The median price of a home sold in February was $164,600, up $400 from January. However, the median house price is down 15% from a year ago. NAR chief economist Lawrence Yun noted that foreclosures and short sales make up 40% to 45% of sales. "Our analysis shows that distressed homes typically are selling for 20% less than the normal market price, and this naturally is drawing down the overall median price." Meanwhile, sales of condominiums and co-ops jumped 11.4% in February, compared to the previous month.

A survey conducted for Move Inc., Los Angeles, found that 23% of adults plan to purchase a home in the next five years, and more than half of them (53.5%) are first time homebuyers. Despite today's challenging market conditions, 18.1% of adults plan to buy a home this year in order to take advantage of the $8,000 tax credit recently passed by Congress in the administration's economic stimulus package. Another finding was that 18.9% of respondents plan to take advantage of the Obama administration's foreclosure prevention plan. Just over half of the respondents, 52%, said they are concerned they or someone they know will face foreclosure in the next six to 12 months. In the past 12 months, 21% of respondents with a mortgage contacted a lender to restructure their loan. Half (10.6%) of those homeowners that contacted their lender experienced success while 5% still await an answer. Nearly three-quarters (72%) of adults reduced spending in the past year in order to make monthly mortgage or rent payments, mostly by cutting discretionary spending such as vacations, entertainment and eating out (75%), personal items such as clothing, personal care and personal luxuries (72%) and energy costs such as gasoline and utilities (71.6%). "It's not all doom and gloom. We found Americans are optimistic about homeownership despite concerns," said Move Inc., chief executive Steve Berkowitz. "They're doing everything they can, from reducing discretionary spending to pay their mortgages, to planning to take advantage of the administration's new program to stop foreclosures. They're also working with lenders to modify loans. Even more impactful are numbers that show interest in home ownership is strong as nearly a quarter of all adults plan to buy a home in the next five years."

Ending retention bonuses at Fannie Mae and Freddie Mac as demanded by a powerful House Democrat would be "extremely detrimental" to the companies' and government's efforts to stabilize the housing finance system, according to Federal Housing Finance Agency director James Lockhart. "I believe FHFA would be violating its duties as conservator to end the retention plans and allow Fannie Mae and Freddie Mac to be hollowed out," the GSE regulator said. He noted in a letter to House Financial Services Committee chairman Barney Frank, D-Mass., that Fannie and Freddie employees are working longer hours for less compensation these days. And there is a "great risk" key employees will walk away if incentives are terminated. "If we don't provide existing employees incentives to stay, we will have a serious problem," Mr. Lockhart said. FHFA is preparing detailed information on the retention bonus plans for the committee chairman.

The National Credit Union Administration seized control of the nation's two largest corporate credit unions on Friday due to growing losses on their private label mortgage-backed securities. NCUA placed into conservatorship Western Corporate FCU, San Dimas, Calif. which provides services to 1,022 regular credit unions, and U.S. Central FCU, Lenexa, Kan., which serves as a banker to both WesCorp and 25 other corporate credit unions. Friday's action came just hours after U.S. Central released financial figures for February showing that unrealized losses on its securities rose by $1.2 billion, to $10.5 billion, with almost all of the new losses accruing on private-label mortgage-backed securities. The unprecedented government takeover came after NCUA received an independent review of the investments in U.S. Central, WesCorp. and the 25 other corporates conducted by Pimco Investors. Pimco found that the corporates' current holdings could result in losses of more than $16 billion, which would wipe out the capital of every corporate CU. The Pimco report runs 4,500 pages. According to The Credit Union Journal, regulators are discussing a plan to combine the distressed corporate investments into a single "bad bank," while trying to rescue the remnants of the corporate credit union system, which provides critical investment and payment system services to the nation's 8,000 regular credit unions. U.S. Central holds $34 billion in credit union funds and WesCorp $24 billion.

The rapid growth in FHA originations during 2008 has many concerned the federal mortgage insurance program is headed for trouble, but so far agency officials say they have not seen deterioration in loan performance, even when it comes to borrowers missing their first or second payments. "We have not seen any increase in early payment defaults," said Meg Burns, director of Federal Housing Administration single-family program development. FHA data and analysis show that only 0.6% of the over one million FHA loans originated in the first nine months of 2008 experienced first or second payment defaults, down from 0.8% in the same period in 2007. In addition, the default rate on FHA loans where borrowers miss three of the first six payment months has declined slightly. Early defaults generally are caused by income, martial or illness problems and they don't necessarily lead to foreclosures or claims on the FHA insurance fund. "There really is no correlation there," Ms. Burns said.

Simon Property Group Inc., Indianapolis, has priced a public offering of 15,000,000 shares of common stock at $31.50 per share. Deutsche Bank Securities Inc., Goldman, Sachs & Co. and UBS Investment Bank acted as joint book-running managers of the offering. The company has granted the underwriters a 30-day option to purchase 2,250,000 additional shares of common stock to cover over-allotments, if any. Concurrently, the Simon REIT also is offering approximately $500 million principal amount of senior notes due 2019. The completion of either offering is not conditioned on the success of the other. Goldman, Sachs & Co., J.P. Morgan and Banc of America Securities LLC are serving as joint book-running managers of the senior note offering. Simon will contribute the net proceeds of the offering to its majority-owned operating partnership subsidiary, Simon Property Group L.P., which will use the amount contributed to partially repay the outstanding balance of its $3.5 billion unsecured credit facility and for general corporate purposes.

Leib Pinter, a former executive of Olympia Mortgage Corp., has been sentenced to 97 months in prison for orchestrating a refinancing scheme to defraud Fannie Mae.Pinter also was ordered to pay more than $43 million in restitution to victims of the scheme. According to Benton J. Campbell, U.S. attorney for the Eastern District of New York, Pinter pleaded guilty to a wire fraud conspiracy on Sept. 11, 2008. Olympia, formerly headquartered in Brooklyn, N.Y., originated and serviced mortgage loans owned by Fannie. When Olympia refinanced a Fannie Mae mortgage loan, Fannie Mae typically wire transferred the money to an Olympia bank account. Olympia was then required to pay off the underlying mortgage loan by remitting the outstanding balance to Fannie Mae. Instead, Pinter misappropriated these proceeds for the benefit of Olympia. When the fraudulent scheme was revealed, Fannie held nearly $44 million in unpaid principal in refinanced mortgage loans.

The Department of Housing and Urban Development has completed the process of allocating $4 billion to states and communities for the purchase and renovation of foreclosed properties. Another $2 billion in neighborhood stabilization funds will available soon."These funds will be used to buy up and rehabilitate vacant foreclosed homes and resell those homes with affordable mortgages," President Barack Obama said. On Friday, HUD said it awarded the last $731 million of the $4 billion in funds that Congress approved last July as part of the Housing and Economy Recovery Act. These funds were allocated by formula to states and local communities hardest hit by the housing crisis. HUD is working to execute the grants to the 309 state, city and county recipients by the end of this month so the funds can be disbursed in April. The massive economic stimulus bill Congress passed in February provides another $2 billion in neighborhood stabilization funds. These funds will be awarded through a competitive process. HUD is expected to solicit proposals by May 3.

Fitch Ratings has cut the insurer financial strength ratings at MGIC Investment Corp. and The PMI Group to 'BBB' and 'BB,' respectively. For Milwaukee-based MGIC, the cut "reflects the loss expectations and capital constraints facing MGIC as an independent mortgage insurance company," Fitch said. "In addition to limited capital markets access, MGIC has few remaining assets that could be monetized to increase its capital resources (as the company did in 2008 with the sale of its interest in Sherman Financial LLC) and will largely have to rely on current capital resources to satisfy ongoing MI claims." Fitch said PMI requested that the rating agency withdraw its ratings and will no longer provide it with non-public data. "PMI has extremely limited access to the capital markets and, as a result, will largely have to rely on current capital resources to satisfy ongoing MI claims," Fitch said. Both MIs have posted large losses in the past year and their shares trade for $1 or less.

The price gap between homes that sell as REO and the rest of the market is widening, according to a new study by Lender Processing Services. Prior to 2007 the difference in prices was slim, said LPS, a mortgage software company based in Jacksonville, Fla. Using a home price index that it developed, LPS conducted a study of changes in regional home prices between 2007 and 2008 in the nation's top housing markets. "In general, markets that experienced sharp drops in home prices in 2008 also saw deeper REO discounts," said LPS senior vice president Nima Nattagh. The largest drop in prices of REO sales were found in Riverside County, Calif. In 2008 home prices fell 28% there compared to 2007. However, when REO sales are factored in, prices fell by 34%. Home prices declined by 29% during 2008 in Phoenix where analysts cite significant overbuilding. When REO sales were excluded from the analysis, though, the price decline was less severe at 19% year over year. The gap between home prices with and without REO sales was smallest in Seattle, New York and Cambridge, Mass. While the Western states and Michigan and Florida saw double-digit declines in home prices, other regions have fared much better. But further deterioration in the housing market will most likely deepen the REO discount levels in these markets, LPS said.