Origination

Farmer Mac lost $61.1 million ($6.03 per share) in the fourth quarter 2008 as a result of its losses on financial derivatives and provisions for losses related to credits granted in the ethanol sector.The GSE halved its dividend for the first quarter, cutting it to five cents a share. For the full year 2008, Farmer Mac lost $154.1 million or $15.40 per share. Newly installed president and chief executive Michael A. Gerber, said "We have adjusted our funding strategies to reduce the reliance on financial derivatives that have adversely affected our capital position, notwithstanding that all of our derivatives have been economically effective." He said the company was able to raise $124.2 million in new capital through preferred stock offerings in the third and fourth quarters of last year.

Congressional Democrats and Obama administration officials want to make consumer protection an integral part of any reforms to the mortgage finance system. Consumer protection needs to be at the "very heart of our system of mortgage finance, not an after-thought or relegated to second class status," said Michael Barr, counselor to the White House National Economic Council. Consumers and investors should be able to "rely on the fact that underwriting is being conducted appropriately," Mr. Barr told a mortgage reform forum sponsored by the Center for American Progress. Meanwhile, the Mortgage Bankers Association is working on reform proposals to restore confidence in the system by establishing more effective consumer protections. "We know that these proposals will constrain some in the industry, but they will also help our members and their customers in the long-run," MBA chairman David Kittle told a congressional panel last week.

Single-unit residential housing starts totaled 357,000 (annualized) in February, a slight gain from the previous month, but a 51% decline from the same month a year ago. According to new figures compiled by the Census Bureau and the Department of Housing and Urban Development, multifamily starts soared by almost 80% in February to 212,000 units but when compared to the same month a year ago, fell by 40%. Patrick Newport, an analyst with HIS Global Insight cautioned that "one should not make too much noise" over the large sequential increase in the multifamily starts, saying colder than normal weather in December and January pushed starts into February. Single-family permits rose 11% on a sequential basis but fell 42% year over year. Mr. Newport called the permit gain "good news" but noted that, "one should be careful about making inferences from this increase."

The Obama administration has created a niche outlet for certain commercial real estate loans as part of its effort to boost business lending through the purchase of Small Business Administration-backed loans. The Treasury Department has pledged to purchase $15 billion in SBA loans, including SBA '504' first-lien mortgages that are used to finance owner-occupied buildings and construction projects. (The 504 loans cover up to 50% of a project's cost but are not government guaranteed.) Treasury will begin purchasing 504 loans no later than May. SBA also is working on the development of a "secondary market guarantee program for securities issued from pooled 504 first mortgage loans," Treasury said.

Thornburg Mortgage, once a top ranked originator of "super jumbo" loans, said Tuesday it may file for Chapter 11 bankruptcy protection and has hired the law firm of Kirkland and Ellis to advise it on restructuring options.A REIT that is publicly traded on the "pink sheets," Thornburg said its lenders — which include such names as Citigroup, Credit Suisse, JPMorgan Chase, and Greenwich Capital — have agreed to give it certain forbearances on its loans "through March 31." The company was de-listed by New York Stock Exchange late last year. Its shares trade for just 2 cents compared to an all time high of $140. It has an on-balance sheet portfolio of roughly $20 billion that it services on a monthly basis and needs to finance.

Wholesale lending through loan brokers accounted for just 15% of all mortgages funded in the fourth quarter, the lowest reading ever tracked by National Mortgage News, which has been keeping figures for 15 years.Mortgage lenders originated $277 billion of home mortgages in 4Q with retail accounting for a majority of fundings (44%) and correspondent making up the balance, 41%. Several large lenders have exited the wholesale sector in the past year, including, most recently, JPMorgan Chase, a top five wholesale funder. Bank of America recently reiterated its commitment to wholesale, noting that it has 5,000 active broker relationships through the platform it inherited when it bought Countrywide Financial last July. However, at its peak, Countrywide had 40,000 approved brokers in its network.

The PMI Group, Walnut Creek, Calif., says it needs to raise capital because its U.S. mortgage insurance business is experiencing higher losses and those losses are eating into its net assets. In its 2008 10-K filing, which was made on March 16 — the same day it revealed it lost $179 million for the fourth quarter — the company declared, "Unless we raise capital to support PMI, its policyholders' position will likely continue to decline and its risk-to-capital ratio will likely increase beyond levels necessary to meet regulatory capital adequacy requirements and, if we are unsuccessful in renegotiating our revolving credit facility by April 15, 2009, meet certain credit facility financial covenants." PMI said it is "exploring capital alternatives to enhance our liquidity and capital." This includes seeking funds through the Troubled Asset Relief Program obtaining reinsurance for PMI's future book of business and/or debt or equity offerings. The 10-K added that because of those capital constraints, PMI, which had significantly cut it book of business in 2008, would continue to reduce new insurance written in 2009. The holding company also faces significant liquidity issues, the filing added.

Fitch Ratings, New York, expects that in the near to medium term, retail will represent a growing proportion of overall defaults in the commercial mortgage-backed securities sector. The rating agency said, "declining retail performance was chiefly responsible for a 13 basis point increase in delinquencies in February" when Fitch's U.S. CMBS loan delinquency index was 1.28%. "The rate of increase is consistent with Fitch's expectations that loan defaults will increase to at least 3% by year-end 2009," Fitch said.

U.S. commercial real estate loan collateralized debt obligation delinquencies may increase faster than expected this year, according to Fitch Ratings, New York. "With CREL CDO delinquencies increasing 1.3% on average over the last two months, the default rate for year-end 2009 could exceed Fitch's initial base expectation for the life of the transactions if this pace continues," said Fitch senior director Karen Trebach. U.S. CREL CDOs delinquencies increased to 5.4% in February from 3.8% in January, according to Fitch Ratings, New York.

The American Securitization Forum has extended the deadline for responses to a recent request for comment relative to certain portions of its Project on Residential Securitization Transparency and Reporting. The RFC includes updates to the ASF residential mortgage-backed securities disclosure package, the transaction supplement, the data dictionary and the market standards proposals, as well as the RMBS reporting package. "Given numerous requests for additional time to prepare comments, the comment deadline for these revised drafts has been extended until next Tues., March 24," the ASF said. Project RESTART was created as a means of trying to bring investor confidence back to the private-label securitized residential market and restore new issuance through suggested consensus guidelines for standards aimed at increasing the integrity and quality of that market's data.