Origination

Anecdotal reports from the field indicate that California's $10,000 state tax credit for new homebuyers has had a positive impact since it went into effect March 1, but sales in January by Golden State builders continued to limp along at a snail's pace. Sales in projects of 10 units or more were 64% below January 2008, according to the monthly report produced for the California Building Industry Association by Hanley Wood Market Intelligence. For the entire month, just 1,355 new houses and condominiums were sold in subdivisions tracked by the Costa Mesa-based HMWI, compared to 3,773 just 12 months earlier. The median price of the units sold fell 11%. According to CBIA president Robert Rivinius, production over the last three years has fallen from 209,000 in 2005 to 65,000 units 2008. Last year's total was the lowest level since 1954 when statewide records were first kept. CBIA says jobs generated by homebuilding fell from about 486,000 to about 123,000 during the period, while the impact the industry has had on the state's economy dropped from almost $68 billion in 2005 to a little over $23 billion in 2008.

The decline in house prices has much further to go because there are so many houses up for sale and more foreclosures are coming on the market, according to David Berson, chief economist at PMI Mortgage Insurance Co. "If we are fortunate, prices are perhaps two-thirds of the way through their decline," Mr. Berson told a joint meeting of Hispanic and Asian Realtors in Washington. "But there is a risk prices are only half way," he said. The former Fannie Mae chief economist said he is "optimistic by nature" and thinks the decline is closer to two-thirds done. He says home sales are already in the process of stabilizing but the decline in home prices will continue into 2010 and before turning up. "In 2010, the average price gain will be zero," Mr. Berson said. "That is good news given the double-digit declines that we have seen over the past two years."

With foreclosures on the rise, the share of Internet inquiries that include the keyword "foreclosure" has jumped in recent weeks, according to HitWise, an online measurement company. The week of Feb. 2 had the highest share, probably because of increased media coverage of the top foreclosure cities, said HitWise research director Heather Dougherty. But queries also jumped in the weeks ending Feb. 28 and March 7 to their second and third highest levels, respectively, in the last three years. Searches for "free foreclosure listings" and "foreclosure listings" topped the list of terms containing the word "foreclosure" for the four weeks ending March 7, which Ms. Dougherty said, "confirms" that many potential buyers are seeking bargains. The downstream sites visited following a keyword search uncovered a number of what HitWise labels as "uncategorized" sites that offer databases. Sites under that label are either too new or too small to be tracked, the Experian subsidiary says. But they nevertheless bear watching as they grow and compete for traffic.

The PMI Group, Walnut Creek, Calif., took a net loss for the fourth quarter of $178.9 million ($2.19 per share), which included a loss from continuing operations of $181.0 million ($2.22 per share). This is a vast improvement over the $1.0 billion ($12.76 per share) loss PMI posted in the fourth quarter 2007. For the full year 2008 PMI lost $928.5 million ($11.40 per share), compared with a loss of $915.3 million ($10.81 per share) in 2007. The big issue that impacted PMI's 2007 annual and fourth results was its investment in FGIC; PMI wrote off that investment in the second quarter of 2008. The company said the loss from continuing operations for the fourth quarter of 2008 was primarily due to losses and loss adjustment expenses in the U.S. mortgage insurance operations and PMI Europe, a decrease in premiums earned and higher net realized investment losses, primarily from the impairment of certain corporate preferred equity securities in U.S. MI operations' investment portfolio. The U.S. MI business had an operating loss of $174.1 million for the fourth quarter and $709.5 million for the year. One year ago, it lost $236.0 million for the quarter and $190.8 million for the year.

The payment option ARM market — once a $300 billion a year business — appears to be nearly dead. According to new figures compiled by the Alternative Products Quarterly Data Report, just one lender, Wachovia Mortgage, owned up to originating POAs in the fourth quarter. Wachovia, which is now part of Wells Fargo & Co., originated just $40 million of the loans, compared to $5.5 billion in Q407. Last year Wachovia said it would no longer offer a "negative amortization" option on its POA product. In general, a POA offers borrowers four different payment plans each month, including negative amortization which allows the consumer to keep his payments low by adding to the debt owed. POAs have been blamed for fueling the housing bubble because the neg am option allowed more consumers to become homebuyers by keeping their payments artificially low. Also, critics of the loan said consumer loan disclosures on the product did not adequately describe the risks involved with neg am. Two years ago 45 lenders actively originated and disclosed their POA volumes. Today, very few lenders offer POAs.

The Department of Housing and Urban Development has made plans to temporarily tighten its rules on FHA cash-out refinancings due to falling house prices and rising defaults on refis. Starting April 1, the loan-to-value ratio on a Federal Housing Administration cash-out refinancing cannot exceed 85% of the appraised value of the one-to-four family property, according to a HUD letter to FHA lenders. HUD had raised the cash-out limit to a 95% LTV ratio from 85% over three years so FHA could be competitive with the conventional refinancing products offered by subprime lenders. "Given the continued deterioration in the housing market and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinancings is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken," FHA commissioner Brian Montgomery says in the mortgagee letter. FHA consultant Bud Carter said a tightening has been under consideration at HUD for several months. "It is not surprising given market conditions. It really just goes back to what they had prior to October 2005," he said. Mr. Carter is with Potomac Partners in Washington.

The NAACP has filed separate class action claims against Wells Fargo Home Mortgage, and HSBC Mortgage, accusing the two of discriminatory lending policies that unfairly placed African American in higher cost subprime loans.The civil rights group claims credit-worthy African Americans were steered into subprime mortgages when they could have qualified for prime loans. Wells Fargo provided mortgage brokers with incentives to steer consumers into subprime loans, according to the NAACP, and did not undertake a "meaningful review" of applications to determine if the applicants would qualify for a prime loan. "It is time for these lenders to be held accountable. We look forward to forcing real change and real relief through this lawsuit," said NAACP president Benjamin Jealous. In a statement, Wells Fargo said, "We intend to vigorously defend these unfounded allegations. We are confident we will prevail." HSBC said it does not comment on pending litigation. "We stand by our fair lending and consumer protection practices," it said. The London-based HSBC acquired Household Finance and its Beneficial Finance subprime affiliate earlier in the decade. Prior to that HSBC was not a subprime lender.

Mortgage loan processing software provider Ellie Mae has introduced a new software program to help mortgage bankers and brokers comply with the new 'Home Valuation Code of Conduct' rules that go into effect May 1.All loans sold to Fannie Mae and Freddie Mac must comply with the new appraisal code that prohibits loan officers and mortgage brokers from selecting appraisers. The Pleasanton, Calif. company says its new HVCC-compliant appraisal services program will allow users to control which staff members can electronically order appraisals and create rules on property location and loan type. The Home Valuation Code of Conduct guidelines will require mortgage professionals to change the way they do business with appraisers, said Ellie Mae's senior vice president, Richard Roof. After May 1, originators who fail to comply with the HVCC may face penalties, the inability to sell loans, or in the case of brokers, be unable to submit their loan applications to wholesalers.

The National Association of Mortgage Brokers has responded angrily to broker-related comments made by JPMorgan chairman and chief executive Jamie Dimon at the U.S. Chamber of Commerce Capital Markets Summit. Mr. Dimon said not shutting Chase's wholesale channel sooner was the worst mistake of his career. In a statement NAMB president Marc Savitt said, "It is disappointing to once again refute senseless attacks on the mortgage brokerage industry based on misinformation. Mr. Dimon's comments clearly reflect his poor understanding of the mortgage industry and the role of the mortgage broker." NAMB said it is urging Mr. Dimon "to recognize that mortgage brokers do not create loan products, do not determine the automated underwriting systems used to qualify borrowers, do not underwrite the loans, and do not approve borrowers for those loans." The JPM chief said broker-originated loans had loss rates that were two- to three-times higher than retail funded loans. The difference, he said, is that retail mortgages were written by sales people who were sitting with the client.

Credit unions in Wisconsin and elsewhere are adding up the costs of the recent failure of Central States Mortgage Corp. of Wauwatosa, and the current tab appears to be $5 million and counting. In the fourth quarter the 25 credit union owners of CSMC charged-off almost $3 million of stock they held in the 25-year-old company, according to call report data submitted to the National Credit Union Administration. In addition, several CUs are taking hits on Central States loans they participated in. The Wisconsin CU League, also an owner, is believed to have charged-off the value of its shares.