Origination

Citing its strong loan production, Fidelity D & D Bancorp Inc., Dunmore, Pa., declined to participate in the U.S. Treasury Department's Troubled Asset Relief Program Capital Purchase Program, even though the government had approved its entry. It said it had ample liquidity to fund loans for the foreseeable future. Steven C. Ackmann, president and chief executive, said, "We are well-capitalized, solid, and continue to invest in our community. Because we are so well capitalized, we felt our customers and shareholders would be better served by not participating in the Treasury program." The lender continues to fund consumer, mortgage and commercial loans. In the fourth quarter Fidelity D&D originated $12 million in residential mortgages, and $40 million in commercial.

The Federal Reserve purchased nearly $70 billion of GSE mortgage-backed securities during the first month of its special initiative to lower loan rates and help stabilize the residential finance market. The New York Federal Reserve Bank started purchasing Fannie Mae, Freddie Mac and Ginnie Mae MBS on January 2, buying $10.2 billion in agency MBS the first week. By the mid-January, the 30-year mortgages had dropped below 5%, creating a surge in refinancing applications. But a sell off in the Treasury securities market has pushed mortgage rates up to 5.25% again. The Fed succeeded in narrowing the spread between the 10-year Treasury rate and mortgage rates, according to Mahesh Swaminathan, a Credit Suisse mortgage strategist. "The Fed's buying of mortgages is definitely a positive on the whole, but it doesn't guarantee lower mortgage rates if Treasury rates continue to sell off," he said. The New York Bank reported on Thursday that it purchased $16.8 billion in agency MBS from January 22 through January 28.

Flagstar Bancorp of Michigan, one of the few remaining wholesale residential lenders left, reported a net loss of $200 million in the fourth quarter, after taking $292 million in charges during the period. In the fourth quarter, Flagstar originated $5.4 billion of residential mortgage loans, compared to $6.5 billion one year prior. For the full year, it funded $28 billion in home mortgages, a 9% gain from 2007. At year-end it serviced $55.9 billion, with a weighted average servicing fee of 33.3 basis points. In the fourth quarter of 2007 it lost $30.1 million. Among the items associated with the 4Q 2008 charges: an increase in the loan loss provision to ($176.3 million); a $270 million writedown on the value of its mortgage servicing rights (although this was mostly offset by hedging gains); a $16.4 million valuation adjustment; a $9.8 million reserve established to cover anticipated losses in its captive mortgage reinsurance arrangement; and an 'other than temporary' impairment of $43.6 million related to investment securities available for sale. Flagstar's full year loss was $257.3 million or $3.57 per share.

The top executive at James B. Nutter and Co., Kansas City, Mo., is citing a lack of warehouse capacity for both the company's decision to end wholesale production of traditional forward mortgages, and a new moratorium it placed on accepting reverse loan applications from brokers. James B. Nutter Jr., president of the family-run mortgage firm, said the warehouse funding problem exists throughout industry. The company, a non-depository, will continue to close and fund forward and reverse loans in its existing pipeline. The lender estimates it closed 1,100 reverse mortgage loans in January. Mr. Nutter said he hopes to resume wholesale reverse production in March. He added that the company would consider re-entering the wholesale forward mortgage production channel if it gains access to additional warehouse capacity. Nutter & Company's retail business remains strong, he said.

Lehman Brothers Holdings -- which filed for bankruptcy protection back in the fall -- has been shopping around its alt-A servicing division in recent months but with no takers. At one point the unit, Aurora Loan Services of Colorado, had $120 billion in servicing rights on its books. It's unclear how much of that portfolio is servicing versus subservicing contracts. ALS was both a funder and servicer of alt-A loans but also had ventured into subprime in recent years. One investment banker, requesting anonymity, said ALS is housed under Lehman Brothers Bank FSB of Delaware, which was not a party to the bankruptcy. A few years back Lehman hired away CEO Tom Wind from Chase Home Finance to manage its mortgage operations. A spokeswoman for Lehman in New York had not returned a telephone call at press time.

In the fourth quarter 2008, Bank of America, Charlotte, N.C., lent $45 billion through its mortgage unit, of which $11.3 billion went to low- and moderate- income borrowers. This was one of the findings of its first Lending & Investing Initiative, which the bank said covers its business activity in 10 sectors key to reviving the U.S. economy. BofA said in 2008 as part of its loss mitigation efforts, it modified approximately 230,000 mortgage loans representing over $44 billion in financing. Commercial real estate lending in the fourth quarter totaled nearly $7 billion. Through the end of October 2008, the bank delivered nearly $2 billion in "green" commercial real estate debt and equity transactions. For the full year, BofA invested $1 billion in affordable housing by using Low Income Housing Tax Credits. BofA and the recently acquired Merrill Lynch together made $450 million of loans and investments to Community Development Financial Institutions. In the fourth quarter of 2008, BofA had net purchases of $20 billion in mortgage-backed securities.

Freddie Mac's average rate for a 30-year fixed rate mortgage fell slightly but remained above 5% during the week ended Jan. 29. The average 30-year FRM rate was 5.10%, down from 5.12% the week previous and from 5.68% the previous year. The average 15-year FRM rate remained where it was the previous week at 4.80% but was down from 5.17% from a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 5.27%, up from the previous week's 5.24% but down from 5.32% last year. The average rate for a one-year Treasury-indexed ARM was 4.90%, down from 4.92% the previous week and 5.05% the previous year. Average points were 0.7 for 30- and 15-year FRMs, and 0.6 for five-year hybrids and one-year Treasury-indexed ARMs.

The House has passed the $820 billion economic stimulus bill that restores the $729,750 loan limit in high cost areas for the rest of this year. Congress originally raised the maximum loan limit on Fannie Mae, Freddie Mac and Federal Housing Administration loans to $729,750 in February 2008 as part of the first stimulus bill. But that provision expired Dec. 31 and the loan limit adjusted downward to $625,500 where it is today. The Senate is expected to vote on a stimulus bill next week. But so far the Senate package does not include a loan limit increase. Housing industry lobbyists are working to attach the House loan limit provision to the Senate bill. The House bill also includes a provision that increases the loan limit on FHA-insured reverse mortgages from $417,000 nationwide to $625,500 for the rest of calendar year.

New homes sales fell nearly 15% in December from November to a level not seen since 1981 as builders wait to see what Congress is going to do to help the housing market. They are also saying low appraisals are causing many cancellations. The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 388,000 in November to 331,000 in December. Construction activity has fallen by 45% since December 2007. Builders are facing the worst market conditions in 40 years. Construction financing is tight, appraisers are valuing newly constructed homes at foreclosure prices and sales contract cancellations are running at a 30% rate. "Appraisals are killing sales," said Bernard Markstein, director of economic forecasting at the National Association of Home Builders. "Some appraisals are coming in at below building costs," he said. The NAHB is urging Congress to extend a $7,500 first-time homebuyer tax credit to all buyers as a way to stimulate sales and increase the tax credit to 10% of the sales price. But it appears Congress is not moving in that direction.

Cavalier Homes Inc., Addison, Ala., a builder of manufactured homes, is selling its financial services subsidiary, CIS Financial Services Inc., to Triad Financial Services Inc., Jacksonville, Fla. Triad will pay $750,000 in cash for the unit, plus the principal balance of certain outstanding installment contracts; these will be paid to Cavalier as collected by Triad within 180 days of the deal closing. CIS purchases retail installment contracts from the dealers that sell Cavalier's manufactured homes. It also periodically resells the majority of these contracts. For the third quarter of 2008, Cavalier lost $168,000, with the financial services segment reporting an operating loss of $22,000. For 2007, Triad had a loan volume in excess of $270 million. This deal is expected to close on or before March 1, 2009. Cavalier has also hired Avondale Partners as its financial advisor as it evaluates strategic alternatives.