Origination

The Market Composite Index, an overall measure of mortgage applications, decreased 38.8% on a seasonally adjusted basis (to 732.1 from 1195.3) during the week ended Jan. 23, as there was a substantial decline in refinance applications, according to the Mortgage Bankers Association. This week's results included an adjustment to account for the shortened week due to the Martin Luther King Jr. holiday. On an unadjusted basis, there would have been a 46.5% decrease compared with the previous week and a 40.4% decrease when compared with the same week one year earlier. The Purchase Index decreased 2.9% to 294.3 from 303.1 one week earlier on a seasonally adjusted basis, while the Refinance Index decreased 48% to 3373.9 from 6491.8. Refinancings decreased to 72.8% of applications from 83.3% the previous week, while adjustable-rate mortgages accounted for 2.4% of applications, up from 1.5% for the previous week, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.22% from 5.24%, with points (including the origination fee) decreasing to 1.05 from 1.16 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae's and Freddie Mac's respective on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie's and Freddie's portfolios cannot grow any larger than $850 billion each, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.

Wells Fargo posted solid mortgage origination numbers and said home loan volume continues to trend upward, despite its quarterly loss of $2.6 billion amid a $5.6 billion increase to its credit reserve. Wells took in $116 billion of mortgage applications in the fourth quarter of 2008, up 158% from the year earlier period. And application volume in December marked the fourth highest monthly application volume in the company's history. Moreover, chief financial officer Howard Atkins said daily mortgage application volume during the first two weeks of January was running 20% higher than in December. The company had $71 billion of home loan applications in its pipeline at year-end. Wells estimates that it now accounts for 12% of the mortgage origination market, up from 10% a year earlier. Wells originated $50 billion of home loans during the fourth quarter and $230 billion for the full year. Wells' fourth quarter results did not include results from Wachovia, which Wells officially acquired on Dec. 31. Wachovia lost $11.2 billion in the fourth quarter. Wells' mortgage servicing portfolio swelled to $2.1 trillion at year-end with the addition of Wachovia's $379 billion servicing portfolio.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae and Freddie Mac's on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie and Freddie's portfolios cannot grow any larger than $850 billion, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.

LendingTree and GetSmart.com, a pair of affiliated lead generation services based in Charlotte, N.C., are now allowing consumers to search for reverse mortgage products on their sites. A company executive said the change is in response to consumer demand for these products on the site. Participating lenders who already offer reverse mortgages now get pre-screened candidates for these loans, reducing the legwork they have to do to create the lead, said Keith Moore, senior vice president at LendingTree.

First Federal Bank of California FSB has shut its wholesale lending operations, effective Jan. 26. In a message posted on the thrift's website and also distributed via the LendingArt Message Alert system, the company said all files received on that day would be returned unprocessed. All files not approved as of Jan. 26 would automatically be rejected. All approved files must be funded by Feb. 27, as long as they meet all of the lender's conditions. The shut down comes as First Federal's parent company, FirstFed Financial Corp., Los Angeles, reduced the staff at its thrift subsidiary by 62 persons with the cuts coming primarily from the single-family lending and commercial lending operations. FirstFed said the cuts cover 10% of the thrift's current workforce and should result in estimated annualized compensation cost savings of approximately $4.2 million. Furthermore, the Office of Thrift Supervision has issued a cease-and-desist order to the holding company and its thrift subsidiary. The order required FirstFed to submit to the OTS within 15 days a detailed capital plan to address how the thrift will remain "well capitalized" at each quarter-end through Dec. 31, 2011. If it fails to remain well capitalized, FirstFed must then submit to the OTS a detailed contingency plan to merge or liquidate the thrift.

ING and the Dutch government have agreed to establish an illiquid assets back-up facility covering 80% of ING's more than $36 billion portfolio of alternative-A credit mortgage securities from its ING Direct USA and ING Insurance Americas units after the company released a sizable net loss estimate for fourth-quarter 2008 that stemmed largely from mortgage-related writedowns. ING, which also is planning to cut 7,000 positions and replace its CEO, expects to take an estimated 3.3 billion euro ($4.3 billion) "underlying" net loss for the full year 2008 largely due to poor fourth quarter market conditions that led to 2 billion euros ($2.6 billion) in writedowns on subprime and alt-A residential mortgage-backed securities as well as on collateralized debt obligations and collateralized loan obligations. The facility would transfer 80% of the aforementioned alt-A portfolio's risk to the Dutch government and the Dutch government would, in return, be entitled to 80% of the cash flows of the entire portfolio. ING said the risk transfer would "take place at a discount of 10% of par value" and that it would remain the legal owner of 100% of the securities while remaining exposed to 20% of any results on the portfolio. The company said it would earmark part of the capital released by the facility to support the growth of its Dutch lending business "for an amount of 25 billion euros [$33 billion] at market conforming conditions." The agreement includes an exchange of fees between the Dutch government and the company that are expected to have a "limited" impact on ING first quarter profit and loss.

Following an 80% drop in global hotel transaction volume in 2008, Jones Lang LaSalle Hotels, Chicago forecasts that this year will have a further decline, to levels last seen between 2001 and 2003, according to the firm's Hotel Investment Outlook 2009 report. The report reveals that $23 billion worth of hotels changed ownership in 2008, down from $113 billion in 2007, as the credit crisis and the chilling effects of the global economic slowdown took hold. With no short-term market recovery likely, the forecast for 2009 is for transactions worldwide to further decline to $19 billion in 2009. "The United States registered the greatest decline in transaction volume, down 82% to $8.2 billion in 2008, followed by Asia Pacific, marking a decline of 80% to $2.5 billion. Our research highlights that EMEA proved comparatively more resilient - transaction volume amounted to $12 billion, 58% lower than the level recorded in 2007," said Arthur de Haast, global chief executive of Jones Lang LaSalle Hotels. "The first half of 2009 will be equally idle as late-2008, but the second half of 2009 will likely see more activity - a shake out of investment portfolios as some investors will be forced to sell or make strategic portfolio decisions to dispose of assets even while pricing remains weak," said Mr. de Haast. While equity is available in the marketplace, the credit markets will continue to be the greatest challenge facing hotel investors in 2009. Highly-leveraged investors such as private equity funds, the largest buyer group of hotel assets from 2005 to 2007, will shift to the sidelines in many markets, replaced by institutional investors, selected sovereign wealth funds and high net worth individuals.

Single-family existing home sales unexpectedly jumped 7% in December from November but prices continue to slide as nearly half of all sales involved foreclosed houses. The National Association of Realtors reported that sales of previously owned homes rose from a seasonally adjusted annual rate of 4 million in November to 4.26 million in December. The recent drop in mortgage rates really did not affect December sales so it may be a good sign that sales will rebound in the months ahead. However, NAR estimates that 45% of December sales were foreclosed properties as buyers took advantage of large discounts. The home sales report shows that single-family house prices have fallen by 14.8% since December 2007. The Realtors are hoping the Congress will pass an economic stimulus package that will increase sales and quickly soak up the large inventory of unsold homes that continues to drag down home prices. "The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery," said NAR chief economist Lawrence Yun.

First American CoreLogic's LoanPerformance Home Price Index, based on November and early December home price data, found national housing prices fell 10.6% for the full year 2008, which it said is the largest decline in more than 30 years. November's decline was 10.2% compared to a year earlier and early December preview data suggest declines continued in the 10 percent-plus range last month. Since peaking in 2004, home prices have fallen 18.5% and are now at the same levels where they were in spring of 2004. Full year 2008 prices fell in 35 states, with California leading the way with a 26.9% decline, followed by Nevada (-22.8%), Arizona (-19%), Florida (-18.2%), and Rhode Island (-13.7%). Since home prices peaked in July 2006, home prices in California have declined 42% on a cumulative basis since their most recent peak, followed closely by Nevada (39%). Prices in Arizona and Florida have declined by 33% cumulatively. First American CoreLogic said in 2008 the number of total unique foreclosure filings increased to 3.4 million, up 76 percent from 1.9 million in 2007 and more than triple the 1.1 million filings in 2006. "Collateral risk continues to depress the housing market with the top four states for price depreciation accounting for nearly half of all outstanding foreclosures. But economic risk is also rapidly rising: California, Nevada and Rhode Island stand out as being among the top 10 states for both price depreciation and highest unemployment. Until home prices and economic activity stabilize, mortgage distress will remain high," said Mark Fleming, chief economist for First American CoreLogic.