Origination

Charges related to large title claims, investment securities writedowns and office closures contributed to a net loss of $30 million (-$1.66 per share) at Stewart Information Services Corp., Houston, in the third quarter. The loss included a $3.6 million ($0.20 per share) charge to earnings to cover reserves related to large title claims ($10.5 million on a pretax basis), impairment on investment securities ($2.6 million) and office closure costs ($2.5 million). The charge was partially offset by a $10 million recovery from claims made to a fidelity bond. In the same period one year ago, Stewart lost $14.3 million (-$0.79 per share). Co-chief executive and chairman Malcolm S. Morris said the company has cancelled 1,750 independent agents since June 1, 2008; these agents represented "a sizeable portion of our claims and management related expenses." The company closed 40 branch offices and reduced headcount by 470 during the quarter. The company's revenues in the greater Houston area were hurt by deals being cancelled as a result of Hurricane Ike. However, said co-CEO and president Stewart Morris Jr., while some of the company's offices were closed because of the storm, it was not prevented from completing scheduled closings, "proving the value of our investment in our paperless, Internet-based filed processing and transaction management technology."

Data show senior citizen borrowers are finding themselves particularly hard hit by recent market woes, according to one Internet-based reverse mortgage provider. "Seniors across the nation have been hit with a hard one-two punch. First the stock market, and now the realization of falling home values," said Eric Bachman, founder and CEO of Golden Gateway Financial, Oakland, Calif., noting that reverse mortgages may help rectify the problem. He said third quarter usage data from the company's reverse mortgage calculator show "a troubling picture." According to GGF, senior citizens self-reported a 4.5% decline in third quarter home values as compared to the first quarter of 2008. The average national existing mortgage debt of senior citizens in the third quarter of 2008 was $146,217. In California, the average mortgage debt in the third quarter was at $219,321 or 50% greater than the national average. The average mortgage debt reported by seniors in September was $211,411 or 74% of the month's reported home sale price of $283,000 across the state, DataQuick findings show. The company also quoted findings from a recent AARP study that shows over 684,000 of those aged 50 and over were either delinquent or in foreclosure.

With increasing portions of the $700 billion TARP bailout money being earmarked for banks and even insurance companies, credit unions are looking to develop a rescue plan of their own, according to a report in The Credit Union Journal. The Credit Union National Association, the largest trade group representing CUs, is calling on its regulator, the National Credit Union Administration, to create a "shadow" asset relief program that would purchase distressed mortgage loans and mortgage-backed securities from credit unions. (TARP stands for Troubled Asset Relief Program and was legislated into existence under the Emergency Economic Stabilization Act.) This effort would include corporate credit unions, which are sitting on more than $10 billion of losses on MBS, the newspaper reported. The program would be managed by the National CU Share Insurance Fund, which already provides emergency loans to troubled credit unions.

The average rate on a 30-year fixed-rate mortgage as tracked by Freddie Mac rose to 6.46% from 6.04% during the week ended Oct. 30. The average 30-year rate also was up from 6.26% a year ago, Freddie said. Freddie chief economist Frank Nothaft said longer-term mortgage rates have been following comparable Treasury yields higher. Both long- and short-term mortgage rates were up week-to-week: the 15-year FRM had an average 6.19% rate, up from 5.72% the week previous and from 5.91% the year before; the five-year Treasury-indexed hybrid adjustable-rate mortgage had an average 6.36% rate, up from 6.06% the week previous and from 5.98% a year ago; and the one-year Treasury-indexed ARM had an average 5.38% rate, up from 5.23% the week before and down from 5.57% a year ago. Mr. Nothaft said initial rates on ARMs might stabilize due to the Federal Open Market Committee's short-term rate cuts. Average points during the week were 0.7% on 30-, 15- and five-year loans, and 0.6% on one-year ARMs.

The Federal Funds rate's decline to 1% is unlikely to spur mortgage origination the way it did the last time it was at this level. "The risk appetite's not there, the credit's not flowing and also house prices are not going up, they're going down. The whole configuration [of the market] has changed," said Josh Feinman, chief economist at DB Advisors. Mr. Feinman, who works for Deutsche Bank's institutional asset management division, said this is in contrast to the market environment in 2003, when the Fed Funds rate last fell to 1% and originations boomed. The Fed Funds rate last fell below 1% in 1958.

General Motors Acceptance Corp. -- which controls almost $400 billion in residential servicing rights -- made it official on Thursday, declaring that it's in talks with regulators to become a bank holding company. In a statement GMAC said that as a bank holding company it would have "expanded opportunities for funding and for access to capital." A spokeswoman for the company declined to elaborate. The BHC move comes at a precarious time for the company: its residential lending/servicing arm, Residential Capital Corp., continues to lose money, has slashed its work force (including its broker/wholesale channel), and one of its owners, General Motors, has been in merger talks with Chrysler. GMAC is 51% owned by hedge fund giant Cerberus, and 49% by the automaker. Rumors about GMAC filing to become a BHC have been floating around all week. ResCap already owns a depository, GMAC Bank of Utah. As a BHC, GMAC, in theory, would have been able to apply for capital assistance under the new Troubled Asset Relief Program.

Fannie Mae purchased $44.1 billion in mortgages during September, a 9% increase from the previous month, according to new figures released by the company. The rise in acquisitions occurred during a month in which the Congressionally-chartered mortgage giant was taken over by its regulator, the Federal Housing Finance Agency. Even though September's purchase volume was an improvement from August, acquisitions were down 33% compared to September 2007, reflecting residential originations in the primary market. The company reported that 1.57% of its loans were in delinquency, compared to 1.45% the prior month. A year ago, late payments on Fannie Mae loans were less than half at 0.71%. At month's end Fannie had $761.4 billion of loans and securities in portfolio, a slight rise from August. But compared to September 2007, its holdings are up 5%.

Because of so many foreclosures, Fannie Mae, Freddie Mac and the Federal Housing Administration should temporary suspend their requirements for owner-occupied units in condominiums to facilitate condo sales, according to the National Association of Realtors. Specifically, the agencies should not count bank-owned units toward the owner-occupancy requirement. Currently, the government sponsored enterprises and FHA will not finance condo units unless 51% of the units are owner-occupied. NAR also wants the 51% ratio reduced to 48%. "Reducing the owner-occupancy ratio and not including bank-owned REO properties will help condominium developments with significant percentages of REO properties," NAR says in letters to FHA and the GSE regulator.

The Federal Housing Administration is reversing a long-standing policy and now it wants to help borrowers who have filed for bankruptcy stay in their homes. "Effective immediately, mortgagees must, upon receipt of notice of bankruptcy filing, send information to debtor's counsel indicating that loss mitigation may be available, and provide instruction sufficient to facilitate workout discussions, including documentation requirements, timeframes and servicer contact information," according to a FHA mortgagee letter. Previously, FHA thought the bankruptcy courts might consider such contact by the lender to be a violation of automatic stay on collection activities. But recent discussions with bankruptcy experts have persuaded FHA to change its policy so struggling homeowners that file for bankruptcy protection can benefit from FHA loss mitigation policies. Waiting until the bankruptcy is discharged or dismissed "may be injurious to the interests of the borrower, the mortgagee and the FHA insurance funds," FHA commissioner Brian Montgomery says in the letter.

Net losses related to investments and restructuring contributed to a third-quarter net loss of $8.3 million (-$0.09 per share) at mortgage-related services and technology provider First American Corp., Santa Ana, Calif. One year prior, it had net earnings of $46.6 million ($0.49 per share). The title insurance and services segment took a pretax loss of $27.0 million for the third quarter (compared with profits of $43.7 million the previous year). But the company said, take away investment losses of $44.6 million, employee separation costs of $8.6 million and lease termination costs of $5.5 million, the segment would have reported pretax income of $31.6 million. Title orders opened during the quarter fell from 555,800 in the third quarter 2007 to 438,600 in the most recent period, while at the same time, paid title claims went from 70,904 up to 76,307. Total revenues for the title business declined from $1.4 billion in the third quarter 2007 to $957.1 million for the most recent period. The information and outsourcing solutions business contributed $29.8 million in pretax income, while the data and analytic solutions business contributed $10.2 million. Results in the data and analytic solutions segment were negatively affected by a pretax loss of $6.5 million in its second lien product company.