Origination

The country is in for a prolonged recession that will end only when a sense of confidence and trust returns to the U.S. financial markets, former Federal Reserve Board Chairman Paul Volcker told a group of real estate developers in Miami Beach. "It's going to be a tough period," Mr. Volcker said at the Urban Land Institute's Fall Meeting. "We learn the hard way, but we do learn." Appointed by President Carter to rule over the country's banking system in 1979, and reappointed by President Reagan, Mr. Volcker was chairman of the Fed's board of governors for eight years. He is largely credited with taming rampant inflation, bringing to an end a severe recession in the 1980s, and laying the groundwork for the following two decades of economic stability. He was succeeded by Alan Greenspan in 1987. He told ULI that while the economy was in a "serious recession," he was "not suggesting at all" that the downturn is comparable to the Great Depression. Noting that the economy continued to expand right up to the point where the financial markets hit the rocks, the former Fed chairman said confidence will eventually return, "it's just a question of how long it takes. Unfortunately, it takes a crisis to wake us up, and this is a big one." Mr. Volcker said he was "amazed" when he learned how large the subprime mortgage sector had become.

While some argue that the uncertainty bedeviling investors and institutions that own mortgages has its roots in the subprime and alternative-A markets, "there are numerous factors to review and to understand before coming to any conclusions," Anthony Ryan, the Treasury's acting undersecretary for domestic finance, told the Securities Industry and Financial Markets Association's annual conference in New York. "Credit as a whole -- not just in the housing sector -- has been plentiful over the past decade," he said. "Today, we are experiencing the repercussions of this unbridled expansion and access to credit," said Mr. Ryan. "We needed to strike a balance between strong market discipline and regulatory oversight and we have not."

Financial Freedom Senior Funding Corp., Irvine, Calif., has created a partnership with the National Association of Realtor's Seniors Real Estate Specialists Council to provide educational content and instruction to the latter's members regarding the Department of Housing and Urban Development's Home Equity Conversion Mortgage program. This month SRES members have begun accessing regularly scheduled webinars and local area seminars about reverse mortgages. Additional seminars will be provided once the new HECM for Home Purchase program is implemented early next year. Once the new provisions for the HECM program are implemented, Financial Freedom and SRES will jointly create helpful tools and guidance to assist SRES members with evaluating a range of options regarding seniors' homes during retirement.

Genworth Mortgage Insurance Corp., Raleigh, N.C., will provide recapture tax protection available to borrowers on all loans it insures which are made with state housing finance agency funding. The program will reimburse consumers up to $6,000 for any federal recapture tax they might incur if they sell their homes nine years after closing. The federal government taxes home sellers if they used mortgage revenue bonds or mortgage credit certificate program assistance to buy their property if they then turn around and sell it within nine years. Rohit Gupta, senior vice president product, market intelligence and strategy at Genworth said "This protection will provide piece of mind for HFA borrowers concerned about their tax liability if they sell their homes. Available at no cost to either lender or borrower, it's another example of our commitment to providing safe, secure mortgage solutions for low down payment borrowers." The program is applied automatically and there is no change in the current submission process for HFA loans to Genworth.

Fitch Ratings, Chicago, has cut the issuer default rating of Fidelity National Financial Inc., Jacksonville, Fla., from BBB+ down to BBB, while at the same time cutting the insurer financial strength ratings of the company from A down to A-. FNF recently reported a $198.3 million net loss for the third quarter, 2008, with its title insurance business losing $279.4 million on a pre-tax basis. During the quarter FNF took a $261.6 million charge to strengthen its reserves. Fitch commented "FNF had been less conservative than its national peers, booking expected loss reserves for the policy years 2005-2007. Consequently, FNF's profitability was somewhat overstated during the period, negatively impacting what was seen as a core advantage of FNF relative to peers." FNF also cut its dividend by 50%, to $0.15 per share. Fitch said the slash addressed its "concern that the underlying profitability of the title operations in the current environment did not support the shareholder dividend."

Sales of new single-family homes rose by 2.7% in September from the previous month to a seasonally adjusted annual rate of 464,000 units but the median price of a house fell to the lowest level in four years - $218,400, according to new government figures. On the surface the sales figure looks promising but the comparison is to the prior month. Compared to the same month a year ago new home sales are down a stunning 33%. The Northeast and Western regions suffered the most with declines of 65.1%, and 37.9%, respectively, compared to September 2007. The median price of a new home sold in September declined by 9.1% from the year ago. Meanwhile, the inventory of unsold existing homes remains near historic highs thanks to the huge increase in foreclosures.

Freddie Mac purchased or guaranteed $27.2 billion of mortgages in September, a slight gain from the multi-year low of $25.8 billion established the month before. The GSE was placed in a conservatorship on September 7. Its regulator, the Federal Housing Finance Agency, has directed the secondary market giant to increase purchases of its own mortgage-backed securities. However, Freddie reported that its holdings of its own MBS declined by $22.6 billion to $375 billion in September. Its investment portfolio declined by $24 billion to $738.9 billion. Freddie issued $22 billion in guaranteed MBS in September, nearly matching its issuance in the previous month. The mortgage company has added a new data table ("Other Investments") to its monthly summary report. The September issue shows that Freddie purchased $10.4 billion of private-label "non-mortgage" asset backed securities.

U.S. Central FCU said its mortgage-backed securities portfolio took a beating over the past month, declining in value by another $700 million, increasing the corporate credit union's unrealized losses to $3.8 billion at September 31. That doesn't include additional losses of $2.3 billion when U.S. Central marks-to-market its entire portfolio - a total fair value loss of $6.1 billion - which U.S. Central is required to report under generally accepted accounting principles. The largest portion of the losses are on so-called private label mortgage backed securities, those not issued by Fannie Mae or Freddie Mac. U.S. Central reported a book value of $19.9 billion of private label MBS that it is carrying for $17.1 billion, but has a fair market value of just $14.8 billion - a whopping unrealized loss of $5 billion on those securities. U.S. Central has indicated an intent to hold most of those securities to maturity, allowing it to account for them at carrying value, instead of fair market value. The corporates' corporate is also sitting on $880 million of unrealized losses on $12 billion worth of other asset backed securities, backed by credit card loans, student loans, auto loans, and commercial real estate, as well as $145 million of losses on corporate bonds and notes that it holds. -- Credit Union Journal

If residential lenders and housing professionals didn't have enough bad economic news to worry about, they may soon have a fresh set of anxieties: rising delinquencies in the vacation or "second home" market. Obtaining hard numbers on just how many outstanding mortgages are backed by second/vacation homes is not easy -- but one figure is clear: of the $2.8 trillion in Fannie Mae loan guarantees 5% cover the sector, or $140 billion. According to Freddie Mac spokesperson Sharon McHale, 9% of her GSE's portfolio includes second homes, including "investment properties" where the owner is trying to make his mortgage payment by renting out a home or condo. No one is saying that property values in the second home business are in a freefall, at least not yet, but according to recent interviews with Realtors who sell beach properties the outlook borders on grim. Diana Silvester, a Realtor who sells properties in Cape Cod, Mass., told National Mortgage News that home values in this popular New England vacation area are down 20% in two years. (For the full story see the upcoming issue of Origination News.)

Existing single-family home sales jumped 6.2% in September to its highest level in more than a year, according to figures released by the National Association of Realtors. NAR reported that sales of previously owned homes rose on a seasonally adjusted annual rate to 4.62 million units in September compared to 4.35 million the month before. It was the best showing since August 2007 when the rate averaged 4.79 million units. Single-family sales have been bouncing between 4.25 million and 4.5 million units all year. NAR chief economist Lawrence Yun considers September's breakout to be encouraging because traditional buyers are returning to the market. "The current market is not being dominated by speculative investors," he said. "Rather, 80% of current buyers are purchasing primary residences, which is a bit higher than historic norms." Despite the jump, there is a 9.4 month supply of homes on the market. Foreclosures and short sales continue to make up 35% to 40% of sale transactions and continue to put downward pressure on prices. The median sales price of single-family homes was $190,600 in September, down 8.6% from the same month last year.