Origination

JPMorgan Chase & Co. booked $663 million in charge-offs on its home equity loan portfolio in the third quarter, a stunning increase of 342% from the year ago quarter. Until earlier this year, JPM's mortgage division heavily marketed its HELOC product, particularly through loan brokers and correspondents. JPM also was one of many lenders that played in the "80-10-10" market where HELOCs were originated along with firsts so customers could avoid paying private mortgage insurance. With home prices suffering, those loans have since gone out of favor. (HELOC delinquencies are on the rise throughout the lending and servicing industry.) JPM's mortgage unit also suffered $273 million in subprime charge-offs compared to $40 million a year ago. The bank holds $94.8 billion in HELOCs, up 3% from the year ago. It funded $2.6 billion in HELOCs during the quarter, a 77% decline from 3Q 2007. Overall, JPM, as a company, earned $527 million compared to $3.4 billion a year ago. It is one of nine banks that the Treasury has slated to partially "nationalize" by purchasing preferred shares in the firm.

Veterans that want to get out of subprime mortgages will find it easier to refinance into Department of Veterans Affairs guaranteed loans thanks to a bill recently passed by Congress and signed by President Bush on Oct. 10. The Veterans' Benefits Improvement Act allows veterans with conventional mortgages to refinance into a zero-down VA loan with a loan limit of $729,750. Previously, lenders could only offer to refinance those veterans into a $144,000 loan with 10% down and still get the full benefit of VA's 25% loan guarantee. "With these changes to the refis we can help more veterans -- where we couldn't before. So I am really pleased," said Judy Caden, director of the VA home loan program. The VA benefits bill (S. 3023) also extends VA's authority to guarantee 1-year adjustable rate mortgages and hybrid ARMs to September 30, 2012.

Banco Santander SA, Madrid, has agreed to acquire the remaining 75.66% of Sovereign Bancorp Inc., Philadelphia, it does not already own. Santander will pay $1.9 billion or $3.81 per share; for the 19.9% stake in Sovereign it purchased in 2005, Santander paid $2.4 billion (it grew the stake to just under 25% through open market purchases). Santander purchased the stake in a controversial three-way transaction that allowed Sovereign to acquire Independence Community Bancorp, Brooklyn, N.Y. An opponent of that transaction was Relational Investors LLC, which now owns 8.9% of Sovereign. Relational will vote in favor of this deal. Ralph Whitworth of Relational, who is also the chairman of Sovereign's capital and finance committee, said "we believe this is the right transaction at the right time for Sovereign. We considered our options and this transaction very carefully and believe it provides stability and upside potential for Sovereign, its shareholders, customers, employees and other stakeholders." After the deal was announced, Sovereign revealed it will have a third quarter net loss of $982 million (-$1.48 per share), driven by impairment on Fannie Mae/Freddie Mac preferred stock of $575 million and a $602 million loss on the sale of its collateralized debt obligation portfolio. Santander has a U.S. banking and mortgage presence through a majority owned unit in Puerto Rico.

As a result of the continued decline in property values in Southwest Florida, Bank of Florida Corp. reported $3 million in write-downs for a large residential condo project and two eight-unit condominium buildings in Lee County and Lehigh Acres. Due to these write-offs, the company said the provision for loan losses increased to $6.2 million. In its preliminary earnings, the Naples-based bank said it expects to report a net loss of $3.4 million. For the third quarter, nonperforming loans increased to $29.1 million compared to $24.3 million as of the second quarter of 2008.

Centex, a large publicly traded home builder that also controls a top 30 residential originator, said that it will suspend its regular quarterly cash dividend due to "deteriorating economic conditions." Among residential funders the Centex-owned CTX Mortgage ranks 26th, according to the Quarterly Data Report. The company said it is suspending the dividend payable to common shareholders to conserve capital and build liquidity "during this difficult business environment." Over the past four quarters it paid out $20 million in dividends to shareholders. In the second quarter CTX Mortgage originated $1.6 billion in home mortgages, a 40% decline from the same period a year ago.

Residential foreclosures continued to climb in September, though at a decelerating pace, and are on track to surpass 1 million by yearend, according to a new report issued by ForeclosureS.com, Sacramento, Calif. Foreclosures rose 82.6% last month compared with a year earlier and were up 6.6% from August. One bright spot: Preforeclosure filings fell 2.4% in September from a year earlier, with double-digit declines in the hardest-hit states of California and Michigan, though it was unclear whether the drop in preforeclosure filings could be attributed to changes in state laws or to more loan modifications by lenders and servicers to keep defaulted borrowers in their homes. According to a report in American Banker, the company warned that the slumping U.S. housing market still faces significant problems. "The gains likely are temporary and not necessarily indicative of the foreclosure crisis' easing just yet," said Alexis McGree, president of ForeclosureS. This summer California passed legislation to establish detailed procedures requiring lenders to assess the financial condition of defaulted borrowers and explore options for avoiding foreclosure.

Freddie Mac is ordering its seller/servicers to suspend all foreclosure sales on properties with Freddie Mac-owned mortgages in federally declared disaster areas caused by Hurricane Ike, primarily Texas and Louisiana. "Freddie Mac is taking this step because the extensive damage Hurricane Ike caused has made it difficult for our servicers to get the information they need to make case-by-case decisions about forbearance or other workout options," said Ingrid Beckles, vice president of servicing and asset management at Freddie Mac. The suspension will extend from October 8 to December 31, 2008 and include mortgages that were in default prior to Hurricane Ike. Servicers will be required after the suspension ends to consider individual circumstances in determining whether additional foreclosure relief should be extended or whether to proceed with foreclosure.

Wells Fargo & Co. will wind up as the owner of Wachovia Corp. after all, a purchase that will help the San Francisco-based bank battle Bank of America for control of the residential lending and servicing arenas. Late Thursday Citigroup ended its pursuit of the ailing Wachovia but said it will follow through on a $60 billion damage claim against Wells for striking a deal after it had already agreed to buy the company. (The Federal Deposit Insurance Corp. had sanctioned Citi's purchase in late September -- but that was before Wells made a higher bid.) With Wachovia under its belt, Wells will control 17.65% of the $9.6 trillion housing receivables market compared to Bank of America's 21.06%. In lending, Wells/Wachovia will have an origination share of 17.73% to BoA's 19.99%. (The market share figures are based on June 30 data and take into account BoA's July 1 purchase of Countrywide Home Loans.) The deal also gives Wells a major retail deposit base in the mid-Atlantic where the housing market has held up well compared to states like California, Florida, and Nevada. Wells' takeover price for the Charlotte-based bank is valued at just under $6 a share.

Even though the wholesale residential lending channel appears to be on the ropes, it will return one day, according to Joe Falk, past president of the National Association of Mortgage Brokers. In an interview with MortgageWire Mr. Falk said that the some lenders are factoring in such costs as loan fraud and appraisal problems, concluding -- based on the book of business of the past few years -- that retail is cheaper. "Lenders have to ask if retail is now cheaper," he said. He noted that firms that have exited the wholesale arena this year (like National City and Wachovia) have reached such a conclusion. But Mr. Falk believes that when the loan market begins to stabilize, lenders will once again conclude that wholesale is a more cost effective way to do business. He said that Citigroup's recent decision to slash its wholesale broker network was not a surprise.

The Department of Housing and Urban Development wants to extend the 'FHA Secure' program past its December 31 sunset date and is seeking approval from the White House budget office. "We are in discussions right now with the White House," Federal Housing Administration commissioner Brian Montgomery told MortgageWire. He noted the FHA Secure program has certain nuances and flexibilities that complement the newly launched 'Hope for Homeownership' program, which Congress created to help more distressed borrowers refinance into FHA loans. FHA Secure was launched in September 2007. To date the program has helped 375,000 borrowers with subprime, payment option ARMs and even conventional mortgages refinance into safer and less expensivee FHA products. In July, HUD expanded the program to help delinquent borrowers refinance into FHA loans. The National Association of Realtors and Mortgage Bankers Association support an extension of the FHA Secure program.