Origination

Ginnie Mae is essential to the recovery of the market, said Ginnie Mae president Joseph Murin addressing the 4th Annual Mortgage Lending Industry Strategic Markets and Diversity Conference at the National Harbor, Maryland. Furthermore, he noted that after the government takeover of Fannie Mae and Freddie Mac, Ginnie Mae is taking a leadership role in helping secure affordable housing and secondary market funding. One clear indicator is Ginnie Mae's current and expected growth, especially in the secondary market where Ginnie Mae is now a critical player. Projections of Ginnie Mae mortgage-backed securities show that in 2008 Ginnie's volume will reach $210 billion, compared to only $90 billion in 2007. Further, by the end of 2009 it is expected to cross the $1 trillion mark, he said. This means Ginnie Mae may represent over 40% of the mortgage-backed securities business by yearend 2009.

According to Freddie Mac's Primary Mortgage Market Survey the 30-year fixed-rate mortgage (FRM) averaged 5.94%, down from last week when it averaged 6.10%. Last year at this time, the 30-year FRM averaged 6.40%. Similarly, the 15-year FRM this week averaged 5.63%, down from last week when it averaged 5.78%. A year ago at this time, the 15-year FRM averaged 6.06%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.90%, down from last week when it averaged 6.00%. The only rise came among one-year Treasury-indexed ARMs, which averaged 5.15% this week, up from last week when it averaged 5.12%. Putting the numbers into context, Frank Nothaft, Freddie Mac vice president and chief economist said, "Longer-term mortgage rates fell for the first time in three weeks, roughly following bond market yields. Meanwhile, the latest housing market data showed some pickup in home purchase activity in August."

The Treasury Department started purchasing agency mortgage-backed securities in September and Fannie Mae and Freddie Mac will be increasing their MBS purchases to support the housing market, according to Treasury secretary Henry Paulson. "As Treasury and the GSEs increase their purchases, mortgage affordability should improve for Americans," Mr. Paulson said. When the government sponsored enterprise regulator - the Federal Housing Finance Agency - placed Fannie and Freddie into conservatorships on Sept. 7, Treasury announced that it would purchase $5 billion in GSE MBS and later increased its MBS program to $10 billion. At the same time, FHFA director James Lockhart said he would relax GSE portfolio limits so they could increase their MBS investments. Mr. Paulson said Fannie and Freddie combined have the regulatory "headroom" to purchase over $150 billion in MBS.

House Financial Services Committee chairman Barney Frank, D-Mass., is demanding that other major servicers follow Bank of America's model and adopt plans for "immediate mass modifications" to stem the flood of foreclosures. Rep. Frank also put 10 major banks and servicing companies on notice that they are expected to report to his committee by Oct. 17 on their plans to adopt a systematic approach to loan modifications. "Hope Now and other industry initiatives have had too little impact to meet the large and growing need for widespread relief," Rep. Frank says in a letter to the companies and industry trade groups. The committee chairman stresses the BoA/Countrywide settlement agreement to modify nearly 400,000 subprime and payment-option mortgages should serve as a template for the rest of the industry. "It is essential that every mortgage servicer firmly commit to implement plans for immediate mass modifications based on, or stronger than, the measures BoA/Countrywide has undertaken," Rep. Frank says in the Oct. 8 letter.

The regulator of Fannie Mae and Freddie Thursday morning suspended capital classifications for the two GSEs, which have been operating under government control since early September. Both mortgage giants continue to buy loans from their seller/servicers. Through the purchase of senior preferred stock, the Treasury Department owns most of both companies although their common shares continue to trade on the New York Stock Exchange. In a statement, the Federal Housing Finance Agency said it will continue to "closely monitor" their capital levels but noted that any minimum capital requirements "will not be binding during the conservatorship." Agency director James Lockhart said he is officially classifying the two mortgage giants as "undercapitalized" as of June 30, even though both reported second quarter results saying they met FHFA's statutory requirements for capital. FHFA's actions today were not unexpected.

Friedman Billings Ramsey is telling its clients to avoid investing in financial stocks, noting that the "future capital structure" of the industry is uncertain "given the growing likelihood of direct equity investment in financials by the government." The firm notes, "We expect that the government will take additional, drastic steps to combat the financial crisis, as rate cuts and Federal Reserve-backed auction facilities have had limited benefits." Earlier in the decade FBR's investment banking arm took many subprime residential firms public using a real estate investment trust ownership (REIT) structure. Every subprime firm it has raised equity for has either failed or merged out of existence. On Thursday FBR's share price hit a new 52-week low: 62 cents. Its high is $5.

The Federal Reserve has authorized another $37.8 billion in aid for insurer American International Group, which continues to struggle with liquidity and capitalization concerns that are partially mortgage-related. "Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral," the Fed said. "These securities were previously lent by AIG's insurance company subsidiaries to third parties." The Fed added that, "drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities."

CitiMortgage, the nation's fourth largest residential wholesaler, is making deep cuts in its table funding unit, cutting 500 account executive jobs, and slashing its broker network to 1,000 from a current head count of 9,500. A company spokesman confirmed the cuts to MortgageWire on Wednesday. He said most of the AEs being cut "are work at home work positions." He added that CitiMortgage, which table funded $6.4 billion in home mortgages in the second quarter, will continue to use brokers in all loan markets. "There are no areas we are avoiding," he said. He stressed that CitiMortgage, which is based in O'Fallon, Mo., is not exiting the wholesale arena. Over the past year dozens of lenders have ceased using loan brokers entirely including, IndyMac (now a ward of the government), National City, Wachovia, Washington Mutual, and others.

The controversial ban on downpayment assistance that went into effect Oct. 1 on government-insured mortgages may hurt FHA loan production in the short-term, according to a panel at the diversity conference. But over the long haul, it will be a blessing, the panelists agreed. There may be fewer loans now, said Timothy Doyle of the Conference of State Bank Supervisors, who called the prohibition "a positive." But in the long term, he added, the ban "will result in more sustainable home ownership." Mr. Doyle contended that DPA has "driven the high rate of foreclosures" because it bypasses sound underwriting principles. Proponents of down-payment assistance argue that it is a valuable tool in getting cash-trapped borrowers - typically minorities and immigrants - into homes. But not Tom Goyda, vice president of research and analysis at Wells Fargo Home Mortgage. Although "a lot of people love" DPA, he said, the ban will help ensure the long-term viability of the FHA.

Home-buyer education will play a pivotal role in reversing the notion that the only way to make mortgages to low and moderate-income families is to put them into dangerous, perhaps even irresponsible, loans, speakers agreed at the Mortgage Lending Industry Strategic Markets and Diversity Conference. "We've got to focus on getting buyers home-ready, instead of just opting to go down the credit curve," said Mark Goldhaber of Genworth Mortgage Insurance, Raleigh, N.C., which is expanding its "Counseling Saver" product that offers a discount for borrowers who complete a pre-purchase counseling program with a non-profit, non-lending institution. Representatives of Wells Fargo Home Mortgage and CitiMortgage also cited their companies' strong commitment to financial education. "We're very big on home buyer education," said Citi's Terry Fowlkes. "Part of the reason (the mortgage market is) in trouble today is because too many borrowers weren't ready and didn't understand" what they were getting into. Ms. Fowlkes said Citi is especially interested in offering educational programs through faith-based community groups. "The faith community is a very big trusted advisor for people of color," she said.