Origination

The housing finance business has a rare opportunity to re-invent itself, the Mortgage Bankers Association's chief operating officer believes. The question is, is the industry up to the challenge? Mortgage lenders have "lost a great deal of credibility," John Courson told a mortgage industry diversity conference meeting at Maryland's new National Harbor development just across the Potomac from Washington, D.C. Consequently, he said, it "needs to take some bold, aggressive action and change some of the basics." Toward that end, the MBA has formed a "Restore the Faith" task force of 15 of its "most wild and wooly members" to come up with some new and refreshing ideas on how to move forward. "We need to put some elbow pads on," he told the Mortgage Lending Industry Strategic Markets and Diversity Conference at the Gaylord National Resort. "Everything is in the mix, everything is at play. The question is, are we willing to take the chance, are we willing to step up and take off into a new era of mortgage lending?" Mr. Courson will take over for Jonathan Kempner as president of the MBA, the group's top staff position, on Jan. 1.

The National Association of Realtors Pending Home Sales Index for August increased 7.4% to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8% higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4. Lawrence Yun, NAR chief economist, said homebuyers were responding to improved affordability. "What we're seeing is the momentum of people taking advantage of low home prices, with pending-home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region," he said. "It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we're hopeful most of the increase will translate into closed existing-home sales." The index increased in all four regions of the country, but had its highest increase in the West, up 18.4%. Mr. Yun added "Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie. August shows some unleashing of pent-up demand before the credit crisis accelerated in September." NAR's website is http://www.realtors.org.

The Market Composite Index, an overall measure of mortgage applications, increased from 455.4 to 465.5 on a seasonally adjusted basis during the week ended Oct. 3, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 304.8 to 314.5 on a seasonally adjusted basis, while the Refinance Index increased to 1345.8 from 1333.9. Refinancings represented 43.4% of total applications, down from 44% the previous week, while adjustable-rate mortgages accounted for 2.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages declined eight basis points from 6.07% to 5.99%, and points (including the origination fee) decreased from 1.12 to 1.09 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Moody's Economy.com believes that nationally, home prices are currently down 20% from their peak in 2006, and economists at the firm anticipate that prices will drop another 10% before the bloodletting is over. Consumer economist Scott Hoyt at Economy.com told MortgageWire that the firm believes that one in six homeowners currently owe more on their mortgage than the home is worth. That's up from just 6% in 2007. And the number of homeowners who are underwater could grow next year. "I think we are maybe two-thirds of the way through" the housing downturn, Mr. Hoyt said. Economy.com anticipates that prices will bottom in the summer of 2009 but will not begin to recover much before the middle of 2010.

The International Monetary Fund has estimated declared losses on U.S. originated loans and securitized assets will reach $1.4 trillion, up from an earlier $945 billion estimate it made this spring. "The U.S. remains the epicenter of the financial crisis, with its housing market continuing to decline and a wider economic slowdown contributing to a further deterioration in the quality of existing loans," the IMF said in a report. "Authorities in the U.S. and a number of countries have taken measures to bolster confidence in financial institutions and markets, including injecting capital in financial institutions or proposing to buy troubled assets," the fund acknowledged. But the report's author and director of the IMF's Monetary and Capital Markets Department, Jaime Caruana, said he believes that "the ultimate success of these measures is difficult to gauge."

The Federal Reserve cut short-term interest rates by 50 basis points early Wednesday morning, a move that should result in lower mortgage rates for consumers. The overnight Fed funds rate now stands at 150 basis points (1.50%). The U.S. central bank cut rates in tandem with its counterparts in Europe including the European Central Bank, the Bank of England and others. Earlier in the decade, after the terrorist attacks of 9-11, the Fed funds rate reached a low of 1% which ultimately led to a boom in mortgage lending, in particular the non-prime sector.

The credit performance of Downey Financial's payment option ARM portfolio is continuing to deteriorate, according to a new research report released by Credit Suisse. The thrift had $2.03 billion in non-performing assets in August, representing 14.68% of its total holdings. CS analyst Moshe Orenbuch said he is maintaining his "neutral" rating on the California-based lender "given the risks associated with recapitalization in the current environment." Downey is operating under a regulatory consent order from the Office of Thrift Supervision. Among residential servicers, it ranks 44th with $10.8 billion in receivables.

Chase Home Finance, the residential arm of JPM Morgan Chase, dominated what's left of the subprime industry in the first half, funding just over $1 billion in new loans, giving it a production market share of 23.42%. According to survey figures compiled by National Mortgage News and the Quarterly Data Report, CIT Group Consumer Finance, Livingston, N.J., ranked a distant second with $652 million. CIT, though, has since exited the business. HSBC Consumer Lending, the subprime retail arm of HSBC Holdings, ranked third with $550 million. HSBC's volume, however, is an estimate. The company no longer supplies any information on subprime production being done by its retail division which includes the old Household Finance storefront network. NMN/QDR collected subprime origination figures from just 13 firms. Five of those involve estimates made by the newspaper. Very few firms continue to originate subprime mortgages through loan brokers. Lenders funded just $3.7 billion in subprime during the first half, a 92% decline from the same period last year.

Ten state attorneys generals and banking commissioners are pressuring 16 subprime servicers to adopt more systematic loan modification programs following their "breakthrough" settlement agreement with Bank of America to modify 390,000 Countrywide subprime and payment-option mortgages. "We urge you in the strongest possible terms to adopt a comprehensive, streamlined and effective loan modification program as soon as possible," the state officials say in a letter that was sent to the servicers on Oct. 7. These officials are part of a State Foreclosure Prevention Working Group that began meeting with major servicers last summer to encourage and monitor their mortgage workout efforts. In a September report, the working group concluded that servicers' foreclosure prevention efforts had "slipped" since April and "nearly 8 out of 10 seriously delinquent homeowners are not on track for any loss mitigation outcome." A spokesman for Iowa AG Tom Miller noted the working group wants to work with the servicers in adopting a more efficient response to the foreclosure crisis. "Later on, if it is necessary, we would consider litigation," he said.

Lenders originated nearly 1.1 million Federal Housing Administration loans in fiscal year 2008 (which ended Sept. 30), more than double the 425,000 loans endorsed by FHA in the previous fiscal year, according to housing commissioner Brian Montgomery. The Department of Housing and Urban Development is projecting FHA single-family originations will hit 1.4 million loans in FY 2009. "Those are really encouraging numbers and it shows that FHA is not only back in the game but at the forefront of the housing market these days," Mr. Montgomery told a HUD sponsored housing summit. The FHA Secure program accounted for 375,000 of FHA endorsements in FY 2008. FHA Secure is designed to help subprime borrowers to refinance into safer, less expensive FHA loans. FHA purchase mortgage originations totaled 632,000 in FY 2008.