Origination

The Market Composite Index, an overall measure of mortgage applications, jumped from 496.2 to 661.7 on a seasonally adjusted basis during the week ended Sept. 12 as falling interest rates boosted mortgage demand, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index rose from 371.5 to 380.4 on a seasonally adjusted basis, while the Refinance Index climbed from 1222.9 to 2300.0. Refinancings represented 51.6% of total applications, up from 36.3% the previous week, while adjustable-rate mortgages accounted for 4.0%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.06% to 5.82%, and points (including the origination fee) increased from 1.02 to 1.13 for loans with 80% loan-to-value ratios, the association reported. "Renewed financial concerns should keep long-term Treasury yields low and translate to lower mortgage rates in the near term despite some widening in mortgage spreads," said Orawin Velz, the MBA's associate vice president of economic forecasting. "We expect to see meaningful increases in mortgage demand in coming weeks on both the purchase and refi sides." The MBA can be found online at http://www.mortgagebankers.org.

Housing Secretary Steve Preston vowed Wednesday morning to implement permanent changes to the Real Estate Settlement Procedures Act by year's end even though industry groups are fighting the agency's proposals on consumer disclosures. Speaking at a luncheon in Washington, HUD Secretary Preston said, "Our goal is to get RESPA completed by the end of this year and then provide the industry with a full year to implement the rule." He added, "I firmly believe this will be a big step forward for restoring trust and transparency between the industry and homeowners." Industry trade groups do not like what the Department of Housing and Urban Development has proposed and want the department to work with the Federal Reserve on simplified disclosure forms. HUD's proposal is now under review at the Office of Management and Budget. Fed staffers have urged HUD to take a more coordinated approach in revamping consumer disclosures. HUD has made major modifications to its original proposal based on conversations with the Fed and other government agencies, as well as 12,000 comment letters HUD has received, according to a HUD spokesman. It sent the final RESPA rule to the OMB on Aug. 21.

Construction of single-family homes fell to a new multiyear low in August as the housing finance system continued to crumble and private-sector layoffs took their toll on the homebuying public. According to figures released by the Department of Housing and Urban Development and the U.S. Census Bureau, single-family home construction fell to a seasonally adjusted annual rate of 630,000 -- a 35% drop from the level recorded a year earlier and a 2% decline from that of July. Multifamily construction fell 24% (251,000 units) compared with the level of a year earlier and 17% from that of July. The last time single-family starts were that low was January 1991 -- 604,000 units on a seasonally adjusted annual basis. Despite the horrible showing for August, the National Association of Home Builders said its builder confidence index actually rose in September for the first time in seven months. "Nearly half of the builders in our September survey indicated that they expect to see a positive impact from the tax credit in their market areas," said NAHB chief economist David Seiders. The NAHB also believes the government takeover of Fannie Mae and Freddie Mac will help keep rates low and mortgage money flowing to the public.

The Federal Reserve Board has thrown a life preserver to American International Group by allowing the Federal Reserve Bank of New York to issue an $85 billion line of credit to the troubled insurer. According to the Fed, the loan "will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy." The facility has a 24-month term with an interest rate tied to the three-month London interbank offered rate plus 850 basis points. In return, the government gets a 79.9% equity stake in AIG. Eric Dinallo, the New York state insurance superintendent, will chair an AIG Task Force created by the National Association of Insurance Commissioners that will approve the sale of all AIG insurance assets. "Even as it is virtually impossible to expect the homeowner to sell their $1 million home at a fair price in just one week, it is also very difficult for large companies like AIG to sell assets and raise capital in short periods of time," said Gilbran Nicholas, chairman of the CMPS Institute. "The only difference between AIG and the homeowner in this scenario is in the number of zeros involved. The U.S. government is the only entity that is large enough to help AIG raise enough funds in such a short period of time in order to help the company maintain its financial obligations." The loan from the Fed gives them that time, and taxpayers stand to profit because they just became AIG's biggest shareholder at virtually no cost other than the short-term Fed loan, he said. AIG lost $5.86 billion in the second quarter, which included unrealized market losses on super-senior credit default swaps of $3.6 billion. Operating losses at AIG's United Guaranty Corp. mortgage insurance subsidiary totaled $440 million for the quarter.

The education arm of the Illinois Association of Mortgage Professionals is changing its name to reflect a more national client base. The Illinois Association of Mortgage Professionals Educational Foundation will now be known as the Mortgage Education Foundation. The MEF will offer industry education nationwide, while continuing to host consumer information programs in Illinois. The IAMP remains the parent organization of the MEF. Courses are available in a classroom setting or online and meet state-mandated continuing education requirements for industry professionals in many states, including Alabama, Illinois, Indiana, Minnesota, South Carolina, Washington, and Wisconsin. Other states will be added in the near future, and a complete list will be available at www.mortgageeducationfoundation.com.

Impac Mortgage Holdings, a subprime lender based in Irvine, Calif., has reported a net loss of $31.3 million ($0.51 per share) in the first half, compared with a net loss of $274.2 million in the first half of 2007. Impac, a real estate investment trust, said the "broad repricing of mortgage credit risk continued the severe contraction in market liquidity" and that the volatile capital markets "have effectively been unavailable" to the company. The mortgage REIT said it hopes to "align the costs of our operations to the cash flows from our long-term mortgage portfolio (residual interests in securitizations), master servicing portfolio, and real estate advisory fees." The company said other goals include reducing or eliminating dividend payments on its preferred stock and modifying its trust preferred securities. Impac can be found online at http://www.impaccompanies.com.

The Office of Comptroller of the Currency is checking national banks that fund brokered loans to make sure the mortgage brokers are properly disclosing their fees to consumers as outlined in a 2003 advisory letter. "We have been reviewing bank compliance with this particular section of our guidance recently since it has been more than five years since the advisory letter was issued," Michael Bylsma, the OCC's director of consumer law, told a Mortgage Bankers Association compliance conference. The OCC guidance calls for national banks to enter into written agreements with mortgage brokers to ensure they make loans that meet the consumer's "needs, objectives and financial situation," Mr. Bylsma said. These agreements "should limit total broker compensation to prevent inappropriate steering," he added. The 2003 advisory letter also calls for disclosure of broker fees to consumers, including a written agreement between the borrower and the broker. The broker's fees should be conspicuously disclosed in the agreement that is signed and dated by the consumer before the broker starts work. "National banks should have a process in place to review the written agreements," Mr. Bylsma said. The OCC officials declined to comment on the level of compliance with the advisory letter. National banks originated 45% of all home mortgages in 2007, according to the OCC.

Fitch Ratings says the impact of investments in Fannie Mae and Freddie Mac by life and property/casualty insurers will have a limited impact on those companies' ratings. The rating agency estimates insurers' loss exposure to Fannie Mae and Freddie Mac preferred and common stock to be approximately $4 billion, which equates to approximately 0.5% of combined statutory capital for life and property/casualty insurers. There is a material exposure to the GSEs' debt, an estimated $350 billion, which represents 11% of total investments and 44% of statutory capital. Fitch added that it views GSE debt as having the explicit support of the federal government. Fitch has only taken one downgrade of a life insurer because of its exposure to Fannie Mae and Freddie Mac. Old Mutual PLC's life insurance business was downgraded from BBB-plus to BBB because the company will incur investment impairments of $135 million on GSE preferred securities. Old Mutual previously took a $149 million impairment because of its exposure to residential mortgage-backed securities, as well as corporate bonds and preferred stocks.

The regulator of the housing GSEs says Fannie Mae and Freddie Mac can continue to operate their multifamily businesses as usual, and they will not have to liquidate their holdings of Low Income Housing Tax Credits or mortgage revenue bonds. The support of the government-sponsored enterprises for multifamily housing finance is "central to the enterprises' public purposes," according to a statement issued by the Federal Housing Finance Agency. "FHFA has stated that business will continue as usual at the enterprises during the conservatorship -- this applies to both the single-family and multifamily businesses." Centerline Capital Group, New York, welcomed the FHFA statement. "Our multifamily financing business is still strong," Centerline president Marc Schnitzer said. "We expect to continue doing business with both companies in our multifamily and affordable housing lending practices."

Discussions between the New York attorney general, Fannie Mae, and Freddie Mac on appraisals reforms are continuing and "progress is bring made," according to Alfred Pollard, general counsel of the Federal Housing Finance Agency. The appraisal reforms announced by AG Andrew Cuomo, Fannie, Freddie, and the GSE regulator in March have already gone through a comment period that generated a very hostile response from industry groups and federal banking regulators. "Fannie and Freddie have reviewed the comments," Mr. Pollard told a Mortgage Bankers Association compliance conference. "They have done a very good job of looking at them and making changes that would be merited." Nevertheless, discussions with the New York AG's office are continuing. "The best I can tell you now is that progress is being made," FHFA official said.