Origination

National banks are too heavily concentrated in commercial real estate, including acquisition, development, and construction loans with homebuilders and developers, a government official warned at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Timothy Long of the Office of the Comptroller of the Currency said nearly 400 of the banks his agency regulates have 100% or more of their capital invested in this type of financing. "And we're not talking 105% or 100%," he said, "we're talking 300%, 400%, and 500%." Mr. Long also said that some 700 state-chartered banks that are overseen at the state level are in the same predicament. "These are some big numbers, and they are cause for concern," the senior deputy comptroller said. "We've never gone into a significant downturn with this kind of concentration, but we've got it now."

Home equity lenders need to do some deep soul-searching, or consumer-friendly lawmakers in Washington will do it for them, according to a high-ranking official in the Office of the Comptroller of the Currency. Timothy Long, senior deputy comptroller for bank supervision policy and the OCC's chief banking examiner, told the Consumer Bankers Association's annual Home Lending Conference in Austin, Texas, that as lenders work their way through the current crisis, they also need to perform a "lessons-learned" evaluation. "You need to take an introspective look at what you did wrong and make some fundamental changes," he said. Mr. Long said the national banks overseen by the OCC can expect "stronger guidance" from the agency, especially regarding underwriting. He also said lenders can expect changes in how the Federal Reserve Board looks at unfair and deceptive practices, particularly concerning suitability. And he warned that Congress could get in on the act, too. "There is an overall sense in Washington that there has been a lot of victimization -- that borrowers have been taken advantage of and need protecting," the OCC official said.

Want to know when the housing downturn finally turns up? Follow the money, says the man in charge of indices at Standard & Poor's. More than unsold inventories, more than foreclosures, house prices hold the key to when the bust is over, said David Blitzer, an S&P managing director and chairman of the company's index committee, at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. "I'd watch prices very carefully," he said. "That's where we'll see the first meaningful turn." Mr. Blitzer, who held out S&P's Case-Shiller Home Price Index as the most accurate measure of home pricing trends, explained that prices tend to change more quickly than other measures in response to either euphoria or pessimism. "In the housing market, prices offer a good sense of buyers' and sellers' perceptions of what's going on, and are therefore a very good indicator," he told the conference. S&P chief economist David Wyss has said that prices should bottom out in the first half of 2010 at about 30% below their peak. But even at that, Mr. Blitzer pointed out, prices in most markets will be "well above" where they were 10 years earlier. The S&P executive also noted that over the last three months, more than a half-dozen cities covered in the Case-Shiller 20-market index showed month-to-month gains.

Genworth Financial Inc., the Richmond, Va.-based life and mortgage insurance holding company, says it has exposure of just under $200 million in debt and equity from Fannie Mae and Freddie Mac. As of Sept. 5, Genworth had reduced its total holdings of senior debt in these two companies to $119 million, compared with $141 million at the end of the second quarter, Genworth said. It also had reduced its preferred stock holdings to $72 million from $126 million on June 30. Genworth said it currently holds no subordinated debt or common stock in either Fannie Mae or Freddie Mac. The company added that its total preferred stock holdings in these two organizations represent one-tenth of 1% of its total investment portfolio of approximately $72 billion. Genworth can be found online at http://www.genworth.com.

The government takeover of Fannie Mae and Freddie Mac has raised as many questions as it has answered in lenders' minds about what it will be like to do business with the government-sponsored enterprises in the months ahead. A stated goal of placing Fannie and Freddie into conservatorship (an action that has made "GSE" something of a misnomer) is to ensure that money keeps flowing into the mortgage market. But the Treasury Department's plan also envisions whittling away their portfolios after a brief period of expansion. Meantime, the Federal Housing Finance Agency said it plans to tighten regulation of the companies as mandated by the law that created it. Many market observers and lenders predicted Monday that the regulators' near-term actions would reduce mortgage rates, sparking a wave of refinancings, which would benefit lenders. Further, some said, the takeover could lead to a reduction of the guarantee fees that Fannie and Freddie charge. These sources pointed to Treasury Secretary Henry Paulson's remark Sunday that the GSEs should examine the structure of such fees "with an eye toward mortgage affordability." But other observers said having the government running Fannie and Freddie could make guarantee pricing less favorable for bigger lenders. No longer concerned about volume or market share, this line of thinking goes, Fannie and Freddie will be less inclined to give breaks on guarantee fees to their bigger suppliers. David Zugheri, the president of First Houston Mortgage Ltd., a retail lender that specializes in prime conforming loans, said he expects a change from the times during which the GSEs "paid up for volume." "What they should do is look at everyone's book of business and lower the g-fees for those lenders that have less risk, not volume," he said. "They should be paying more for quality" by reducing the guarantee fees for less risky loans, he said. In an e-mail to clients on Sunday, Joe Garrett of the consulting firm Garrett, Watts & Co., wrote that Fannie and Freddie might "cut way back on offering lower guarantee fees in return for promised volume. If this were to occur, it will suddenly be much more attractive to sell directly to them, as opposed to selling to the big aggregators who get lower ... fees." Joseph P. Bowen, the chief operating officer and head of secondary marketing at Franklin American Mortgage Co., a privately held lender in Franklin, Tenn., said he expects the fees to drop. "With the federal government intervening and providing that backstop, you would anticipate that credit costs would go down and the fees would go down," he said. During the past nine months, Fannie and Freddie have imposed several loan-fee increases to reflect higher market risk and to bolster their profits. Industry trade groups complained that the increases were making mortgage credit too expensive for consumers, but GSE executives insisted the increases were needed. "Rates were artificially high because Fannie and Freddie were paying for the sins of the past with the g-fees of the future," Mike Drury, an executive vice president at the M&T Bank unit of $65 billion-asset M&T Bank Corp. in Buffalo, said Monday.By Kate Berry and Paul Muolo. Brian Collins, Harry Terris, and Steven Sloan contributed to this article.

MetLife Home Loans, a division of MetLife Bank NA, has been assigned residential primary servicer ratings of RPS2 for prime and alternative-A product by Fitch Ratings. The ratings, which were placed on Rating Watch Evolving, reflect "the operational capabilities of the existing servicing platform" and the financial strength of the bank's ultimate parent company, MetLife Inc., Fitch said. Fitch rates residential mortgage servicers on a scale of 1 to 5, with 1 being the highest rating.

Carlton Advisory Services Inc., New York, has announced that it will sell approximately $88 million of chiefly commercial mortgage loan assets on behalf of an unnamed institutional client. The portfolio of 20 performing and nonperforming commercial loan assets consists chiefly of loans secured by single-family home subdivisions as well as residential and office condominium properties in various stages of completion and prime residential land assets. All the collateral properties are located in Florida. Bids are due by Sept. 17.

The days of 100% financing are long gone, according to several speakers at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. The problem is, what has been learned about 100% loan-to-value ratios may soon be forgotten, warned Cynthia Balser, senior vice president at KeyBank NA, Cleveland. Ms. Balser, a member of the CBA's Home Equity Lending Committee, said one thing she's learned during her 34 years in the banking business is that memories are short. "Over the next five years, lenders will be very cautious and careful," she said. "But after that, I question how well we will remember what we learned." As Ms. Balser sees it, it's not a matter of whether 100% financing will return, either as a single primary mortgage or as combined first and second trusts. Rather, it's "just a question of how long it will take." However, Margaret Lawlor of Bank of America and James Manelis of JPMorgan Chase disagreed, saying borrowers are going to have to have some skin in the game. "At Chase, the maximum LTV is 90%," said Mr. Manelis, who chairs the CBA's home equity committee. "No matter what the situation is, we're never going to go beyond that." But Jeffrey Hooper, senior vice president and consumer lending product manager at Sun Trust Bank, Atlanta, said his institution expects to "take customers' [LTV ratios] up and down," depending on what's going on in their lives.

If the government-sponsored housing finance enterprises survive, they will do so as a pale reflection of their former selves, an ex-Fannie Mae executive believes. "They will have a smaller, narrower role, if they are going to have a role at all," Adolfo Marzol of Marzol Enterprises, Washington, said at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. The GSEs' reduced presence, he told the meeting, will leave the door open for banks and thrifts to return to a much more central position in the mortgage market, a place they all but ceded years ago to mortgage bankers and brokers. It may be business as usual for the GSEs over the next 18-24 months, he said. But "three or four years from now," the market will be totally different, he said. Mr. Marzol, who called the federal takeover of Fannie Mae and Freddie Mac a "monumental" event, spent 10 years at Fannie, including six as executive vice president and chief credit officer. In his last year at the GSE, he served in an interim capacity as the company's chief risk officer.

On Sunday morning the new GSE regulatory agency placed congressionally chartered mortgage giants Fannie Mae and Freddie Mac into separate conservatorships, as the government committed $100 billion to each while removing their CEOs and laying the groundwork for a radical and historic restructuring of the entire U.S. mortgage market. As part of the restructuring plan for the government-sponsored enterprises, the Treasury Department is providing capital and funding support in an effort to boost investor confidence in Fannie's and Freddie's $5.2 trillion worth of debt and mortgage-backed securities. "Monday morning the businesses will open just as usual, only with stronger backing for the holders of MBS, senior debt, and subordinated debt," said James Lockhart, director of the Federal Housing Finance Agency. The Treasury has committed to purchase new Fannie and Freddie MBS, a move that will add liquidity to the mortgage bond market. It will purchase $5 billion worth of agency MBS in September alone. The FHFA dismissed Fannie chief executive officer Daniel Mudd and Freddie chairman and CEO Richard Syron. The two men will stay on in transition roles. Herb Allison, a former vice chairman at Merrill Lynch, was named CEO of Fannie, and David Moffet, former vice chairman of U.S. Bancorp, will lead Freddie. The new CEOs will be charged with examining Fannie's and Freddie's "guarantee fee structure with an eye toward mortgage affordability," Treasury Secretary Henry Paulson said. "The primary mission of these enterprises now will be to increase the availability of mortgage finance," he said. The FHFA director placed the GSEs in conservatorships due to their ailing financial condition and their deteriorating ability to support the mortgage market. Secretary Paulson made conservatorship a prerequisite for providing the two GSEs with quarterly capital infusions to ensure that they maintain a positive net worth. "I support the director's decision as necessary and appropriate and had advised him that conservatorship was the only form in which I would commit taxpayer money to the GSEs," Mr. Paulson told reporters Sunday morning. In agreeing to a conservatorship, the GSEs each issued $1 billion in senior preferred stock to the Treasury. With each capital infusion, the Treasury will accumulate more preferred stock. The Treasury also will be issued warrants that give the agency the right to purchase 79.9% of the common shares in each GSE. Meanwhile, the GSEs can increase their MBS purchases by about $100 billion each. But the investment portfolios are capped at $850 billion through 2009. The senior preferred stock covenants also require the GSEs to reduce their portfolios by 10% a year starting in 2010 until the portfolios reach $250 billion. The new conservatorships will not pay dividends on common or preferred stock. The Treasury secretary advised banks and thrifts with large exposures to GSE common and preferred shares to work with their regulators in developing a capital restoration plan.