Origination

Residential lending and housing activity weakened in August, while commercial real estate activity showed more signs of softening, according to the Federal Reserve's Beige Book. Federal Reserve district banks reported that "residential mortgage lending fell in New York and Richmond [Va.], remained slow in Chicago and Dallas, but gained slightly in Philadelphia." The Atlanta and Dallas district banks reported that inventories of unsold houses have edged down since July when the last Beige Book was issued. Meanwhile, CRE activity "moved down or remained weak in all districts, except Dallas," the Beige Book says. "Boston, New York, Philadelphia, Atlanta and Chicago reported signs of softening demand, including declining leasing activity, rising vacancies and decreasing construction."

Extreme overvaluation in the nation's housing market was "essentially nonexistent" in the second quarter, an indication that "the nation's housing 'bubble' has popped and house prices reflect a healthy balance in relation to long-term fundamentals," according to an analysis released by Global Insight Inc., Waltham, Mass. The quarterly housing valuation analysis, House Prices in America, found that prices fell in 152 of the 330 covered metropolitan markets in the second quarter, representing 46% of all single-family units in the United States. "Although the markets that were extremely overvalued two years ago are seeing expected price declines, other areas are seeing price declines due to weak economic conditions," said Jeannine Cataldi, senior economist and manager of Global Insight's Regional Real Estate Service. "The market has a lot of inventory to work through before prices will change course." The analysis is a joint effort of Global Insight and National City Corp., Cleveland. More information can be found online at http://www.globalinsight.com/housingvaluation and http://www.nationalcity.com/housevaluation.

GMAC Financial Services shocked the market Wednesday, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." In total, 5,000 mortgage jobs (60% of the work force) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and chief executive Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th-largest servicer, with $449 billion in receivables. ResCap can be found online at https://www.rescapholdings.com.

GMAC Financial Services says its overall residential loan production may not drop by much despite the fact that it is closing its wholesale and traditional retail branches [see item below]. A company spokeswoman said Residential Capital will aggressively market its Ditech direct-to-consumer brand and maintain a presence as a correspondent buyer of mortgages. Asked about origination volume, she cautioned, "I don't want to make any predictions, but volumes may not drop much." In the first quarter, ResCap funded $20.8 billion in home mortgages, a 44% decline from the level of a year earlier, according to the Quarterly Data Report. In the first quarter, roughly half its production came through the correspondent channel, with retail and wholesale accounting for about 25% each. (Second-quarter results were not available.) In addition, no breakouts were available for Ditech. "We hope to do a lot of volume," she added. "We stand behind these two channels."

GMAC Financial Services on Wednesday shocked the market, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." At press time no further details were available. Public relations officials could not be reached for comment. In total, 5,000 mortgage jobs (60% of the workforce) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and CEO Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th largest servicer with $449 billion in receivables.

Value Financial, a reverse mortgage lender based in Miami, has added $2 million in funding capacity for these loans. The new warehouse credit gives the company a total of $5 million available, which it says is enough to fund 100 reverse mortgage transactions a month. Last year Value originated over $125 million in reverse mortgages in Florida and is now expanding into five more states. Its proprietary LGS marketing system, Value continued, has a year-to-date conversion rate of over 20%, and the company can close a Federal Housing Administration Home Equity Conversion Mortgage in 21 days.

Financial Crossing, Palo Alto, Calif., has launched a technology-enabled program that expands the professional capacity of financial advisors, mortgage originators and other industry professionals. The Independent Advisor Program allows these professionals to function as personal liability managers, providing mortgage and liability analysis, planning, monitoring, and execution in real time and on an ethical and objective basis through FC's Liability Manager software. The software incorporates patent-pending analytics, market data, and leverages real-time pricing and eligibility from NYLX for thousands of loan programs from multiple lenders; offers seamless mortgage fulfillment services through integration with Lydian Data Services; and has execution and origination of loans and plans in all 50 states through an integrated partnership with Citizens Community Bank of New Jersey, a commercial bank and correspondent. FC can be found on the Web at http://www.financialcrossing.com.

The Eleventh District Federal Home Loan Bank Cost of Funds Index for July was 2.698%, a decline of 13 basis points from June's 2.829%. COFI is computed from the actual interest expense reported for a given month by the Arizona, California, and Nevada savings institutions members of the Federal Home Loan Bank of San Francisco. Since reaching its latest peak last September, the index has declined nearly 169 basis points. To calculate July's COFI, FHLB-SF said the average total funds were $372.0 billion, while the total interest expense was $836.4 million. COFI is now at its lowest point since June 2005. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey reports the monthly average rate for the one-year adjustable rate mortgage peaked at 5.71% in July 2007. One year later it is down 47% basis points but up 21 basis points since February. The same survey's monthly average commitment rate for the 30-year fixed rate loan peaked in July 2007 at 6.70%. It fell to 5.76% in January, but has rebounded to 6.43% for this July.

The Market Composite Index, an overall measure of mortgage applications, jumped from 421.6 to 453.1 on a seasonally adjusted basis during the week ended Aug. 29, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 315.9 to 349.0 on a seasonally adjusted basis, while the Refinance Index rose from 1038.0 to 1059.7. Refinancings represented 34.0% of total applications, down from 35.2% the previous week, while adjustable-rate mortgages accounted for 6.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages dropped from 6.44% to 6.39% and points (including the origination fee) declined from 1.03 to 1.00 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Lenders and servicers choosing to participate in a special Federal Housing Administration refinancing program will have to worry about "second guessing" by FHA, which has a reputation for seeking indemnification for losses when loans go into default, according to mortgage banking attorney Laurence Platt. "Presumably, lenders that closely follow the new underwriting requirements developed by the [Hope for Homeowners Oversight] Board will be insulated from attack by FHA," the K&L Gates partner says in a Mortgage Banking Alert to clients. However, the Hope program loans are expected to have high default rates because lenders will be refinancing subprime borrowers that have defaulted or are expected to default. "It will be interesting to see how 'squishy' the new underwriting guidelines are, because the risk of second-guessing is greater when the standards are more ambiguous," the Sept. 2 alert says. Meanwhile, the House Financial Services Committee is holding a hearing Sept. 17 to see if FHA and the oversight board will be ready to launch the Hope program by Oct. 1. Committee chairman Barney Frank, D-Mass., also wants to know if servicers are holding off on foreclosures for borrowers who might be refinanced through the Hope program.