Originations

Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers. State attorney general Martha Coakley, announcing the settlement at a press conference, said Morgan provided billions of dollars in credit lines to New Century "which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to repay." She added that some Morgan executives referred to New Century as Morgan's "partner" in subprime lending. The Irvine, Calif.-based NCFC filed for bankruptcy in early 2008. For much of the decade it was one of the largest subprime lenders in the nation, according to figures compiled by National Mortgage News. As part of the settlement, Morgan agreed to "change its business practices" and to provide the AG's office with "information and materials" as part of its ongoing probe of subprime lenders and the securitization process. In a court filing AG Coakley notes that other Wall Street firms are under investigation regarding their securitization practices. Morgan agreed to the deal without admitting or denying any wrongdoing.

Freddie Mac acquired $25 billion of home mortgages in May, its weakest purchase month of the year, and yet another sign that originations in the primary market are slowing. In the same month a year ago the GSE bought $50 billion, or twice as much product. Its portfolio continued to run off. At May 30 it had $748 billion of product on its balance sheet, a 9% decline from the same period a year ago. There was some good news in Freddie's numbers: its single-family delinquency rate was unchanged at 4.06% and remains below the February high of 4.2%. However, multifamily delinquencies reached a new high: 0.32% compared to 0.25% in April. Freddie and its sister company, Fannie Mae, have been operating under a government conservatorship since September 2008. Fannie has yet to release its May activity report.

Mortgage bankers are mostly happy with details of the financial regulatory reform bill but it all depends on which faction of the industry you belong to. Lenders that specialize in FHA, VA and high quality GSE loans appear to be the big winners because the legislation will not require MBS issuers to maintain 5% of the credit risk on their deals as long as they produce high quality loans. "It's nice to win one," said Lewis Ranieri, co-inventor of the mortgage-backed security. Ranieri, who pioneered securitization of plain vanilla residential loans 30 years ago, has been a frequent critic of Wall Street firms that took his invention and used it for subprime. Ranieri, who considers himself "pro-housing," is concerned that financial conditions in the industry could deteriorate rapidly without a viable securitization plan. The measure agreed to by House and Senate conferees could also provide a huge boost to the Federal Housing Administration which already accounts for 30% of all loan production today (compared to just 3% five years ago). Some believe FHA could be the biggest winner of them all because the agency gets a 'pass' on the qualified mortgage test. One lobbyist working on the bill predicted the measure could cause the agency's insurance volumes to boom. "We could be looking at a $500 billion year [eventually] for them," he said, requesting his name not be published because he is still lobbying. Then again, it's unclear what underwriting standards will fall into the qualified mortgage bucket. Balloon, negative amortization, and most interest-only notes will be excluded from the definition but debt-to-income ratios and verification practices must be defined by regulators and could change over time. The bill, as expected, gives little boost to a revival of the private label market, especially subprime loans. "I'm sorry, this is bad juju," said one specialty servicer and non-conforming lender based on the West Coast. "They are trying to baby proof everything. As far as I'm concerned this bill has bombed out the mortgage industry." Meanwhile, loan brokers are unhappy with the bill because it caps yield spread premiums payment at 3% though it allows for certain vendor fees to be excluded from the calculation.

Federal regulators will oversee appraisal management companies that are affiliated with federally insured banks under the Dodd-Frank regulatory reform bill. Affiliated AMCs are not required to register with the states, according to the bill. The House and Senate are expected to vote on final passage of the landmark legislation before the July 4 recess. The Title Appraisal Venders Management Association wanted all independent, multi-state AMCs to come under federal regulation, but the provision was dropped during final negotiations on the bill, according to TAVMA executive director Jeff Schurman. The bill means the nation's largest lenders, all banks -- Bank of America, Citigroup, JPMorgan Chase and Wells Fargo -- with affiliated AMCs will come under federal regulation. The final bill named after its principal sponsors Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., directs banking and GSE regulators along with the new Consumer Financial Protection Agency to issue new rules to protect appraisers from lender pressure. The guidelines will replace the Fannie Mae/Freddie Mac Home Valuation Code of Conduct rule that is due to sunset November 1. Lawmakers left it to regulators to decide if the HVCC ban on loan officers and mortgage brokers selecting appraisers should be continued. Within 60 days after enactment of the bill, the regulators are expected to issue interim final regulations "defining with specificity, acts and practices that violate appraisal independence," according to a summary of the bill prepared by Canfield & Associates. In acknowledging the problems mortgage brokers have had with HVCC, lawmakers recommended that regulators try to provide for the "portability" of appraisals. This change would make it easier for brokers to use the same appraisal in shopping a loan to various lenders and save the borrower from paying for a second appraisal. But brokers are disappointed that final language does not require the regulators to ensure that lenders will accept an appraisal that was ordered by another lender.

Mortgage bankers will be allowed to securitize FHA and VA guaranteed loans without a risk retention requirement and certain GSE loans will be exempt as well, according to final provisions of the regulatory reform bill worked out late Thursday night. As a technical matter, mortgages backed by Fannie Mae, Freddie Mac and other issuers will be required to retain up to 5% of the credit risk if the loans are not eligible for a total exemption under a "qualified mortgage" test. "I believe chances are very good that in the future almost every mortgage that Fannie and Freddie either buys or securitizes will be qualified mortgages under the risk retention provision," said Glen Corso, managing director of the Community Mortgage Banking Project. Under the agreed final bill, federal banking agencies, the Securities and Exchange Commission, and the Federal Housing Finance Agency will draft rules establishing underwriting standards and allowable product features for these very safe, fully documented "qualified" mortgages. Qualified mortgages also have to meet a new and tougher "ability to repay" standard in the bill along with a 3% limit on points and fees and a separate 2% limit on bona fide discount points. Regulators have the flexibility to set risk retention percentage lower than 5% for residential mortgages that don't meet the qualified mortgage test. Meanwhile, securitizations of mortgages guaranteed or insured by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service and other federal or state entities are totally exempt from risk retention. "We commend the House and Senate Conferees for adoption of the qualified mortgage provision that exempts soundly underwritten, stable, consumer friendly mortgages from the risk retention requirements in the final version of the financial reform bill," Corso said.

Good reasons for becoming a homeowner are listed on signs taped up around the Navajo Partnership for Housing's Gallup, N.M. homeowner education training room: "Financial security. Social recognition. Family security. Sense of accomplishment. Self-respect. A comfortable life."

Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers. State attorney general Martha Coakley, announcing the settlement at a press conference, said Morgan provided billions of dollars in credit lines to New Century "which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to repay." She added that some Morgan executives referred to New Century as Morgan's "partner" in subprime lending. The Irvine, Calif.-based NCFC filed for bankruptcy in early 2008. For much of the decade in was one of the largest subprime lenders in the nation, according to figures compiled by National Mortgage News. As part of the settlement, Morgan agreed to "change its business practices" and to provide the AG's office with "information and materials" as part of its ongoing probe of subprime lenders and the securitization process. In a court filing AG Coakley notes that other Wall Street firms are under investigation regarding their securitization practices. Morgan agreed to the deal without admitting or denying any wrongdoing.

In revamping appraisal standards, federal regulators should ensure that mortgage brokers can use the same appraisal in shopping a loan to different wholesalers, according to House and Senate conferees working on final details of the regulatory reform bill. The legislation directs federal regulators to draw up new appraisal independence standards for all residential mortgages while specifying abuses and deceptive practices. In sending a counteroffer to Senate conferees, the House included an amendment from Rep. Paul Kanjorski, D-Pa., instructing regulators to ensure the "portability" of appraisals. Senate conferees have accepted the Kanjorski proposal. But work on Title XIV dealing with appraisal and mortgage issues will still ongoing as National Mortgage News went to press. Under the Home Valuation Code of Conduct, loan officers and brokers cannot directly select an appraiser and must instead rely on the funder or a management company. If the lender does not accept the loan, the broker has a hard time getting another lender to accept the appraisal, which means the consumer has to pay for another one. Mortgage brokers have been complaining about this lack of portability since HVCC went into effect May 1, 2009.

New home sales are in the tank in the not-so Golden State, but the existing home sector managed to squeeze in a bit of a gain in May. The California Association of Realtors reported that sales increased 1.2% compared to May a year ago. That's hardly stirring. But what is more impressive is that the median price statewide jumped 23.2%, to $324,430. And in even more welcome news, CAR says the inventory of homes on the market remained unchanged at 4.6 months. "Sales posted their third largest increase on record for May, due in part to first-time homebuyers who timed the open and close of escrow in order to capitalize on both the federal and state tax credits," said CAR president Steve Goddard. "May also marked the fifth month of double-digit gains in the median price, indicative of strong buyer demand relative to the supply of homes for sale." CAR's chief economist Leslie Appleton-Young's expectations are a bit lower, however. Noting that demand is lessening in the state, not increasing, she said existing home sales for the year in California will not be any greater than last year, if that.

Existing-home sales in the seven-county Chicago metropolitan region rose 34% in May from the same month a year ago. Despite the gain, however, the average price dipped 2% and the median was down 2.5%, according to an analysis of resale activity by Jim Merrion, regional director of Re/Max Northern Illinois network. But two other key benchmarks-time on the market and the number of distressed sales-point to an improving marketplace. On average, houses that sold in May were on the market for 164 days. That's still more than five months, but it's down from the 184 days recorded in May 2009. Moreover, only a third of the houses sold in May were either foreclosures or short sales, down from 35% in the same month a year ago. Nearly 2,500 distressed properties were sold in May, 71% of which were repossessions and 29% were short sales. Though distressed sales were a smaller share of the market, their number was actually up 22% year-over-year, with short sales jumping 49%, according to Merrion. "We'd like to believe that the increase in short sales suggests lenders are finally beginning to master the process of evaluating and approving short sales, but the average market time for short sales actually has been higher during the first five months of this year than during the same period last year, " he said. "When average market times for these properties show a downward trend, it will be a positive indication, but we aren't there yet."

Residential loan rates fell this week to the lowest level on record, giving consumers added incentives to lock in low payments for home purchases and refinancings. The average rate for a 30-year fixed loan fell to 4.69%, from 4.75% last week, according to figures compiled by Freddie Mac. The average 15-year FRM rate, which Freddie began tracking in September 1991, fell to 4.13% from 4.2% the previous week. A year ago it was at 4.87%. The average rate for a five-year Treasury-indexed hybrid ARM, which Freddie began tracking in January 2005, slid to 3.84% from 3.89% the previous week and 4.99% a year ago. The average one-year Treasury ARM declined to 3.77% from 3.82% the previous week and 4.93% a year ago.

Though executives at many private-equity firms continue to raise capital and scout opportunities, few have emerged victorious in the bidding for failed institutions in recent months. The reasons are many. The pace of failures has been slower than dealmakers expected. Methodical due diligence is slowing deals for banks that are still open, in which government loss-sharing is not available to protect buyers. And regulators remain reluctant to quickly sign off on deals that do not involve traditional bank buyers. "You're not going to see floodgates opening up soon in terms of a plethora of deals," said Mark Graf, an investment professional at Aquiline Capital Partners LLC, a New York private-equity firm. "The challenge is finding the right confluence of events with the right return on investment, and you have to meet the regulators' guidelines." The overall tone from private-equity executives appears calm despite an eagerness to put billions of dollars in capital to work. Most agree that as failures accelerate and traditional buyers prove scarce, private equity will be in the thick of things, ready to pursue an aggressive consolidation strategy. There have been notable deals, some point out, including one that closed last week where Aquiline bought common stock and convertible preferred shares that would give it a 24.9% of BNC Bancorp in High Point, N.C. BNC expects to use the funding for traditional and government-assisted acquisitions. Still, it took time for Aquiline to green-light its first direct U.S. bank investment. Graf, who will join BNC's board, has been with the private equity firm since late 2008 and former Wachovia Corp. CEO G. Kennedy Thompson came on board more than a year ago. Graf said, however, that Aquiline is looking at similar deals in other parts of the country.

Despite efforts to assist distressed homeowners, the number of foreclosure actions completed by mortgage servicers has steadily risen over the past four quarters, according to a new report from the Comptroller of the Currency and the Office of Thrift Supervision. "Completed foreclosures increased across all risk categories, with the highest percentage increase among prime mortgages," the OCC/OTS Mortgage Metrics report says. The joint report says completed foreclosures in the first quarter totaled 152,650, up 19% from the prior quarter and 68% since the first quarter of 2009. Roughly 76,000 prime borrowers lost their homes in 1Q as the servicer or investor took title to the property. Meanwhile, servicers initiated 370,500 new foreclosure actions in 1Q, up 19% from the fourth quarter, and at levels experienced during the first three quarters of last year. More than 174,000 prime borrowers received their first foreclosure notice in 1Q, according to government figures collected from 11 of the nation's largest bank and thrift servicers. These institutions service almost 34 million first liens with $6 trillion in outstanding balances. The servicers "indicated that new foreclosure actions and completed foreclosures are likely to continue increasing as alternatives for seriously delinquent borrowers are exhausted," the regulators said.

The American Land Title Association is calling on its members to contact their elected officials in Washington to support an extension of the June 30 closing deadline for the homebuyer tax credit. A Senate amendment to the American Jobs and Closing Tax Loopholes Act would give buyers an extra three months to finalize their purchases, and ALTA is joining the National Association of Realtors and the National Association of Home Builders in supporting the rider. According to a Grassroots Action Alert to members, the group says that in markets with the highest volume of short sales, "it is not uncommon" for the closing to take up to 120 days. Consequently, the memo warns "the two-month window afforded by the homebuyer tax credit is simply not long enough for current market conditions in the most severely distressed markets." NAR has estimated that between 55,000 and 75,000 contracts may be unable to close by the current deadline, and ALTA worries that many of the pending short-sale deals could easily become foreclosures if the buyer fails to qualify by the deadline. ALTA's members handle the bulk of settlements in most states.

Hawaii Gov. Linda Lingle has joined state legislatures and governors in 14 states across the country who are placing bans on Wall Street Home Resale Fees (also known as "private transfer fee covenants"). The coalition says this "new financial scheme" lowers home resale values and adds another layer of difficulty to selling a home. Lingle's signing of House Bill 2288 means Hawaii joins Arizona, Florida, Kansas, Iowa, Maryland, Minnesota, Mississippi, Missouri, Ohio, Oregon, Texas and Utah in banning Wall Street Home Resale Fees. California requires notification that these fees exist in a contract. Companies in the real estate industry, such as Manhattan-based Freehold Capitol Partners, are attempting to add language to home purchase contracts requiring that a percentage of the sales price be paid to the original corporate owner of a property every time the property is sold, typically for 99 years. The right to collect these fees would then be securitized and sold "to enrich investors at the cost of stealing equity from consumers, forcing homeowners to pay a large fee to sell their homes and adding a complicated legal roadblock to the home sale process." In addition, Illinois and Louisiana have bills awaiting a governor's signature. Alabama, Georgia, New Jersey, North Carolina, Rhode Island and South Carolina, and seven additional states are expected to introduce legislation in 2011 (Massachusetts, Montana, New York, Nevada, South Dakota, Washington and Wyoming).

OneWest Bank CEO Terry Laughlin is leaving the company to join Bank of America where he will be reunited with CEO Brian Moynihan and succeed mortgage executive Jack Schakett. Laughlin announced his resignation from OneWest, Pasadena, Calif., on Monday and will stay with the bank through the end of July. At B of A Laughlin will be in charge of limiting home loan losses and monitoring relations with mortgage investors, said a company spokesman. Schakett, a former Countrywide Financial Corp. executive, plans to pursue entrepreneurial ventures. B of A bought Countrywide, once the nation's largest home lender and servicer, in the summer of 2008. OneWest is the successor to IndyMac Bancorp, which was seized by the Federal Deposit Insurance Corp. in 2008.

Residential servicers on Thursday told a House panel that consecutive changes to the Treasury Department's foreclosure prevention program have made it increasingly difficult to keep distressed borrowers in their homes. Mortgage consultant Edward Pinto described the Home Affordable Modification Program in two words: "numbing complexity," noting that HAMP has 800 requirements and servicers are expected to certify compliance," he said. "With ever-changing regulations, a constant need to re-evaluate past decisions in light of new regulations, and multiple appeals, it is no wonder that the HAMP pipeline became clogged through no substantial fault of servicers." HAMP was created to help financially strained borrowers avoid foreclosure, but the program's performance, to date, has been lackluster. On Thursday, members of the House Oversight and Government Reform Committee held the second of two hearings to assess HAMP's progress. This latest hearing is focusing on what servicers are doing to ensure borrowers receive adequate relief.

House and Senate conferees working on the regulatory reform bill dealt a double-blow to loan brokers Thursday morning by extending HVCC appraisal ordering bans and capping yield-spread premium payments at 3%, according to one trade group official. Marc Savitt, who has been lobbying on behalf of the brokerage industry, said conferees decided against a sunset provision that would have allowed approved brokers and loan officers to order appraisals. (Under the Home Valuation Code of Conduct regulation originators cannot directly order appraisals and must use appraisal management companies.) Savitt, past president of the National Association of Mortgage Brokers who leads a new industry trade group, said the appraisal ordering ban was set to expire but Sen. Chris Dodd, D-Conn., supported language maintaining it. Savitt, who runs a small brokerage operation in West Virginia, noted that the House and Senate agreed to a compromise, essentially capping yield-spread premiums at 3%, though the final language allows for certain fees and charges to be excluded from the cap. He said that, overall, the loan brokerage industry was "shafted" and is being unfairly blamed for the financial crisis. "We've been convicted and sentenced without having a trial," he said.

Williston Financial Group and its wholly owned subsidiary, WFG National Title Insurance Co., which is headed up by title insurance industry veteran Patrick Stone, have opened their national headquarters in Lake Oswego, Ore. In the six months since Stone and his group formed the company, it has become licensed in 33 states and hired 200 employees nationwide. Stone plans to continue WFG's aggressive growth program, declaring, "It is the most opportune time in the market's history to make cost effective acquisitions. Moreover, the real estate settlement services industry has become internally focused, creating a disconnect with clients forced to adjust to a challenging market dynamic." Stone is the former president and chief operating officer of Fidelity National Financial and also served as the chief executive of Fidelity National Information Systems. He also has served as the vice chairman of Metrocities Mortgage and as a director for First American Corp.

Web-based LOS Avista Solutions has integrated with verification service company Kroll Factual Data. This integration was done at the request of joint clients to allow Avista Solutions' customers to pull credit through Kroll without leaving the Avista Agile LOS. The Avista Agile platform lets users create loan applications online through the system or import applications from external loan origination software. The consumer website portal allows lenders to provide their customers online loan application, status updates, loan officer webpages and online disclosure. Now Avista users will have access to Kroll's credit service, which provides reports in both PDF and text file formats.