Originations

Lenders One Mortgage Cooperative, St. Louis, a national alliance of community mortgage bankers, said it increased membership rolls by 16 during the first half. The group now boasts 169 firms, which include lenders, servicers, correspondent funders and some vendors. Lenders One has been lobbying heavily to battle onerous risk retention requirements in the pending regulatory reform bill, which could crimp the ability of nonbank lenders to compete and survive. The 16 new members that joined this year are a diverse group with four from the West region of the U.S., five from the Midwest, four from the East and three from the Southeast.

Westcor Land Title Insurance Co., Winter Park, Fla., has created a National Agency Division to serve independent title agents who write business in multiple states. The unit, Westcor said, was formed out of demand from the growing number of multistate agents looking for an underwriter who provided a relationship built on trust and integrity and gives their agents access to all decision makers without competing for their customers. The team will include Barbara Allen, division manager, Sara Hewitt, vice president of national accounts, Kimberly Sledd, national agency representative, and Chris Skinner, national corporate coordinator. Westcor is currently licensed in 26 states with 10 additional state licenses slated for approval this year. "Westcor does not expect to be a 50-state solution, explains Allen. "Rather, our purpose is to identify and engage a network of quality agents and vendors to support independent multistate agents in most markets even if the policy is not issued on Westcor." Westcor, according to the American Land Title Association, was the third largest regional underwriter for 2009 and seventh largest overall.

Quarter-to-quarter delinquency rates for all commercial/multifamily mortgage investor groups reviewed by the banking group continued to increase in the first quarter, with securitized loans reaching the highest level since the series began in 1997. The Mortgage Bankers Association Commercial/Multifamily Delinquency Report shows that compared to 4Q09 the 30-plus-day delinquency rate on loans held in commercial mortgage-backed securities rose 1.54 percentage points to 7.24%. Delinquencies for five of the largest investor groups reviewed—commercial banks and thrifts, CMBS, life insurance companies, Fannie Mae and Freddie Mac—"remain below levels seen in the early 1990s, some by large margins," the MBA said. The 60-plus-day delinquency rates increased on loans held in life company portfolios by 0.12 percentage points to 0.31%, on multifamily loans held or insured by Fannie Mae by 0.16 percentage points to 0.79%, and on multifamily loans held or insured by Freddie Mac increased 0.05 percentage points to 0.24%. The 90-plus-day delinquencies on loans held by FDIC-insured banks and thrifts also increased by 0.32 percentage points to 4.24%. These findings are significant since together these groups hold over 80% of commercial/multifamily mortgage debt outstanding—excluding construction and development loans, which are not presented in the report. MBA's Jamie Woodwell attributed the deterioration to economic weakness noting that unless there is growth in jobs and consumer spending, the CRE mortgage market will not be stabilizing any time soon.

Housing starts fell 10% in May to an annualized rate of 593,000 units, far below the expectations of many analysts who were looking for a consensus reading of 648,000. The Commerce Department reported that applications for new building permits, a sign of future activity, also declined, sinking 5.9% to an annual rate of 574,000, the lowest level in a year. Meanwhile, April's numbers were revised downward to 659,000 from 672,000. According to a report by Barclays Capital, "The weakness in housing starts today was driven entirely by single family starts, which fell to 17.2%, to 468,000 from 565,000, completely reversing the 5.6% gain in April." There was some good news: multifamily rose 33% in May to 125,000 from 94,000. Regionally, the decline was concentrated in the South (21.3%) and the Northeast (6.3%). Analysts say builders are scaling back their construction plans now that federal tax credits for first-time and certain move-up buyers have expired.

Mortgage application volume again reversed course, spiking after a one-week decline. The Mortgage Bankers Association's Market Composite Index increased 17.7% on a seasonally adjusted basis from one week earlier and 29.7% on an unadjusted basis for the week ended June 11, 2010. The prior week's data was adjusted for the Memorial Day holiday. The Refinance Index increased 21.1% from the previous week to its highest point since May 2009. But it was not just refis that consumers were seeking as the seasonally adjusted Purchase Index increased 7.3% from one week earlier, which is the first increase in six weeks. Michael Fratantoni, MBA's vice president of research and economics, had some cautious words in interpreting this data. "While it is clear that purchase applications in May dropped sharply as a result of the tax credit induced increase in applications in April, it is unclear whether we are seeing the beginnings of a rebound now," he said. The refinance share of mortgage activity increased to 74.8% of total applications from 72.2% the previous week, which is the highest level since the week ending Dec. 18, 2009. The adjustable-rate mortgage share of activity increased to 5.2% from 5.1%. The average contract interest rate for the 30-year fixed-rate mortgage increased by a single basis point to 4.82% from 4.81% for the current week with points decreasing from 1.02 to 0.89 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs increased by 3 bps during the week to 4.23%. However, the average contract interest rate for one-year ARMs showed a large increase of 13 bps from the previous week, to 7.07%.

The Securities and Exchange Commission Wednesday accused the former owner of Taylor Bean & Whitaker with orchestrating a massive equity and MBS fraud tied to his firm's warehouse borrowings from Colonial Bank, a depository it tried to take control of last summer using TARP money. In a civil complaint, the SEC says TBW owner and CEO Lee Farkas created $1.5 billion worth of "fictitious" whole loans and impaired MBS which were pledged to the bank's balance sheet and served as collateral for warehouse lines of credit. The government says the nonbank ran into "liquidity problems" and began over-withdrawing on its warehouse lines which led to the equivalent of a check "kiting" scheme at the bank. The agency says the scam predated TBW's attempted takeover of Colonial, a troubled bank, by about 18 months. In the spring of last year TBW tried to buy a controlling stake in the Alabama-based warehouse lender, using $200 million of its own money (most of it borrowed using servicing rights as collateral) and $100 million from private investors. These investors included several nonbanks that also were warehouse clients of Colonial. The bank, which failed last summer, was at one point the nation's largest warehouse provider. Using TBW's $300 million investment, Colonial had applied for $550 million of Troubled Asset Relief Program funds to stabilize its capital position. Farkas could not be reached for comment. TBW filed for bankruptcy protection last fall.

Meridian Capital Group, New York, has named Chad Johnson managing director of its commercial originations group. As an officer of the firm he will be originating loans nationally. He will work out of the firm's newly formed office in Kansas City, Kan. During his career, Johnson has worked for GMAC Commercial Mortgage, UBS, Deutsche Bank and Wachovia.

Red Capital Group, which was recently sold by PNC Bank, has exited the warehouse sector. The Ohio-based firm was a niche player in warehouse lending and was ordered out of the business by the Pittsburgh-based PNC. In an e-mail to NMN, company official James A. King said, "We are no longer in the warehouse business" but declined to answer follow up questions. PNC is in the process of winding down the warehouse operation of National City. A few weeks ago an investment group led by Orix USA Corp., Dallas, bought Red Capital for an undisclosed sum. Red also provides financing for multifamily, senior living and health care projects through various FHA and Fannie Mae programs.

Although one of the first steps the conference committee took last week was to preserve the existence of the thrift charter in the final regulatory reform bill, the charter's days are likely numbered anyway. The merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency will eliminate some of the key benefits of choosing the charter, and leave a single agency trying to enforce two different sets of rules, observers said. Ultimately, many said they expect the thrift charter to fade away. "It's a little complicated with two different charters in one agency," said James Barth, a finance professor at Auburn University and a senior fellow at the Milken Institute. "It seems it's not a real complete merger. I would think down the road one would want to eliminate that distinction." The future of the charter is just one of the difficulties stemming from the pending OTS-OCC merger, observers said, including how best to integrate the agencies' personnel, cultures and different supervisory approaches. "It's not a question of the OTS," said Dough Faucette, a partner at Locke Lord Bissell & Liddell LLP. "That's a foregone conclusion; that's gone. The real question is then what will the attitudes and culture of the new agency be like?" Although the bill has yet to pass—conferees were slated to address some of the remaining issues surrounding the merger during their session today—implementation of the agencies' combination has already begun.

Even though mortgage rates continue to flirt with all-time lows, homebuilding executives feel awful. A new report from the National Association of Home Builders says executives in the sector are losing confidence in housing now that two federal tax credits have expired. NAHB said its housing market index fell to 17 in June, sinking five points after two straight months of increases. It was the lowest reading since March. "The homebuyer tax credit did its job in stoking spring sales and we expected a temporary pullback in the builders' outlook after the credit expired at the end of April," said NAHB chairman Bob Jones, a homebuilder from Bloomfield Hills, Mich. "However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels." Builders were more optimistic earlier in the year when consumers could take advantage of tax credits of up to $8,000. The incentives expired April 30 but buyers with signed contracts have until June 30 to close. Legislation has been introduced in the Senate to extend the closing deadline into September.

Many proposed refinancings and purchase loans have been scuttled because the appraiser could not find enough comparable sales of similar homes. Part of the problem is that lenders have narrowed their definition of an acceptable comp in the past year as part of an overall stiffening of standards. Many appraisers have failed to find the requisite two comps within the prior three months, or even three comps within six months, because there have been so few sales in a given area. This could create a self-fulfilling cycle, where fewer sales lead to fewer comps, which in turn lead to still fewer sales. At the same time, as distressed sales make up a greater portion of the real estate market, lenders also fear those sales will become the only comps, resulting in lower home values and hence smaller loans.

Language in the "base text" document of the regulatory reform bill could allow residential borrowers to sue their lender—without a statute of limitations—if the mortgage banker violates the anti-steering provisions of the law. According to an analysis of the base text conducted by K&L Gates, "in the case of judicial or nonjudicial foreclosure or any other action to collect on a loan, it appears that a consumer has a perpetual federal right to assert such a violation by a creditor as a matter of defense by recoupment or set off in an amount equal to the monetary damages that could be asserted against the original creditor." The base text is an amalgamation of the House and Senate versions of the bill. The law firm notes that several provisions from the House bill pertaining to residential mortgage lending that were not in the Senate Bill are included in the initial base document. The anti-steering language is designed to prevent lenders from pushing borrowers into certain loans—regardless of their ability to repay—because the loan officer might receive higher compensation for delivering such a loan. The law firm is telling clients, "There is a lot to be digested in the base document, but it is important to stress that it is the starting point for negotiations among the conferees."

Although there are signs of life in the wholesale sector, originations through the channel hit an all-time low in the first quarter, according to figures compiled by National Mortgage News. Residential loans facilitated through table funding accounted for just 12.8% of the $329 billion in originations in 1Q, down significantly from a peak of 28.2% three years ago. (The previous all-time low was 13%, established in the third quarter of last year.) The decline comes as some lenders—GMAC Mortgage, Bank of Internet and others—are showing a new willingness to use loan brokers or approach salesmen they used in the past. As wholesale declines as a channel, retail and correspondent production are gaining. In the first quarter retail lenders accounted for 47.5% of all loans produced with correspondent capturing the balance, 39.7%. (For the full story see the weekly edition of NMN.)

In a deal being brokered through Perrin & Associates, an unidentified bank is pledging $1.8 billion in new commitments to nonbank lenders this year. Michele Perrin, president of the firm that bears her name, said she could not identify the lender at this time. She noted that she will be screening the applications to borrow. "The bank will allow both retail and wholesale lending," she said in an interview with National Mortgage News. "But you need a minimum net worth of $1 million and must be in the business for at least three years." One added benefit is that the bank will extend credit on a 20-to-1 leverage basis. Liquidity in the warehouse sector has increased dramatically the past six months but one of the largest players in the field, the former warehouse lending division of National City, is in the process of winding down all of its lines.

CoreLogic has launched Partner InfoNet, a program for sharing revenue with multiple listing service organizations. Through the effort, an MLS licenses its listing data for use in a variety of new risk management products for mortgage lenders, servicers and the capital markets. Until now, MLS organizations have lacked a safe and easy way to generate additional value for their members by applying their listing data outside of the real estate transaction. At the same time, lenders have lacked access to critical listing information that would help make better and faster lending decisions. The Partner InfoNet addresses both these issues by combining CoreLogic MarketLinx licensed MLS data with CoreLogic property data assets to create enhanced risk management products for lenders. CoreLogic provides data and analytics solutions to the mortgage community.

Freddie Mac and Fannie Mae have selected Veros Real Estate Solutions as a technology vendor for their Uniform Collateral Data Portal. The portal will support electronic appraisal data delivery to the government-sponsored enterprises as part of the Uniform Mortgage Data Program, launched this spring. The GSEs have said that to enhance their collateral risk management, they will require seller-servicers to submit full appraisal reports in electronic data format prior to loan delivery to either Fannie Mae or Freddie Mac, effective April 2011. UCDP will serve as a centralized portal for these submissions.

FIS will acquire Compliance Coach Inc., a vendor that provides risk assessment software, e-learning and tools tied to lending compliance matters. The transaction is expected to close within the next 30 days. Terms of the deal were not announced. This acquisition is a strategic move by FIS to enhance its overall compliance strategy. FIS will assume ownership of Compliance Coach's flagship products including Regulatory University, Compliance Risk Indicator and Compliance Pal. These solutions currently support approximately 1,500 clients, including seven of the top 10 depositories within the financial services industry.

The National Credit Union Administration has issued a supervisory order directing Sperry Associates Federal Credit Union, Garden City, N.Y.—one of the biggest victims in the $140 million U.S. Mortgage/CU National Mortgage scam and a major investor in loan participation pools—to boost its capital. The Letter of Understanding and Agreement signed with NCUA may reverberate even further because it will require the $360 million asset CU to charge off $1.3 million of nonperforming participations it had from loans originated by the failed Cal State 9 CU, and another $1.9 million of participations in troubled South Florida loans. The supervisory order could spell trouble for hundreds of other CUs that hold participations in troubled real estate loans around the nation. Sperry Associates, which is fighting Fannie Mae for the return of $9.5 million of its mortgages fraudulently sold to the GSE by CU National, was cited for declining capital, participation losses, potential unrecognized investment losses and inadequate testing of high-risk areas. In return for agreeing to the Letter of Understanding and Agreement, NCUA will refrain from issuing an administrative order against the credit union.

Securitization market participants appear to be unified on eight issues related to risk retention proposals and split on two, according to a draft report by a group that represents both the "buy" and "sell" side of trades. The group is split on a portion of the legislative proposal which makes it possible in the commercial mortgage market to have a third-party purchaser retain the first-loss position if that purchaser specifically negotiates for such a position and performs due diligence on the pool. According to the American Securitization Forum's June 11 draft report on its membership's response to financial regulatory reform proposals by the House and Senate, certain of the group's members "believe this alternative form of retention should be available for other asset classes." However, it said, other members "believe retention of risk by a third-party purchaser is not retention at all, because it allows the issuer to sell the risk which does not align incentives or result in prudent securitization practices." The group also remains split on whether "qualified" securitized mortgages underwritten to "prime" credit standards should get an exemption. Some members believe allowing a "qualified" mortgage exemption would ensure "incentives are aligned between originators and investors." Others said they are concerned that "while a 'qualified mortgage' would require some minimum in quality, it would not require an issuer to have ongoing 'skin in the game' with respect to the securitization." While the membership is split on the aforementioned two issues, it is unified in pushing for proposals that allow for "adequate representations and warranties and enforcement mechanisms" to be used as an alternative for risk retention.

The former regulator of Fannie Mae and Freddie Mac said nationalizing the troubled GSEs is a bad idea, declaring that all government insurance programs are slated to fail. Speaking at a National Mortgage News conference on distressed assets, James Lockhart said the "right answer" to the Fannie/Freddie conundrum is to privatize the two, but admitted accomplishing such a task is near impossible right now since the government controls nearly 100% of the residential market and 80% of the multifamily sector. Lockhart, who left the Federal Housing Finance Agency about a year ago, suggested breaking up the GSEs into two separate companies, but not on a good bank/bad bank model, but what he called a new company/old company model. He noted that Democrats in Congress were correct in not including the resolution of the GSEs in the financial services regulatory reform bill. Lockhart said it would have made negotiations "messier" and that it's smarter to wait for a "calmer day." The two have been in conservatorship since September 2008.