Originations

Freddie Mac is trying to prevent Bank of America from investigating its business relationship with the failed Taylor Bean & Whitaker, noting that the cost of the probe could cost the GSE $10 million or more. According to a report by Dow Jones, Freddie is urging the Federal Bankruptcy Court in Jacksonville, Fla., not to allow Bank of America to carry out the investigation. TBW, a nondepository mortgage banker, was a larger seller/servicer to Freddie. The GSE seized control of some of TBW's servicing rights when the lender failed last year. B of A is owed money by TBW. "The breadth of the discovery sought by B of A is so vast that Freddie Mac estimates that it will cost at a minimum $10 million to provide the discovery sought," the GSE says in a recent court filing. "B of A seeks to unfairly shift the cost of compiling and providing such records to Freddie Mac by means of a broad 'fishing expedition.'" Bank of America is seeking access to Freddie Mac's books and to question its officials about the mortgage finance company's "extensive business relationship" with Ocala, Fla.-based TBW.

The Government National Mortgage Association late this week unveiled a new MBS program for Title 1 manufactured housing loans but to play servicers need a minimum net worth of $10 million. Also, mortgage bankers that issue MH MBS must re-apply if they want to participate in the new program. Only "eligible" MH loans will be considered which means the applicant must also own the underlying real estate. Ginnie has set a 30 basis point guarantee fee. The minimum pool balance is $1 million. Two years ago MH units accounted for 12% of the new housing market, but that number has fallen significantly since then. At press time GNMA did not have an updated number.

Economists at the Federal Reserve Bank of New York are counting underwater borrowers as renters rather than homeowners, to calculate future homeownership rates. Unless house prices increase substantially in the next few years, many homeowners with negative equity will default and exit their homes, become renters and homeownership rates will drop substantially, according to economists Andrew Haughwout, Richard Peach and Joseph Tracy at the New York Fed. This effect will be especially notable in hard-hit markets like Detroit, Las Vegas and Miami. The national homeownership rate fell to 67.2% in the fourth quarter from a high of 69% in 2006, but is likely to drop even further in the next few years to levels last seen in the 1990s, they said. The economists contend that there is a significant "homeownership gap" that could be as high as 5.6% nationally between the official homeownership rate and what they call the "effective" rate, which excludes underwater borrowers.

Broward Bank of Commerce, Fort Lauderdale, said it has launched a new residential lending division, giving its customers access to the purchase and refinancing markets. The Florida bank, which has been in business for less than two years, named Regina Blanz senior vice president in charge of the effort. During her career she has worked at Minto Communities and Pointe Federal Savings Bank. Broward Bank, which boasts no delinquent loans, has $77 million in assets. The launch of the new residential unit "reflects the bank's mission to be responsive to our customers' needs and fits our vision for strategic growth," said Broward president Keith Costello.

While large public builders have a "tremendous advantage" over their smaller competitors because they can go directly to Wall Street for the construction money, they are so burdened with disadvantages that smaller firms can run rings around them, an Atlanta-based management consultant said at the PCBC. The so-called publics have so honed the manufacturing process that they cannot react quickly when something like the Chinese drywall fiasco strikes, said Martin Freedland, CEO of the Berke Group. Because management is centralized, he also explained, it is difficult for big builders to change their overall strategy or solve problems. "Problem solvers and creativity are stifled at the local level," according to the consultant. Furthermore, although housing is a highly entrepreneurial business, the big builders are now run largely by people with legal and finance degrees, Freedland said. And because their products are so much alike—and often right across the street from one another—that they compete largely on price. Private companies have some disadvantages, too, but at least they are run by entrepreneurs, many of whom grew up in the business, Freedland said. They're also flexible, he added, receptive to change, know their local markets, can attract the best people and build strong cultures, among customers as well as employees. "There is more to this business than just price," Freedland reminded the conference.

Neighborhood Housing Services of America said it is planning an "orderly wind down" of its affordable housing programs due to "extraordinary liquidity demands" resulting from the housing downturn and is ceasing its purchases of new loans. "The financial demands of the current market and expected continuing challenges have contributed to NHSA's inability to secure its annual grant from NeighborWorks America," NHSA said in a press release. "The lack of grant funding has left the nonprofit organization with liquidity levels that will not allow it to continue operations." However, a spokesman for NeighborWorks America told this publication it was "surprised" by NHSA's announcement as it had been in talks with NHSA for some time about what NHSA might be able to do to continuing meeting the terms of its grant and had been "hopeful" that it would. "We hoped that we could come to an agreement that [would keep] NHSA doing the work its done for years for nonprofit organizations but apparently it couldn't find a way to make that happen," the spokesman said. NHSA said in its press release it had made several changes over the past year and negotiated concessions in loan terms and interest rates from its lenders/investors "in anticipation of obtaining the grant funding." While NHSA will no longer purchase new loans, it plans to continue to collect payments and service existing mortgages "until arrangements can be made to transfer these responsibilities to other parties." NHSA also said it "may seek to sell mortgage loans, mortgage servicing rights, its interest in intellectual technology rights and other assets, as appropriate." It added, "Should other opportunities emerge, the board will evaluate the feasibility of others outcomes." NHSA said the wind-down would take place "over the next several months."

Applicants hoping to tap lucrative tax credits for buying a home could get a closing extension to Sept. 30 under a measure introduced in the Senate. Sen. Harry Reid, D-Nev., co-authored a proposal giving eligible homebuyers 90 extra days to reach the closing table. The way things stand now, homebuyers must close by June 30 but lenders say they are now swamped with applications and are having trouble getting appraisals done under rules promulgated by the Home Valuation Code of Conduct. The National Association of Realtors estimates that up to 180,000 borrowers who signed a contract by April 30 may not meet the June 30 closing deadline. Two different homebuyer tax credits are at stake: $8,000 for first-time purchasers and $6,500 for certain "move up" buyers. Reid—whose state has been one of the hardest hit in terms of home price declines—hopes to attach the language to a bill that extends unemployment benefits.

The House of Representatives Thursday afternoon overwhelmingly passed an FHA reform bill allowing the agency to triple annual premium payments to 150 basis points, a move designed to bolster the insurer's wobbly finances. The measure also mandates that seller/servicers repay the government for any losses on mortgages funded using delegated underwriting. If fraud is discovered on an FHA loan, the agency could hold the lender liable in full. Among other things, the legislation gives a break to FHA homebuyers who purchase properties with a downpayment of 10% or greater. "For any mortgage involving an original principal obligation that is less than 90% of the appraised value of the property, this premium may be required to be paid for the first 11 years of the mortgage." If the downpayment is less than 10%, the premium will be assessed over 30 years. (The values are subject to appraisal confirmation.) The final tally on the vote for the FHA Reform Act (H.R. 5072) was 406-4. In a statement, HUD secretary Shaun Donovan said the bill would enable the Federal Housing Administration to "reform its current mortgage insurance premium structure by shifting some of the upfront cost to the annual premium—a move that will increase FHA's capital reserves and reduce risks" to the government insurance fund. With the House bill passed, the Senate must come up with its version of the measure.

It's safe for distressed commercial real estate investors "to go in the water" again, according to a top analyst that covers the market for Ernst & Young. "Yes, enjoy the swim," said Mark Grinis, a partner in the real estate distressed services group at E&Y. But he also cautioned that buyers need to have a reasonable outlook about their returns. Speaking at a National Mortgage News conference on "Buying and Selling Distressed Mortgage Portfolios," he gave this sobering assessment: "You will need to earn your returns." Buyers of distressed assets, he said, need to come up with a strategy that dovetails with where the distressed assets actually are. For example, notice of defaults on land loans peaked last year. Another asset class where NODs have peaked is in hotels. Grinis said those are areas where buyers will be seeing plenty of action. Everyone expected to see a flood of distressed assets on the market, he said. But each lender is making an individual decision on when to sell and take a hit, he said, adding that there is "no rush for the exits," which has helped to keep prices up.

Builders gathering at the nation's largest regional housing trade show this week were told they'd have to hang on for a few more years before the market picks up any kind of steam. Eventually, builders will produce 1.4 million units a year, but that's "three or four years down the road," said Elliott Pollack, a Phoenix investor and consultant. Speaking at the Pacific Coast Builders Conference in San Francisco he noted, "There's going to be a recovery, but it's going to be a weak recovery." David Crowe, chief economist at the National Association of Home Builders, said patience will be "a builder's best virtue" going forward. But he also said the states which will recover first are relatively small ones. "North Dakota can double its production and we're not going to feel it at the national level," he said. Kicking off PCBC's new Capital Markets Forum, Pollack told builders not to get caught up in numbers. "Things are going to get progressively better, capital will show up and there will be less competition," he said, noting that the number of builders operating in the Phoenix area has dropped from 864 at the height of the market to 133 today. "If I'm you, I'm doing cartwheels because I'm still here," he told the crowd. Pollack, who heads Elliott D. Pollack & Co., also predicted that house prices will jump once the oversupply of building lots is worked off. But he warned that credit for both builders and their buyers will be tougher to come by. "If you want to know what credit is going to look like, go back to the '70s and '80s," he said.

Essent Guaranty, a startup mortgage insurance firm, has finally written its first policy but isn't giving out much in the way of details. In a statement issued to National Mortgage News, the Pennsylvania-based company said it is "actively engaged with lenders and has issued mortgage insurance certificates." But the company declined to say how many MI policies it has issued and when. The privately held firm was formed two years ago by Mark Casale and other industry veterans. During his career, Casale worked for Radian Guaranty, and Advanta Mortgage, the latter of which eventually was sold to Chase Manhattan Bank (now JPMorgan Chase). With Essent's entry into the market, there are now seven MI firms actively writing new policies. Triad Guaranty is in "wind-down" mode.

Private equity funds have their pockets full of cash for builder loans, even in areas hit hardest by the housing downturn, according to a survey released at the Pacific Coast Builders Conference. "Despite their problems, that's where we are seeing increased activity," said Jeff Meyers of Meyers Builder Advisors, Corona del Mar, Calif. Pension funds, private funds and even high net worth individuals are eyeing places like California, Arizona and Las Vegas because there is a relatively high barrier to entry in those markets, so their returns are better, Meyers explained. Hammered by huge losses on tract development loans, commercial banks have either exited the sector or severely tightened underwriting terms. According to the Meyers poll, investors that are willing to extend credit want to make 20%-25% or more on their money over a three- to four-year period. Not only that, Meyers said, but they typically also now want builders to have some skin in the game. Some are looking for their builder clients to co-invest at least 5%, while others want builders to maintain as much as a 20% share in their developments, the survey found. Equity investors aren't afraid of land deals, either, according to the poll. In fact, they are actually looking forthem—"Preferably those with improvements already in the ground," Meyers said—because they see them as coming with a great exit strategy. Over the next two years, more than half the equity funds which participated in the survey said they will deploy $100 million or more in the homebuilding sector, a signal Meyers is taking as the return to the market of institutional investors.

Developer Jeff Stack has been through five downturns in his real estate career, but the current one is the worst yet. "It's the deepest, broadest, most all-pervasive because it has impacted every industry in the country, not just real estate," said the managing director of the SARES-REGIS group, an Irvine, Calif., firm which builds apartments and other commercial properties. Other panelists with Stack at PCBC in San Francisco have lived through one less cycle, but they weren't any more optimistic. Bradley Forrester, president of the ConAm Group, a San Diego-based company which acquires and develops communities through the country, believes the market is "stuck" at the bottom of the cycle, and Doug Bibby, president of the National Multi-Housing Council, shared that view. "I'm a skeptic" when it comes to the recovery, Bibby said. "I don't think a return is imminent. I think it will be a slow climb out" of the recession. Daryl Carter, chief executive officer of Irvine-based Avanath Capital Partners, an investment firm which focuses on affordable apartments, agreed with the "stuck" assessment. He also pointed out that while there is "a lot of capital cuing up" that would like to buy existing rental projects or back new ones, "what's available doesn't meet their requirements." Still, once investors accept the fact that 15%-20% returns are no longer in the cards unless they want to take "excessive risk," Carter expects to see that capital deployed eventually, and so does Stack. Investors "can't keep it as cash," said Stack.

The aisles are a little wider at the Moscone Center in San Francisco at the Pacific Coast Builders Conference, the nation's largest regional trade show, and the crowds are somewhat thinner. But the builders and exhibitors who are here are generally optimistic that the worst is over. According to a survey of registered attendees by Immersa Marketing on behalf of PCBC, nearly a third said their businesses have stopped constricting and 40% said their businesses have actually begun to recover. "We hope the turnaround two out of five builders are experiencing will soon be experienced by many more," said Linda Baysari, senior vice president of PCBC. The West has been particularly hard hit by the housing and banking crises, with only 4% of the respondents saying they have been unaffected by the recession. And as a result, the professionals here say they are adapting. Nearly two-thirds of the attendees said they are becoming more competitive, and 60% said they are exploring new housing products, including smaller houses, better use of design and greater densities. Some 55% said they were becoming more innovative. Furthermore, most said they are committed to a business they enjoy. "Homebuilders tend to be resourceful by nature," Baysari said.

If the demographics bode well for the for-sale sector of the housing market, the numbers look absolutely smashing for the rental side of the business, according to panelists at PCBC's Multifamily Trends day. For every 1% decline in the ownership rate, there is a corresponding increase in renter households, said Clyde Holland, chief executive officer of the Holland Partner Group, a Vancouver, Wash.-based developer. So, if there is another 2% decline in the ownership rate to a long-term average of 64%-65%, there will be a need for 5.5 million to 5.7 million rental units, he told the conference. "Even if (the potential renters) double up, there will be demand for 2.5 million to 3 million apartments," Holland said. And that's on top of the 3.4 million potential renters in the 18- to 34-year-old age bracket—"the largest cohort since the baby boom of the 1960s"—who will enter the market between now and 2015, Holland also pointed out. "This year alone, some 800,000 persons will enter the rental market, and an even larger number will enter the market next year," he said. Household formations, added Brian McAuliffe, managing director of acquisitions at RREEF, Chicago, "are just as critical as job growth, if not more so," to the apartment sector.

A second former Republican presidential candidate has become a spokesman for a reverse mortgage originator. Former Sen. Fred Thompson, who represented Tennessee from 1994 through 2003, and who ran for the Republican nomination for president in 2008, is the new spokesman for American Advisors Group, Irvine, Calif. Thompson is also well known for his acting, with roles in a number of movies and most notably playing Manhattan District Attorney Arthur Branch in the NBC television series "Law & Order." He is also an attorney and radio show host. Among other politicians who have become reverse mortgage company spokesmen is Jack Kemp, who was secretary for Housing and Urban Development in the George H.W. Bush administration. Kemp became a spokesman in 2008 for Generation Mortgage Co., Atlanta. A former pro football player, Kemp sought the Republican nomination for president in 1988 and was the vice presidential candidate in 1996.

The Federal Housing Finance Agency has launched a major new initiative by Freddie Mac and Fannie Mae to improve the consistency and quality of data for appraisals and other loan information, said the government entity on its website, which has both GSEs mandating the use of MISMO Version 3.0 data standards. "FHFA directed the enterprises to undertake the development of the standards to provide greater uniformity in the data they collect," said FHFA acting director Edward DeMarco. "This initiative is a major step toward meeting industry requests for uniformity in appraisal and loan data. Improvements in data quality will benefit all mortgage market participants and strengthen the housing finance system." The GSEs have now gone forward to standardize mortgage lending using MISMO as the backbone of all loan delivery to both GSEs. Specifically, Freddie Mac and Fannie Mae have developed the Uniform Loan Delivery Data Specification, which defines the Uniform Loan Delivery Dataset and the common GSE approach to single-family loan delivery data requirements for all mortgages that will be delivered to either GSE on or after Sept. 1, 2011.

Some real estate lending has improved since early April but May activity was generally slow compared to the prior month, according to the Federal Reserve's Beige Book. "Real estate lending increased even though standards on these loans remained tighter than on other loans, particularly for commercial mortgages," according to the report, which reflected data as of May 28. Commercial real estate activity continued to be characterized as weak but "residential real estate improved since the last report," which covered the period leading up to April 5. "Most districts noted an increase in home sales and construction prior to the April 30 deadline for the homebuyer tax credit, with contacts in many of these districts also indicating a corresponding slowing in activity in May."

The average rate for a 30-year fixed rate mortgage slid to 4.72% from 4.79% the week before and the average 15-year rate set another record low, according to Freddie Mac's Primary Mortgage Market Survey for the week ended June 10. "Following a relatively weak employment report, bond yields fell this week and mortgage rates followed," said Frank Nothaft, chief economist at Freddie Mac. He said this puts the average rate for a 30-year mortgage "near the record low set on Dec. 3, 2009 in our survey." A year ago the average rate for a 30-year FRM was 5.59%. The average 15-year rate in the latest week was 4.17%, down from 4.20% the week previous and 5.06% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage during the week ended June 10 was 3.92%, down from 3.94% the previous week and 5.17% a year ago. The average one-year Treasury ARM rate was 3.91%, down from 3.95% the previous week and 5.04% a year ago. Average points were 0.7 for all the aforementioned loan types except one-year Treasury ARMs, for which average points were 0.6.

Old Republic International Corp., the Chicago-based holding company of mortgage guaranty and title insurance operations, has agreed to buy PMA Capital Corp., Blue Bell, Pa., in a deal valued at $365 million. ORI will issue 0.55 shares of its common stock for each share of PMA, a premium of 15% to PMA's closing price on June 8, 2010. The stock portion of the deal is valued at $228 million, while ORI will also assume $137 million of PMA debt. In a statement, ORI chairman and chief executive Al Zucaro said the deal was consistent with his company's "long-term strategic plan to grow our general insurance business." Data from the American Land Title Association lists ORI's title insurance units as fourth (and smallest) among the national companies, in terms of market share at 9.3% for the fourth quarter and 7.9% for the full year 2009. Its Republic Mortgage Insurance Co. subsidiary is the smallest private mortgage insurer by market share, at 10.4% by policies in force and 11.6% for new policies written in the first quarter 2010, according to the National Mortgage News Quarterly Data Report. PMA's insurance products include workers' compensation and other property/casualty lines.