Originations

With residential production falling sharply the past few years, it might seem as though loan officer recruitment would be the last thing on the mind of mortgage bankers. But surprisingly, one of lenders' biggest challenges these days is finding a few good men and women to join the sales force. The number of mortgage jobs has fallen by about half, from a peak of just over 500,000 in February 2006, to about 248,000 in April. And fundings are expected to drop by more than a third from last year's volume, to about $1.2 trillion this year. But with so many players having quit the business, opportunity exists for those that are left to pick up market share. A number of lenders say they would like to hire loan officers-if only they could find them. "The industry is shrinking at a pace faster than the loan volume is shrinking," said William Giambrone, chief executive of Platinum Home Mortgage Corp., Rolling Meadows, Ill. "If the participants are going away faster than the loan volume is going away," it creates opportunity, he said. Jesse Gnazzo, an assistant vice president and area sales manager at McCue Mortgage, in New Britain, Conn., said recruitment has always been a challenge but that the difficulties are different today than during the housing boom. A couple of years ago, he said, the risk was that you could lure somebody with a huge signing bonus but then the recruit would not produce enough loan volume. Today, the problem is an aging sales force, he said. Gnazzo and other lenders said that they are having difficulty recruiting experienced loan officers because such professionals are more cautious these days about switching jobs and worried about the potential instability at some companies.

Fitch Solutions' index of credit default swaps linked to subprime residential mortgage-backed securities shows subprime prices rose to a high not seen since December 2008 in the latest month. The index jumped 7.6% month-to-month to 9.37. Managing director Thomas Aubrey said subprime asset quality is not only stable but also significantly improved in contrast to historic lows at the beginning of 2010. Month-to-month, the 2004 and 2006 vintages rose 10% and 14%, respectively; the 2005 vintage inched up 2% and the 2007 vintage increased 12%. However, the particularly troubled 2007 vintage's increase brings it to a point that leaves it almost flat compared to the start of the year. The 2004 and 2006 vintages, in contrast, have seen 27% and 57% gains since the start of the year, respectively. Sixty- and 90-day delinquencies have improved across all vintages and three- and six-month constant default rates have dropped. However, the three-month constant prepayment rate has slightly improved, suggesting there could be a slowdown in the price index's upward trend. A peak in prepayments could signal the departure of higher quality borrowers from the pool, leaving the pools with a lower credit quality profile as a result of adverse selection.

The former head of the Federal Housing Administration questioned the ability of the agency to continue its role as the bulwark of the mortgage market for much longer without an infusion of cash and staff. Brian Montgomery, who was FHA commissioner in the last Bush Administration, stopped short of predicting the agency's antiquated technology systems would eventually crash under the weight of insuring almost one-third of all residential loans. But he told the National Association of Real Estate Editors' annual conference in Austin that the agency wouldn't be able to keep pace with its lender-partners unless its computer systems are brought up to date and it can add much-needed new hires. Montgomery told NAREE that the FHA is running on a patchwork of 37 computer systems, "some of which are over 30-years-old." He also pointed out that while Fannie Mae has grown by something like 1,000 employees since it was taken into receivership by the government and still has more than 500 vacancies, the FHA is "still the same size it was" when he headed the agency and it had only a 3% market share. The former commissioner said at worst, the FHA and Ginnie Mae should be allowed to keep a portion of the revenues they generate so they can upgrade themselves. "Even if they kept only $100-$200 million of the $6.3 billion in receipts they turn over to the Treasury, they could update their systems and add staff," he said. But ideally, he added, the two should be allowed to become separate, autonomous government agencies.

The House of Representatives is expected to vote on, and pass legislation this week giving the Federal Housing Administration more flexibility in adjusting mortgage insurance premiums and tools to rebuild its capital reserves. The FHA reform bill (H.R. 5072) also strengthens the agency's hand in getting lenders to indemnify the agency against bad loans and to terminate lenders with excessive early defaults. The House Financial Services Committee approved the bill by a voice vote in April after rejecting (by a 52-12 vote) an amendment by Rep. Scott Garrett, R-N.J., to increase the FHA's 3.5% minimum downpayment to 5%. Getting the FHA reform bill through the Senate could be tougher. Sen. Richard Shelby, R-Ala., has tried several times to increase the FHA minimum downpayment to 5%. He likely will try again. The Senate is not expected to take up the FHA reform bill until after the July 4th recess, according to sources. If passed in its current form, H.R. 5072 would allow FHA to reduce its 2.25% upfront premium to 1% and raise its 55 basis point annual premium to 85 bps on single-family mortgages with loan-to-value ratios up to 95% and to 90 bps for LTVs above 95%. FHA officials estimate this change would increase the agency's reserve fund by $300 million a month.

Citigroup's plan to shift bad loans to a new division from its U.S. consumer finance business will make the remaining network profitable, said Mary McDowell, CEO of the CitiFinancial unit. Bloomberg reported that the "streamlined" branch network will serve 1.6 million customers and manage $18 billion of loans and other receivables, or about 70% of the current total. McDowell told employees on a June 1 conference call that the network will be profitable when excluding losses on $8 billion of receivables being moved to a new CitiFinancial division specializing in loan modifications, she said. Citigroup is carving up CitiFinancial to attract buyers 17 months after CEO Vikram Pandit tagged it for sale. While results for the Baltimore unit are not disclosed, it is part of Citigroup's local consumer lending group, which had a loss of $10.5 billion last year. Citigroup said June 1 that CitiFinancial also will close 330 U.S. branches and cut 500 to 600 jobs under the strategy. The unit has its roots in Commercial Credit, a consumer finance unit that Citi inherited when it merged with Travelers.

The Mortgage Bankers Association, which took a bath on the sale of its custom designed and environmentally friendly Washington headquarters, has finally moved into new space a few blocks away. At press time the trade group was in the process of completing the move to 1717 Rhode Island Avenue from L Street, allowing employees to work from remote locations on Friday. The new headquarters will officially open on Monday. Earlier this year CoStar Group, a provider of commercial real estate data, bought MBA's 10-story headquarters for $41.3 million. The negotiated sale price was well below the $79 million the trade group paid to construct the building from scratch. The lender on the deal was PNC Bank.

Subprime may have fanned the fire that brought the housing market to its knees, but it wasn't the root cause, a researcher who closely follows the new home sector in 81 metropolitan statistical areas told a gathering of real estate writers. Housing's downfall began in markets with strong growth restrictions, and stumbled from there, Michael Inselmann, president of Metrostudy, Houston, said at the NAREE conference in Austin, Tex. "It didn't start with subprime," Inselmann said. "Subprime added gasoline to the fire, but it was builders' running up against the inability to meet demand" in places like California, Las Vegas and Florida that started the worst nosedive in housing since the 1930s. Inselmann, whose company has its fingers on nearly 70% of the new home market, called artificial, government-invoked growth limits "the unindicted co-conspirator" of the downturn, and said that if governments want to slow growth in their communities, they should tell their local chambers of commerce not to create prosperity. The researcher also told reporters to beware of national housing statistics. "Real estate is a local market," he said. "Every single one is different. There is no such thing as a national market." National sales figures and prices are nothing more than "a roll-up" of local markets, he said, but they are only a statistical number. Metrostudy's database covers housing starts, absorption rates and house and lot inventories.

The South Carolina State Housing Finance and Development Authority next week expects to price $100 million of homeownership revenue bonds in its first issuance under the Treasury Department's New Issue Bond Program. According to a report by the Bond Buyer, the deal includes $60 million of tax-exempt bonds the HFA will convert from short-term, taxable debt bought by the Treasury at the end of 2009. Like other issuers participating in the NIBP, South Carolina needs to convert the debt by the end of this year if it wants to use proceeds to purchase mortgage-backed securities. The deal also includes $40 million of new money tax-exempt bonds that the South Carolina HFA is required to issue to match the Treasury purchase. The bonds will be offered to retail investors Monday and to institutional investors Tuesday. Goldman, Sachs & Co. is lead underwriter, with Barclays Capital and Citigroup Securities. The Bond Buyer is an affiliate of National Mortgage News.

It would be a "mistake" to blame the housing crisis on the government's home ownership push, a former housing secretary during the Clinton Administration said at a conference in Texas. Henry Cisneros, now executive chairman of CityView, a $2 billion urban institutional investment firm which finances commercial and residential developers, told reporters attending the National Association of Real Estate Editors' meeting that while it's clear some renters should never have been given loans, the heart of the downturn must be laid at the feet of "unscrupulous" companies "like Ameriquest and others" which "hijacked" the Clinton and later Bush housing strategies "to make money pushing mortgages" to borrowers who otherwise couldn't qualify. Cisneros, citing the fact that persons of color lag far behind whites in terms of home ownership, also said it "would be a mistake to walk away from the goal of homeownership because of this crisis." The nation's 10th Secretary of the Department of Housing and Urban Development, who served from 1993 to 1997, and the former mayor of San Antonio said current HUD Secretary Shaun Donovan "will be graded on one thing: How well he addresses the foreclosure problem." But he wasn't so sure Sec. Donovan will get high marks, no matter how hard he tries, because the Federal Housing Administration, the agency that has been asked to deal with the assignment, is simply not equipped to take it on. "You can't give a mission to an agency that does not have the capability to handle it," Cisneros told the conference. "The (foreclosure) numbers are too far off the scale" for the FHA to do any amount of meaningful loan modifications. After he left HUD, Cisneros became a director at Countrywide Financial Corp., once a top player in subprime and payment option ARMs. He sold most of his stock in the lender before it collapsed and eventually was sold to Bank of America.

Bob Howard, an industry veteran who has worked in both the prime and nonprime sectors, is working with a nonbank lender to enter the jumbo market. Howard, who last summer sold his stake in Safe Harbor Mortgage of Oregon to his partner, said he could not identify the nonbank lender at this time but is trying to secure warehouse financing for the company. He is finding the task difficult. "We have a take-out and the capital," he said, "but finding a warehouse lender to fund jumbos is taking some time." Howard is a member of the lender's board. Even though liquidity has returned to the warehouse sector, most of the banks in the space are only financing mortgages that are slated for sale to Fannie Mae, Freddie Mac, or carry guarantees from the Government National Mortgage Association. During his career, Howard has worked for Southern Pacific Funding, and Sunset Direct Lending, both nonprime non-depositories. (For the full story, see the current weekly edition of National Mortgage News.)

The mortgage market is entering a period of "retrenchment" and a recovery will depend on the growth of the U.S. economy and employment, according to Fannie Mae economists. "Clearly we are entering a period of retrenchment with the expiration of the [homebuyer] tax credits," said Richard Koss, director of mortgage market analysis at Fannie Mae. "It is still a very open question as to how deep and how long that retrenchment is going to be," he added. Fannie's latest forecast shows single-family originations peaking at $361 billion in the second quarter, which will serve as the high point for 2010. For the third and fourth quarters, the GSE predicts that fundings will fall 10% and 9%, respectively. Koss noted the tax credits have drawn sales from the future which will take the wind out of activity for the balance of the year. But he hopes to see a recovery in mortgage applications in the fourth quarter. Over the past five months, private job growth has averaged 125,000 a month, including the May report which shows a disappointing 41,000 increase in private sector jobs. Koss expects to see "modest" job growth going forward and into next year. In the coming months, he believes job growth could average 250,000 to 275,000 new positions a month, which would help the mortgage market.

The Department of Housing and Urban Development is taking another stab at preventing abuses by builders and others that entice consumers with bogus discounts that require them to use affiliated title and mortgage companies. HUD issued a proposal to address the issue of "required use" under its Real Estate Settlement Procedures Act rulemaking authority. The comment period ends September 1. "It is our intent to keep an open mind on how to approach this vexing question over what is, and what is not, required use," said HUD assistant secretary David Stevens. In early 2009, the National Association of Home Builders sued to block HUD from enforcing a newly adopted RESPA rule that banned builders from offering discounts to homebuyers that use affiliated settlement service providers. It is not uncommon for builders to offer borrowers cash discounts or upgrades on a house if the buyer agrees to use affiliated vendors. RESPA issues occur when the builder charges the consumer higher settlement costs (including the rate) than other non-affiliated providers. "HUD has received complaints that some homebuyers are committing to use a builder's affiliated mortgage lender without sufficient time to research their contracts or to comparison shop," HUD says in its proposal.

Residential mortgage companies cut 5,500 full-time workers in April despite rising home sales and low mortgage rates. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 247,900 positions in April from 253,400 in March. The poor showing came amid reports of hiring by servicers in their loan modification units. But although the servicing sides of many firms are hiring (or at least not laying people off), production jobs are being cut because of weak loan demand, which could get even weaker now that two federal homebuyer tax credits have expired. Friday's job report also revealed that employment in the construction industry and commercial banking fell in May. (There is a one-month lag in BLS' reporting of mortgage banker/broker sector employment.) Construction jobs fell by 35,000 in May, offsetting gains in the prior two months. Commercial banks reduced their payrolls by 500 workers. Overall, Friday's jobs report was disappointing to analysts. Most of the 431,000 increase in jobs reflected the hiring of temporary government census workers. Only 41,000 of the new hires involved private sector jobs. The nation's unemployment rate edged down to 9.7% in May from 9.9% in April. Meanwhile, stocks tumbled early in the morning and the yield on the 10-year Treasury fell to 3.26%, once again nearing its 52-week low of 3.1%.

According to data from the National Association of Real Estate Investment Trusts, REITS are outperforming the broader equities market. The trade group said the FTSE NAREIT Equity REIT Index delivered an 11.13% total return for the year through May, while the FTSE NAREIT All REITs Index was up 10.58%. Meanwhile, the S&P 500's total return for the year through May was negative 1.50, the Dow Jones Industrial Index had a negative 2.79% return and the NASDAQ Composite's return for the period was a negative 0.53%. The apartment sector at 23.91%, the lodging/resorts sector at 19.05%, and the self-storage sector at 15% led the REIT industry's gains in the first five months of 2010.

Zacks Equity Research, Chicago, designated Santa Monica, Calif.-based real estate investment trust Macerich as its Bear of the Day. Zacks said its long-term recommendation for the company's stock is underperform as it anticipates Macerich, which specialized in regional and community shopping centers, to perform well below the broader market. "The prolonged recession has led to increased tenant bankruptcies, reduction in disposable income, and lower consumer discretionary spending. In addition, Macerich has an active development pipeline, which increases operational risks in the current credit-constrained market," Zacks said. On the positive side, Macerich is one of the largest operators in its segment with assets in high barrier-to-entry markets, which has enabled it to hold rents fairly stable. Zacks said Macerich's stock is trading at a premium to the peer group, based on forward funds for operations estimates and gives it a target price of $38.00.

Digital Realty Trust Inc., a real estate investment trust based in San Francisco, has priced a 6 million share public offering of its common stock at $57 per share This will result in net proceeds of approximately $327.8 million after underwriting discounts and commissions and estimated offering expenses (or approximately $377.1 million if the underwriters' over-allotment option is exercised in full). Digital Realty Trust has granted the underwriters the option to purchase up to an additional 900,000 shares of common stock to cover over-allotments, if any. The offering is expected to close on June 8, 2010. The proceeds are intended to be used to fund a portion of the acquisition of a five-property data center portfolio located in California, Arizona and Virginia, as well as possibly to acquire additional properties, to fund development and redevelopment opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or preferred securities. Credit Suisse Securities (USA) LLC, Citi and BofA Merrill Lynch served as book running managers. Morgan Stanley, Deutsche Bank Securities and Raymond James, served as lead managers, and JMP Securities, J.P. Morgan, RBC Capital Markets and RBS served as co-managers, for the offering.

The latest well-known actor to become a spokesman for a reverse mortgage lender is Henry Winkler, whose best known role to members of the Baby Boomer generation was as "the Fonz" in the television sitcom Happy Days. He will be the public face of One Reverse Mortgage, whose parent company, Rock Holdings, also owns Quicken Loans. Jay Farner, chief executive of One Reverse Mortgage, describes Winkler as an actor with "integrity" he feels will be helpful in extending the company's reach with retirees and seniors. Happy Days aired from 1974 through 1984. Winkler played Arthur Fonzarelli, whose age during the show ranged from his late teens through early 20s. But today, Winkler is eligible to apply for a reverse mortgage, as he will turn 65 in October. A video featuring Winkler promoting One Reverse Mortgage can be found on the company's website at www.onereversemortgage.com.

A group of Hudson Valley Federal Credit Union borrowers filed a class action lawsuit against the lender, claiming it illegally collected thousands of dollars in mortgage recording taxes from them at closing, ratcheting up the stakes in the CU's own legal fight with New York over the same levy. The suit was filed in federal court, as opposed to state court, which just two weeks ago rejected HVFCU's challenge to the recording tax, an assessment of one-half percent, or 50 basis points, on every mortgage, amounting to thousands of dollars on each home loan. "Because of the pass-through nature of it, the person who bears the loss is the person who is paying the mortgage," said Mark Kindall, a lawyer with the Hartford, Conn., firm of Izard Nobel LLP. In its challenge in state court, the credit union asserted that the Federal Credit Union Act, which defines federally chartered (but not state chartered) credit unions as "instrumentalities of the federal government" exempts all federal credit unions from state taxes. In an odd way, the borrowers' lawsuit may end up aiding the credit union's own case, which asserts that a federal charter exempts Hudson Valley FCU from paying the tax. (In CU parlance, customers of a credit union are often referred to as members.) Two weeks ago, in the CU's case, a state court ruled that the tax is not assessed on the federal entity, but on the act of the transfer of property. Potential members of the class include not only the thousands of members of Hudson Valley FCU who paid the tax, but millions of New Yorkers who took out mortgages through a federally chartered credit union.

Stronger than expected pending home sales are attributed to historically low mortgage rates and expiring federal tax credits pushing more buyers into the housing market during April, according to the National Association of Realtors' gauge of future home sales. NAR reported that its index of pending home sales, which is based on contract signings, rose 6% in April after rising 6.6% in March. Those signings should translate into mortgage closings in May and June. Also, NAR economists expect a surge in existing home sales to a seasonally adjusted annual rate of 5.69 million in the second quarter, up 11% from the prior quarter. The homebuyer tax credit expired on April 30, but applicants have until June 30 to close and still qualify for the tax credit. NAR is warning that two months may not be enough time for some homebuyers to reach the settlement table and is asking Congress for flexibility on the June 30 deadline for closing. In a research note, Barclays Capital cited the tax credits for the strong reading, but also said "underlying demand, coupled with the warmer weather in the spring season" played a role. Meanwhile, the Greek debt crisis has pushed yield on the 10-year Treasury down, and along with it U.S. mortgage rates. For the week ending May 28, 30-year FRMs were being offered at 4.8% to applicants with good credit. NAR economists lowered their forecast for mortgage rates in the fourth quarter to 5.4%—down from 5.6% in their forecast of just a month ago. NAR does not expect mortgage rates to rise above 6% in 2011.

Lenders considering making mortgages on so-called "green" houses might want to think twice before committing to loans on properties with solar panels and other "eco-bling," a leading architect in the field said at the National Association of Real Estate Editors' annual journalism conference in Austin, Tex. A building scientist with a life-long commitment to green building, Peter Pfeiffer of Barley & Pfeiffer Architects said he takes "a very pragmatic approach" to the field. "Tankless water heaters were crap 25 years ago and they're still crap," he said. "They require much more maintenance than the typical home owner wants to do." Ditto for active solar panels, which may add $20,000 to the cost of the house but save the occupant less than $50 a month. Such a system would need to be replaced before the owner recoups his investment, Pfeiffer said. The architect said sustainable green building is more about building smarter than it is building products. "Green by design is better than green by gadget," he said, noting that window and porch overhangs and the way the house is oriented on the building site are far better techniques than installing recycled stoned glass countertops and or solar panels. "R-value means little if the house leaks or the roof is a dark color," Pfeiffer told the realty reporters.