Originations

Flagstar Bancorp, a top ranked thrift wholesale lender, late this week conducted a reverse stock split, issuing one share of common for each 10 shares held. The reverse stock split will reduce the number of shares of outstanding common stock from roughly 1.53 billion to 153 million. The number of authorized shares of common stock will be reduced from 3 billion to 300 million. Over the past year, the thrift has been recapitalized with private investor money, which in turn has diluted the value of its common. Besides being a national residential wholesale funder, the depository has 162 branches in Indiana, Michigan and Georgia. The company will keep its current ticker symbol of FBC, but the shares will have a new CUSIP number.

The condition and performance of half the Federal Home Loan Bank system is "less than adequate," according to the nation's government-sponsored enterprise regulator. Federal Housing Finance Agency acting director Edward DeMarco, who cited continuing losses on investments in private-label mortgage-backed securities at six regional GSEs, told a congressional panel that he wants to see a gradual reduction in the FHLBs' investment portfolios. "FHFA is looking for the FHLBs to return to more traditional operations and activities with a focus on advances," DeMarco said. He stressed that the FHLBs have never experienced losses on making advances to their members. The GSE regulator did not mention mortgage purchase programs that several FHLBs engaged in, which caused financial problems at the Seattle and Chicago banks. Separately, FHFA issued a proposed rule to establish affordable housing goals for the mortgage purchase programs. The comment period ends in 45 days.

Lawyers for Hudson Valley Federal Credit Union said they plan to appeal the recent New York court ruling rejecting its challenge to the state's mortgage recordation tax. "Yes, we will appeal," said Dale Lois, an attorney representing the $2.8 billion former IBM employees credit union located in nearby Poughkeepsie. The credit union's lawyer said the speedy decision by the state Supreme Court may work to their favor by getting them to the state's appeals court faster to decide the decision, which could save credit unions millions of dollars in taxes. (The case was filed in November 2009.) The state court ruled that even though federal law defines federally chartered credit unions as instrumentalities of the federal government and thus exempt from state taxes, the mortgage recordation tax is not a tax on credit unions or a tax on borrowers, but on the "privilege of recording" a mortgage, as was argued by the state's Department of Taxation and Finance. The stakes are big for credit unions which pay millions of dollars in mortgage recording taxes to the state each year. Hudson Valley has requested a rebate of $1.8 million of taxes paid over the last three years.

Investor loans guaranteed by Freddie Mac fell to just 3% of portfolio outstandings in the first quarter, the lowest reading in almost seven years, according to new company figures. In 2007, roughly 7% of Freddie's guarantees were on non-owner occupied homes, a GSE spokesman told National Mortgage News. Investor loans, in general, can differ from "pure" vacation or second homes, in that the owner is trying to cover his payments (full or in part) by renting out the property. Some owners of vacation homes do not rent out the house at all and instead can afford the monthly payments without the help of rent rolls. During the housing boom, some lenders provided low downpayment financing for investor properties and vacation homes but since the market crash of 2008, most mortgage bankers want at least 20% down or more, depending on where the home is located.

With Congress deadlocked over a jobs bill, the authority of the Federal Emergency Management Agency to issue new flood insurance policies is expected to expire early next week. This would mark the second hiatus for the National Flood Insurance Program in two months. But lenders can still approve loans on properties in flood plains, according to guidance issued by the Federal Deposit Insurance Corp., Fannie Mae, and Freddie Mac during the NFIP lapse from April 1 to April 23. However, lenders must make sure the homebuyer completes a flood insurance application and pays the premium at closing. Once Congress re-authorizes the flood insurance program, FEMA will approve the pending applications. During the April hiatus, Realtors found that some lenders were willing to make loans based on the agencies' guidance, but others would not. The Federal Housing Administration issued guidance on the matter, saying it will "continue to insure single-family mortgages on homes where flood insurance is normally required but was not secured during the lapse in flood insurance coverage authority." The jobs bill (H.R. 4213) extends unemployment benefits, several tax provisions, along with a flood insurance extension until the end of September. The House passed the bill by a 215-204 vote on Friday afternoon. The Senate has already adjourned for the Memorial Day recess and won't take up the measure until the senators return on June 7.

FHA single-family originations totaled $22.9 billion in April, basically unchanged from March and February, according to the agency. Nearly 68% of FHA loan endorsements were for borrowers purchasing a home. Of the 36,000 refinancings in April, 68% were conventional borrowers seeking low-downpayment FHA loans. The April report shows that FHA's 'Hope for Homeowners' program helped 23 underwater borrowers. Over the past seven months FHA has approved only 35 H4H refinancings where the lender has to reduce the principal amount of the loan to 97.5% of the current appraised value. Meanwhile, FHA reported that 8.5% of its insured single-family loans are 90 days or more past due, down from 8.8% in March and 9.17% in February.

The Agriculture Department has reopened the Rural Housing Service single-family program by offering lenders $2.5 billion of conditional loan commitments, according to Rep. Ruben Hinojosa, D-Tex. Agriculture secretary Tom Vilsack informed Rep. Hinojosa, D-Tex, about the decision on May 26, the day the additional loan commitments became available. The Texas lawmaker who chairs the Congressional Rural Housing Caucus said the loan commitments would be available until they are exhausted. "The decision to increase the commitment authority even conditionally will provide the guarantees needed to assist rural families, local housing markets, create jobs and general new tax revenues," Rep. Hinojosa said. The RHS exhausted its $13.1 billion of loan commitment authority for fiscal 2010 on May 17. Instead of providing additional loan commitments, Congress wants to increase RHS' 2% upfront premium to 3.5%, which will cover the costs of new loan guarantees, making the program self-funding. The Senate included the RHS premium increase in an emergency supplemental appropriations bill (H.R. 4899) that provides funding for the wars in Iraq and Afghanistan and natural disasters. The Senate passed the bill Thursday evening. The House is not expected to vote on final passage of H.R. 4899 until it returns from the Memorial Day recess on June 7.

The average rate for a 30-year fixed-rate mortgage remained near lows last seen in December of 2009 as it continued its slide, the Freddie Mac Primary Mortgage Market Survey for the week ended May 27 found. Freddie said instability in financial markets overseas led to the decline. This instability at one point lowered the benchmark 10-year Treasury yield to near 3.1% on Tuesday, but there has been somewhat of a rebound since then and as of late morning Thursday that yield was closer to 3.3%. The average weekly 30-year FRM rate as of Thursday was 4.78%, down from 4.84% in the latest week and 4.91% a year ago. The average 15-year FRM during the week ended May 27 was 4.21%, the lowest it has been since Freddie started tracking this type of loan in August 1991. This was down from 4.24% the week before and 4.53% the year before. In contrast to other loan types, the average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage rose during the week ended May 27 to 3.97% from 3.91% the previous week but was still considerably lower than a year ago when it was 4.82%. The average one-year Treasury ARM rate dropped to 3.95% during the week ended May 27, a low not seen since the week ending May 27, 2004 when it was 3.87%. A week ago the average one-year Treasury ARM rate was 4.00% and a year ago it was 4.69%. Average points during the week ended May 27 were 0.7 for all the aforementioned loan types except one-year Treasury ARMs, for which average points were 0.6. "These low rates will help to elevate homebuyer affordability and soften the effects of the sunset of the homebuyer tax credit," said Frank Nothaft, Freddie Mac vice president and chief economist.

Prime Group Realty Trust, Chicago, has had its Series B Preferred Shares delisted and ceased trading on the New York Stock Exchange, with the last day of trading being May 26, 2010. This listing was part of its obligations under its July 2005 acquisition by The Lightstone Group and the delisting at that time of its common shares. Prime Group agreed to voluntarily file reports under the Exchange Act for five years after the closing of the acquisition. After the voluntarily delisting of the Series B Preferred Shares from the NYSE, the company expects that they will trade on the Pink Sheets with Pink OTC Markets Inc.

The executive director of the Pennsylvania Housing Finance Agency said even though the first-time homebuyer tax credit program is over, it is still the best time for people to purchase their first home or to make the move to a newer or larger home. Brian Hudson said interest rates are at historic lows. For example, his agency is offering a 30-year fixed-rate mortgage at 4.5% for new home purchases and 4.95% for the purchase of an existing home. PHFA offers closing cost assistance, and buyers can put down as little as $1,000. "Keep in mind, too, there is an excellent inventory of homes on the market, providing prospective buyers with plenty of selection. Plus the time available to make an offer is greater than it was just four years ago, so homebuyers don't have to rush their decision due to competition and can take more time to research their potential purchase," Hudson said. He added the housing market in the state did not overheat during the boom, meaning homes have remained a stable investment. PHFA is seeing record volumes because of its "disciplined, common sense lending strategy. We have always required full documentation from families requesting PHFA loans. We have stood by our guidelines, insisting that a person's ability to repay a loan must be a critical factor in the lending decision. We only offer fixed-rate mortgages, so that our borrowers aren't surprised by increased or balloon payments a few years into their home purchase," Hudson said.

Healthcare Trust of America Inc., a real estate investment trust headquartered in Scottsdale, Ariz., has appointed Kellie S. Pruitt to serve as its chief financial officer. She was the company's chief accounting officer and principal financial officer since Jan. 28, 2009. Prior to that, Pruitt served as HTA's controller. Before joining HTA, she worked at Fender Musical Instruments Corp. and at Deloitte & Touche LLP. "Kellie has played a vital and hands-on role in growing our organization and in establishing our self management team," stated Scott D. Peters, president and chief executive of HTA.

The Financial Accounting Standards Board wants banks and thrifts to apply fair value accounting to the multifamily and single-family loans they hold on their books. The FASB proposal would require depositories to mark-to-market the value of their loans on a quarterly basis to provide more timely information on anticipated credit losses. The American Bankers Association claims mark-to-market accounting should not be used for assets that are not traded. "If a company's business is not based on mark-to-market, then using it as a basis of accounting can be misleading to users of financial statements," ABA president and chief executive Edward Yingling said. The ABA president also noted it will reduce the availability of long-term loans and increase "pro-cyclicality" in the financial system. The comment period on the FASB exposure draft ends Sept. 30, 2010. Under the proposal, non-public lenders with less than $1 billion in assets would have four years to implement the new accounting rule.

Fannie Mae and Freddie Mac seller/servicers will continue to face extra charges called "loan level price adjustments" which compensate the GSEs for buying certain non-vanilla mortgages. Federal Housing Finance Agency acting director Edward DeMarco told a congressional panel that the LLPAs the GSEs charge are periodically reviewed, but gave no indication there would be any coming reductions in these fees. Rather, he told Rep. Scott Garrett, R-N.J., that the mispricing of risk on loans the GSEs bought between 2006 to 2008 landed them in conservatorships that have cost taxpayers $145 billion, and counting. Despite better underwriting, Fannie and Freddie will continue to set their fees to cover expected losses on new loans. The regulator also noted that guarantee fees have been reduced and the performance of the 2009 book of loans is quite good. The current Home Valuation Code of Conduct regulation on appraisals is due to sunset in November. HVCC critics want to see it replaced or abolished, including Rep. Paul Kanjorski, D-Pa., who sponsored appraisal reforms that were incorporated in the House-passed financial services regulatory reform bill. But the FHFA director told Rep. Kanjorski that the HVCC regulation would still apply to Fannie and Freddie seller/servicers after November. FHFA also is reviewing a new practice of including a private real estate transfer tax in sale documents that allows investors to receive a percentage of future sales proceeds. DeMarco said he is "troubled" by this practice and FHFA is reviewing the matter to see if this transfer tax should be banned in Fannie/Freddie transactions.

Homeownership costs north of the U.S. border in Canada have now been rising for three quarters in a row, according to a Royal Bank of Canada economics expert. Affordability in the first quarter was moderately above the long-term average but below peak levels, according to RBC senior economist Robert Hogue. The RBC Housing Affordability index, which measures the proportion of income needed to service the cost of homeownership, shows an increase on a national basis for all property types in the first quarter. For detached bungalows the index rose by 0.9 of a percentage point to 41.1%, for standard townhouses it was up 0.4 of a percentage point to 33%, for standard condominiums it jumped by 0.5 of a percentage point to 28.2% and for standard two-story homes it climbed by 0.6 percentage points to 46.8%. Affordability is expected to continue to deteriorate through 2010 and 2011 due to anticipation that the Bank of Canada will move to raise what have been exceptionally low central bank rates in the second half of this year and in 2011, Hogue said. But the extent of the deterioration is likely to be limited by a balance between supply and demand and it is not expected to exceed 2008's peak levels.

Mission Capital Advisors is taking bids on what is roughly a $500 million sub- and nonperforming commercial mortgage loan portfolio. Collateral types securing the loans include multifamily, office, student housing, condominiums, marina, industrial, residential and commercial land, medical office and bank stocks. Properties are located in various parts of Florida, Illinois, Wisconsin, Arizona, Colorado, New Jersey, Kansas, Minnesota, Indiana, North Carolina, Nevada, Ohio, Missouri and Virginia. The loan pools are broken down by region with the largest portfolios located in Florida, Illinois and Wisconsin. On behalf of an unidentified seller, Mission Capital is initially soliciting indicative bids on May 27 for the purchase of individual loan pools, any combination of loan pools or the entire portfolio. The top 15 single assets by size range between $8 million and $36 million each and represent 55% of the entire portfolio, for a total balance of about $278 million. Many of the loans have recent appraisals, which will be provided to investors. The sale must be completed prior to quarter end; investors will be required to finalize loan sale agreements prior to the final bid date on June 16.

House prices fell 1% in the first quarter, compared to the previous quarter, and 3.2% from the first quarter of 2009, according to the Standard & Poor's/Case-Shiller 20-city house price index. The HPI released Tuesday also shows that prices on a nonadjusted basis have fallen for the past six months, including 0.5% in March and 0.6% in February. "The housing market may be in better shape than this time last year, but when you look at recent trends there are signs of some renewed weakening in home prices," says David Blitzer, chairman of the S&P index committee. IHS Global Insight economist Patrick Newport said that housing demand is improving due to a better job market and low rates. However, an increase in foreclosures is putting downward pressure on prices. "In our view, the housing glut and foreclosures will drive the national Case-Shiller down another 6%-8% with prices bottoming in 2011," Newport said.

Fannie Mae and Freddie Mac say the declining condition of commercial properties is one of the biggest challenges facing multifamily servicers today. "Our top shared concern is really all about physical risk," said Karyn Sandelman, portfolio services director for Freddie Mac, speaking at an MBA conference in New York. "We have declining cash flows and overextended borrowers and an unwillingness to take care of the real estate." Fannie Mae is conducting onsite inspections to deal with the problem. "We are concerned about the health of our servicers," added Caroline Blakely, vice president, Fannie Mae. Also, so-called watch lists on problem loans are growing in size. Robert Shean, chief operating officer of M&T Realty Corp., listed loan maturity management as a third hot topic for servicers. He says it causes him "a lot of sleepless nights," adding that "balloons [mortgages] are facing their maturity dates. While the flow of maturing loans isn't particularly overwhelming [presently], when you look out over the next few years, we all know we're in for a rough ride." Wells Fargo is trying to be proactive on CRE problems, said Maureen Fitzgerald, senior vice president of the bank. Wells is staffing up while reducing the number of loans per asset manager. The bank also is hiring experienced managers with "more expertise" to handle watch lists. Such employees come at a higher price tag because they are "more mature," Fitzgerald told the conference.

Loan workout efforts conducted by the mortgage insurance business of Genworth Financial saved nearly $3.4 billion in mortgages from foreclosure in the 12 months ending March 31. Its Foreclosure Prevention Scorecard found the leading states for workouts, in order, were California ($347 million), Florida ($342 million), Arizona ($175 million), Texas ($173 million), Illinois ($167 million), Georgia ($164 million), New York ($152 million), New Jersey ($144 million), North Carolina ($122 million) and Maryland ($107 million). Mortgage dollars saved were up more than 81% from the same period last year. During the period, Genworth worked with its lender partners and servicers to complete more than 23,000 mortgage workouts nationwide. Loan modifications (33%), were the leading workout type, followed by the federal government's Home Affordable Modification Program (24%), repayment plans (19%) short sales (18%), and Fannie Mae's Homesaver Advance program (4%). Nationally, eight out of 10 workouts were classified as cures. Genworth's cure rate remains above 80% in 35 of 50 states nationwide.

The acceptance of e-mortgages by warehouse lenders is inevitable, but banks will have to get more comfortable with the product before it becomes a reality. According to panelists speaking at the Mortgage Bankers Association's trade show in New York—including Ken Logan, a managing director at Wells Fargo, and Elaine Batlis, senior vice president of Silvergate Bank—warehouse providers must be assured of their "senior" position in an e-mortgage. Such assurances must be perfected in the electronic documents so that banks know they will be repaid. A second issue, they both said, is the "rule of three." Logan explained that there need to be three primary investors (not including any scratch-and-dent investors) willing to buy any mortgage loan that is originated in order to assure the warehouse provider will be repaid. Currently, there are not three loan purchasers willing to buy these loans, he said. He added that consumers also have to get comfortable with the premise. Batlis said acceptance by warehouse providers of e-documents will take place when primary and scratch-and-dent investors come together on the issue.

DocMagic Inc. has filed an amended complaint against Ellie Mae that expands the initial charges the former company levied against the latter. The amended complaint was filed in United States District Court (San Francisco) and is Case No. 3:09-CV-4017-MHP. Back in August 2009, DocMagic filed two lawsuits against Ellie Mae: one in Federal Court for antitrust violations, intentional interference with contractual relationships, interference with prospective economic advantage and unfair competition; and one in San Francisco Superior Court seeking a permanent injunction against Ellie Mae arising out of Ellie Mae's alleged misuse of DocMagic's proprietary information in connection with the Ellie Mae Docs system. At the urging of the federal court judge, the parties have since agreed to consolidate the state case claims into federal court and to dismiss the state case without prejudice. The amended complaint sets forth 14 federal and state claims, expanding on the allegations and claims initially made against Ellie Mae. The amendments include expansion of antitrust allegations and claims, including explanation of market definitions, monopoly leveraging, attempted monopolization, refusal to deal, and denial of access to essential facility (all federal violations of Section 2 of the Sherman Act). Charges of unfair competition and false advertising; copyright infringement; and trade secret misappropriation were also included in the amended complaint. DocMagic is also seeking a declaratory judgment that DocMagic did not infringe upon Ellie Mae's copyrights and that Ellie Mae has no claim to the ownership of its client's loan data. When asked to respond to the amended complaint advancing the lawsuit Ellie Mae said that it had no comment.