Originations

Purchase mortgage applications dropped further, remaining at a 13-year low for the second week in a row while refinance applications rose to a high last seen in October 2009, according to the latest Mortgage Bankers Association's Market Composite Index. The MCI for the week ended May 21 increased 11.3% on a seasonally adjusted basis from one week earlier and it increased 10.3% on an unadjusted basis. The Refinance Index increased 17.0% from the previous week as the seasonally adjusted Purchase Index decreased 3.3% from one week earlier. "Refinance application volume jumped last week as continuing financial market turmoil related to the budget crises in Europe extended the opportunity for homeowners to lock in at historically low mortgage rates," said Michael Fratantoni, MBA's vice president of research and economics. At the beginning of May, the survey found the market share of refi applications was just over 50%; the most recent survey shows refis make up 72.2% of total applications, an increase from 68.1% the previous week; this is the highest refi share observed in the survey since December 2009. The market share of adjustable-rate mortgage applications fell from 6.3% to 6%. The average contract interest rate for the 30-year fixed-rate mortgage fell three basis points from 4.83% to 4.80% for the current week with points remaining at 1.08 (including the origination fee) for loans with an 80% loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs bucked the declining rate trend, increasing by 6 bps during the week to 4.25%. The average contract interest rate for one-year ARMs was up by 2 bps over the previous week, to 6.83% for this week.

New home sales jumped 15% in April to the highest level in nearly two years following a 30% surge in March. Most analysts attributed the strong performance to two homebuyer tax credits that hit an expiration deadline recently, saying consumers rushed into contracts, pulling these sales "forward." The U.S. Census Bureau reported that sales of newly constructed homes rose to a seasonally adjusted annual rate of 504,000, compared to a 439,000 rate in March. New home sales rose 48% compared to April 2009. Sales were "driven by looming expiration of the tax credit and cheap, cheap home prices," said Mike Larson of Weiss Research. He noted the median sales price "tanked" by 9.7% in April from the prior month. Barclays Capital analyst Theresa Chen said with the credits now off the table, "Some negative payback is likely in the coming months, but looking through the volatility, the underlying trend should remain mildly positive."

Valligent, a provider of appraisal review services, has introduced V-Cert, a new product which moves the quality control function to the front of the origination process. Jeremy McCarty, chief executive and chief valuation strategist of the Roseville, Calif.-based company, said one of the reasons he is attending the Mortgage Bankers Association trade show in New York is to meet with Wall Street investors and rating agencies to get them familiar with this concept. Issues over collateral are a major source for the lack of confidence in the market from an investor standpoint, he said. Doing the review before the loan closes will let secondary market purchasers know that if they buy a loan that eventually goes bad, at least the valuation was done properly. The V-Cert review includes an USPAP-compliant desk review, a fraud and foreclosure risk analysis and a value determination.

DebtX, Boston, is selling $500 million of mostly commercial real estate loans on behalf of three financial institutions. The first offering consists of $364 million in performing and nonperforming loans with the seller being a Northeastern regional bank. There are two separate bid deadlines on two separate dates. Bids for the first transaction are due June 15 by 2:00 p.m. Eastern. A total of $207 million in loans will be sold, including $76 million of CRE, $57 million of land/acquisition and development, $52 million of commercial and industrial and $22 million of loan participations. Bids for the second transaction are due June 21 by 2:00 p.m. Eastern. A total of $157 million in loans will be sold, including $69 million of CRE, $39 million of C&I, $36 million of land/A&D, $5 million of consumer and an $8 million loan participation. The second seller, an undisclosed bank in the South, is offering $97 million of nonperforming CRE loans for bidding on two separate dates. Both transactions include income-producing properties secured by condominiums and subdivisions throughout the U.S. Bids for the first transaction, which includes $90 million in loans, are due June 3 by 2:00 p.m. Eastern. Bids for the second transaction, which includes $7 million in loans, are due June 16 by 2:00 p.m. Eastern. The third seller, a financial services company in the South, has a portfolio of $39 million of nonperforming CRE loans for sale. The transaction includes loans secured by properties in South Carolina, Florida and Georgia. Bids are due June 8 by 2:00 p.m. Eastern.

Defaults on multifamily mortgages held by U.S. depositories climbed to a record 4.6% in the first quarter, almost twice the year-earlier level, as more borrowers failed to repay loans in a timely fashion, according to Real Capital Analytics Inc. Defaults on multifamily mortgages rose from 4.4% in the fourth quarter and from 2.4% during the same period in 2009, the New York real estate research firm said. Commercial mortgage defaults also rose in the first quarter for loans against office, retail, hotel and industrial properties.

The Kislak Organization, a real estate company based in Miami Lakes, Fla., is back in the residential mortgage business using what it calls a "two-pronged" approach to lending. J.I. Kislak Mortgage LLC is establishing brick-and-mortar offices to serve residential customers in Florida and the Southeast. It has also entered into the private-label business through Kislak Lending Solutions LLC, which is a wholly owned subsidiary of Kislak Mortgage. Kislak Mortgage is a joint initiative with Thomas Meyer, who will serve as chief executive. Meyer, a long-time Kislak associate, is the founder of HomeBuilders Financial Network, which he sold to Fidelity National Financial in 2002. "We believe that there is significant opportunity for a well-capitalized, well-managed and customer-driven mortgage lender in today's market. Consumers still need access to capital, still need smart lenders who can help them buy the homes of their dreams, and Kislak will once again be that company," said Meyer. Kislak exited the mortgage business in 1996 when it sold its servicing portfolio to a consortium of banks including NationsBank, Atlantic Savings and Loan, Glendale Federal Bank, GMAC and Leader Federal Bank, according to the company's website.

Freddie Mac has promoted Mike McRoberts to oversee loan production and sales for its multifamily unit. Previously, the vice president was responsible for managing underwriting and credit approvals for Freddie's multifamily debt investments. "In his 18 years at Freddie Mac, Mike has proven himself to be a capable leader, who can form teams that deliver strong results," said Mike May, Freddie senior vice president of multifamily. "He knows the business well and has great credibility with customers and industry groups." McRoberts replaces vice president Mitchell Kiffe, who left the GSE to work for CB Richard Ellis as a senior managing director for multifamily loan production. Freddie guaranteed $16.6 billion of multifamily loans in 2009, giving it a 37% market share.

Home prices fell 3.1% in the first quarter on a seasonally adjusted basis from the first quarter of 2009, according to the Federal Housing Finance Agency's house price index. But prices rose 0.3% in March from February "offsetting some of the price decreases in the prior months," FHFA said. The FHFA HPI is based on purchase mortgage transactions by Fannie Mae and Freddie Mac. The March increase represents the first uptick in sales since November. While a 3.1% decline in prices doesn't sound so bad, FHFA points out that the prices of other goods and services have risen by 3.5% over the past four quarters. "Accordingly, the inflation adjusted prices of homes fell approximately 6.3% over the latest year," the GSE regulator said.

Marking his 90th day on the job as president of the Government National Mortgage Association, Theodore Tozer said his goal is to "do a better job managing the Ginnie Mae brand on Wall Street." Speaking at the MBA trade show, Tozer said, "We're here to make things happen, not just as a participant, but as a major plus" to the market. Fresh from a long career at the now-defunct National City Mortgage, the Ginnie Mae president told NMN he is trying to tweak the agency's long-running programs so they can become "major solutions" for lenders. A case in point are the pending program changes that will allow lenders to securitize a single loan as part of Ginnie Mae's multi-issuer pools and permit the agency to issue Ginnie Mae II pools on a daily rather than a monthly basis. The changes have been on Tozer's wish list since his days at NatCity, and are intended to give lenders of all sizes a substantial boost in liquidity. "Both changes make a lot of sense," Tozer said. "It's the still the same program. We just took a program that lenders didn't think much about and made it better." The Ginnie Mae president said he's heard a lot of "really positive" feedback from lenders who plan to use the changes to clean up their pipelines and turn over their loans more quickly. "People who understand the issue are already positive about it, and once the changes are up and running, people will be even more so," he said. The changes will take effect with Ginnie Mae's July's issuances.

Thrifts originated $27.2 billion of single-family loans during the first quarter, down nearly 70% from the same period a year ago, according to new figures released by the Office of Thrift Supervision. In the fourth quarter, the OTS-supervised thrifts originated $34.4 billion in one-to-four family loans. On a positive note, OTS acting director John Bowman noted that troubled loans are beginning to stabilize at thrifts. The seriously delinquency rate on single-family loans crept up 3 basis points to 5.16% in the first quarter, 2 bps to 3.39% on multifamily loans, but jumped 69 bps to 14.2% on construction loans. Nevertheless, thrifts reported a decline in net charge-offs and loan loss provisioning as well as a $1.82 billion profit for the first quarter, compared to a $1.6 billion loss a year ago. "The health of the thrift industry is improving but we cannot say the industry is fully recovered from the financial crisis," Bowman said. "Until America gets back to full employment and more families are able to pay their monthly mortgage on time, the thrift industry will continue to face challenges." Loan production topped $88.1 billion in the first quarter of 2009 when the thrift industry had $1.2 trillion in assets and 801 FDIC-insured institutions. Today, the remaining 757 thrifts have $949.8 billion in total assets and 50 of those institutions are listed on the FDIC-problem bank list.

If this is supposed to be an employment-led recovery, then it's going to be a long, slow slog from the bottom, according to the Mortgage Bankers Association's chief economist. Though the recession was "clearly over" last summer, Jay Brinkmanm said at the MBA's trade show, the employment picture is anything but rosy. The unemployment rate nationally has been pegged at a little under 10% by Uncle Sam, but Brinkmann said the true rate, or what he calls the "total" unemployment rate, is up around the 17% level nationally, and even higher in a dozen states. The "total" unemployment rate includes not just those actively looking for work but also people who are in and out of the workforce--discouraged people who are no longer looking, those who were forced to take part-time positions while seeking full-time jobs, and others who are only marginally attached to the work force. Not surprisingly, Michigan has the nation's highest total unemployment rate at 22.9%. But in something of surprise, California, the nation's largest housing market, is next at 22.9%. Nevada has a 21.6% total out-of-work rate, Florida is at 20.4% and North Carolina is at 18.2%. All are considered key housing markets. Real unemployment is "holding back the real estate market's recovery," Brinkmann said in presenting his outlook for 2010 and beyond. The MBA economist also noted that the number of unemployed workers who haven't had a paycheck for more than six months--"Almost a permanent kind of unemployed"--is rapidly approaching 50%. And in that regard, he added, "We are approaching absolutely uncharted territory."

The fate of the secondary mortgage market is not likely to be decided this year or next, the president of the Mortgage Bankers Association ventured at the group's National Secondary Market Conference in New York. Moreover, it could be two or three years before the transition begins between the old, Fannie-Freddie dominated system and the one eventually created by Congress. "Transition is a big key," John Courson said during a town hall discussion on MBA's recommendations for the future role of government in the core secondary mortgage market. "But we've got to get liquidity back into the (present) system" before any changes are undertaken. A 23-member MBA task force has proposed a framework of changes for ensuring liquidity while protecting the taxpayer. Among the critical transition issues identified by Jay Brinkmann, the MBA's chief economist, during the meeting is that near-term needs do not drive the ultimate structure of the new secondary market. "We are looking at a three-year process at a minimum," Brinkmann said. The economist also said there may need to be interim loan guarantees as the government-sponsored enterprises are phased out. On the other hand, he offered that Fannie and Freddie's infrastructures--technology, human capital and standard documents--could be used as a foundation of any new system. Another issue that needs to be resolved is how and whether taxpayers are to be repaid for covering the two GSEs' losses, he told the session.

The sale of distressed assets has become one of the largest segments of the mortgage business, panelists at the Mortgage Bankers Association's National Secondary Market Conference in New York agreed. John Daurio, chairman of Kondaur Capital, Orange, Calif., told a standing room only session that since March 31, roughly $10 billion worth of nonperforming mortgages has been put up for sale, "more than we've seen cumulatively over the last couple of years." Only 30% of that total has actually changed hands because many sellers are simply "feeling" the market, he added. "But even at that, far more has traded than in previous years." And a lot more sales can be expected in the future, according to James Lockhart, the former director of the Federal Housing Finance Agency, who is now vice chairman at WL Ross & Co., New York, a firm which has built a $1.5 billion mortgage recovery fund to buy bad loans on a bulk basis. "We still have a year or so to go to work our way through" the huge number of distressed assets, Lockhart ventured. He said the "best thing that can happen going forward" is to move bad loans into the hands of investors who are willing to work them out one way or another. "We need to clear the market," he said. "Too many mortgages are still sitting on balance sheets in need of being resolved." Daurio said that while Kondaur's goal is to keep people in their homes, only 10% are able to remain. The majority end up taking "a significant amount of cash" in return for handing over the deeds to their homes, while 20% wind up in foreclosure because they have either skipped and can't be found or the junior lien holder is being unreasonable.

The yield on the benchmark 10-year Treasury dove Tuesday morning, coming within a hair of its 52-week low of 3.1%. By early afternoon the yield had climbed to 3.14%. (The high for year is 4.01 %.) The declining yield did not escape the attention of executives attending the Mortgage Bankers Association's trade show in New York, including chief economist Jay Brinkmann. "This has been a somewhat tough year to forecast," said Brinkmann, referencing previous expectations for relatively higher rates this year. Securitized mortgage yields did not fall as fast as Treasury yields during the flight to quality Tuesday morning but the drop was still fairly significant, Michael Fratantoni, vice president of research and economics at the MBA, told National Mortgage News.

Residential Capital Corp. has re-entered the wholesale market, including jumbo lending, hiring a new executive to oversee the channel, National Mortgage News has learned. The lender, whose parent company is majority owned by the U.S. government, is now rolling out new programs to loan brokers in selected markets across the nation. The company exited wholesale production more than two years ago. A company spokesman declined to provide any production estimates but stressed that ResCap's offerings will include "everything." Fannie Mae, Freddie Mac and FHA product dominate the production landscape today, but jumbo lending is beginning to show signs of life again. ResCap named Steve Gilcrest, a former operations executive at GreenPoint Mortgage, to oversee the effort as senior vice president. Over the past year he has worked as a consultant to ResCap. Among all residential funders, ResCap ranks fourth nationwide, according to figures compiled by the Quarterly Data Report.

Citigroup Inc. sold a series of mortgage-linked securities without disclosing that Morgan Stanley helped shape them while betting they would fail, according to a report by Bloomberg News. The news service, quoting "two people with knowledge of the matter," reported that marketing documents for the $205 million Jackson Segregated Portfolio, underwritten by Citigroup Securities in 2006, do not say who picked the underlying mortgage bonds. A Morgan Stanley unit helped select the bonds, the people said, speaking anonymously because the deal was private, Bloomberg reported. Six of the seven series of Jackson bonds later defaulted, costing investors more than $150 million, data compiled by Bloomberg show. Citi said in the Jackson marketing documents that its interests in the deal "may be adverse" to those of investors in the CDO bonds. "We expressly disclosed in marketing the Jackson CDOs that the collateral selection may have included factors adverse to investors," said a Citigroup spokeswoman. "Having said that, we remain committed to enhancing the transparency of all financial transactions in which we are involved." Morgan Stanley spokesman Mark Lake said he could not comment.

Homebuyers and investors have less interest now in buying foreclosed homes than they did a year ago, according to a new survey. If the attitude holds it will continue to raise concerns about who will buy all the repossessed homes coming on the market and the effect on a housing recovery. Consumers who would consider purchasing a foreclosure dropped to 45% this month from 55% last May, according to an online Harris Interactive survey conducted for Trulia.com and RealtyTrac.com. The Orange County Register reported that the survey shows that among those who cite a downside to buying a foreclosure-and there are actually somewhat fewer than last year: 78% vs. 85%-more are worried about the risk and possible loss of value than a year ago.

Rep. Carolyn Maloney, who represents part of New York City, voiced her support for mortgage bankers having "skin the game" but not a "one size fits all approach." Speaking at the MBA trade show in New York, Maloney noted that some commercial property values have decreased by at least 40% from their peak, voicing her concern about a lack of liquidity in the commercial mortgage market and underwater mortgages. The Democrat from the East Side of Manhattan said she sees a glimmer of hope in the market due to improving GDP numbers. More than 600 attendees are at the MBA show, up 200% from last year. The trade group recently reported improving commercial loan volumes. "With 8.4 million jobs lost during the Great Recession, it will take time while our economy recovers and the CMBS market returns," Maloney told lenders.

The Senate is slated to begin debate on an emergency appropriations bill Monday afternoon that includes a provision to get the Rural Housing Service program up and running again. The measure would allow the RHS to increase its current 2% upfront premium to 3.5% and make the single-family program self-funding. It would free RHS from the appropriations process and from seeking annual renewal of its loan commitment authority. RHS ran out of loan commitment authority on May 17. Some lenders are still using the program but only because the money has been committed, though not used. RHS is a key program for rural lenders of all stripes but also megabanks like Chase Home Finance. The emergency appropriations bill (H.R. 4899) includes funding for the wars in Iraq and Afghanistan and natural disasters stateside. Congress wants to pass this bill before the Memorial Day recess. It represents the fastest legislative vehicle to fix the RHS program. The House has already passed a RHS reform bill, sponsored by Rep. Paul Kanjorski, D-Pa., that increases the upfront premium to 4%, which means House appropriators likely will not object to the inclusion of the RHS provision in H.R. 4899.

Single-family existing home sales jumped 7.4% in April following a similar rise in March as buyers rushed to meet the deadline for a federal homebuyer tax credit. The National Association of Realtors expected the increase, noting that the tax credit required borrowers to sign a sales contract by April 30 and close June 30. NAR chief economist Lawrence Yun is forecasting that sales will be elevated in May and June with "some temporary fallback" in the following months. The Realtors reported that sales of previously owned single-family homes rose to a seasonally adjusted annual rate of 5.05 million in April from a 4.7 million rate in March. The April report shows more sellers are putting their homes on the market to take advantage of the stabilization in home prices and low mortgage rates. NAR also reported that the inventory of unsold homes rose by 390,000 units in April to 3.43 million, an 8.2-month supply at the current sales pace. A NAR spokesman said two-thirds of that increase is normal for this time of year. The last time the inventory was above 3.4 million was in November 2008. Weiss Research analyst Mike Larson said the rise in inventories casts a "pall over the recent improvement in supply trends." He also noted that purchase mortgage applications have "slumped to multiyear lows."