Originations

The Mortgage Bankers Association's chief economist is hopeful that last week's run-up in the Libor index could be the spark needed to light a fire under the refinancing sector. For the most part, borrowers with Libor-based adjustable-rate mortgages have been reluctant to trade in their loans for safer fixed-rate products because the interest rate on their ARMs is less than that currently available for fixed loans, even at the fully indexed rate. But now that the Libor benchmark is moving up, they could change their minds, Jay Brinkmann told National Mortgage News at the MBA's National Secondary Market Conference in New York. It's too early to tell whether the hoped-for increase in refis will be a "boomlet" or a "wavelet," Brinkmann said. But he reported that several MBA members told him their phones were "ringing off the hooks" Thursday and Friday of last week from callers who were worried that their next rate adjustments could drive their payments higher than if they were to refinance. The economist said he is watching the situation carefully. Meanwhile, on Monday the yield on the 10-year Treasury bond held steady at about 3.2%.

At the urging of their regulator, Fannie Mae and Freddie Mac are expanding their data collection on loans and appraisals using new uniform standards. "This initiative is a major step toward meeting industry requests for uniformity in appraisal and loan data," said Federal Housing Finance Agency director Edward DeMarco. "Improvements in data quality will benefit all mortgage market participants and strengthen the housing finance system." The new data standard will be phased in through a common platform and structured to use existing originator and appraiser technologies, FHFA said. Fannie and Freddie both issued statements in support of the new initiative. "We applaud FHFA on this important effort to improve appraisal and loan data quality," said Freddie chief executive Charles Haldeman. "The additional loan and appraisal data requirements, standard data definitions and a common framework for capturing these new data sets will support the mortgage industry's efforts to manage risk, reduce costs and respond more efficiently to market changes," he said.

Federal Housing Administration commissioner David Stevens urged mortgage bankers to "think a little less about your own wallets and more about integrity and responsibility" in their efforts to mold legislation to reform the nation's financial system. "Make your case, but make it for the right reason," he said at the Mortgage Bankers Association's National Secondary Market Conference in New York. After MBA president John Courson prodded members to deliver their message to lawmakers—"The issues before us will affect the very shape and form of lending in the future," he said—Stevens took to the podium to warn that advocating for the industry alone is the wrong message to take to their legislators on Capitol Hill. "Washington doesn't trust this industry at all," he told a crowd of about 1,500 at the Hilton New York. "It's not about protecting mortgage banking, it's about protecting the American dream. That's the only issue that has credence in Washington today." The FHA commissioner said that while there is plenty of blame to go around for the financial crisis, the "general consensus" in Washington is that housing finance "is the industry that brought the world to the brink of financial ruin." On a brighter note, Stevens also told the conference that most signs are pointing to a housing market turnaround. The sector is "slowly starting to come back," he said. "You can feel a growing confidence in the market, and you can sense more willingness to invest."

Branch, Banking & Trust had outstanding warehouse commitments of $3.2 billion at yearend, making it the largest financier of nonbanks in the nation, according to survey figures compiled by National Mortgage News. The North Carolina-based bank, however, would not verify its commitment number or talk about its business. The figure is an estimate made by NMN, based on commitments the bank inherited when it bought the troubled Colonial Bank last summer. Industry sources say Bank of America has a commitment volume of almost $15 billion but that bank, too, would not discuss its warehouse business. The $15 billion figure is based on a speech made by a B of A warehouse executive at a recent mortgage conference in Texas.

The loan buyback plague continued on unabated in the first quarter with three seller/servicers, accounting for about three-fourths of the industry's repurchases, according to an analysis done by National Mortgage News. Bank of America repurchased more loans than any other originator with $4.4 billion, followed by Chase ($2.4 billion) and Citigroup ($1.4 billion). Although the figures are large, B of A and Citigroup actually had significant declines in buybacks compared to the fourth quarter. B of A's repurchases fell by 56%, Citi's by 70%. Chase's declined by 11%. All three have special teams that work on fighting buybacks. One source close to Chase said much of the lender's current buyback requests come from "legacy" loans that were originated by Washington Mutual, which JPMorgan Chase bought in the fall of 2008. "It's a disaster," said the source, requesting his name not be used. "A lot of it is payment-option ARMs." A Chase spokesman declined to comment on specifics, but acknowledged, "We have a lot of people working on it (buybacks)." In a recent SEC filing JPM disclosed, "In 4Q09 approximately 14%, 58% and 20% of repurchase demands, respectively, came from 2006, 2007 and 2008 vintages."

Roughly 37% of single-family residences in California that are in foreclosure are rental units, according to a new report from Tenants Together, a consumer advocacy group for renters' rights. The organization says more than 200,000 renters in the state "were directly affected by home foreclosures in 2009 alone, most of whom have been displaced from their homes." Tenants Together noted that the foreclosure rate on California apartment properties spiked by 70% last year-but only on buildings with rental units of five or more.

Commercial real estate sales, prices and lending showed improvement in the first quarter but regulators expect bank losses on CRE loans will be elevated for at least another year. Deputy comptroller Bert Otto told a congressional panel that vacancy rates are still rising nationally and cash flows on CRE properties are expected to decline into 2011. "We expect CRE losses to remain elevated for an extended period, much as we saw in the early 1990s downturn," the national bank supervisor testified. Losses on CRE loans are the major driver of small bank failures. But Otto noted there has been some improvement in the market. A private index shows a stabilization of CRE prices as of February and property sales jumped 16% in the first quarter, compared to a year ago.

Mortgage industry officials continue to lobby for language in the regulatory reform bill that will ease the burden of the Home Valuation Code of Conduct regulation. According to Marc Savitt, president of the National Association of Independent Housing Professionals, an amendment will be introduced during conference talks that will allow any licensed originator to order an appraisal. Currently, HVCC bans mortgage brokers and retail loan officers from being involved in the appraisal process. Mr. Savitt said a HVCC amendment was introduced in the Senate this week but not voted on.

The Federal Housing Finance Agency said Thursday that Fannie Mae and Freddie Mac are preparing to field complaints from appraisers, consumers and others about violations of the Home Valuation Code of Conduct. If, for example, a lender pressures an appraiser to overvalue a home so a loan can get done, the appraiser will be able to report the lender to one of the GSEs, which may refer the case to regulators. Originally that job was going to belong to an "independent valuation protection institute" that the GSEs would seed with a combined $24 million. But since the March 2008 agreement with New York attorney general Andrew Cuomo that established the code, the government has seized Fannie and Freddie and sunk $145 billion of taxpayer money into them. It has become untenable for the GSEs to bankroll an independent institute. "I cannot, as conservator, justify the enterprises funding the institute," said Edward DeMarco, the acting director of the FHFA in a letter to Cuomo. In the next few weeks the GSEs will create a process for people to submit complaints online.

Metropolitan Equity Partners, New York, has pulled out of a deal to buy a mortgage brokerage firm because of concerns over declining loan volumes and worries about mortgage buybacks. MEP managing director Frank Gallagi said he still likes the mortgage industry and would like to make an investment but not at this time. He declined to identify the company or talk about the deal further. He stressed that the lender he was targeting will survive and is not in danger of failing. In an e-mail to National Mortgage News, he said, "I'm still very interested in deploying funds into this sector and am continually looking for opportunities." MEP planned to convert the brokerage firm into a mortgage banker.

The Senate late Thursday passed a landmark financial regulatory reform bill that will increase regulation and oversight of the residential mortgage industry and overhaul the way Wall Street conducts business. The legislation, the most sweeping since the Great Depression, requires issuers of mortgage-backed securities to pool the safest "qualified" mortgages (as determined by regulators) to escape a 5% risk retention requirement. The bill, crafted by Sen. Chris Dodd, D-Conn., creates a new consumer protection agency with rulemaking and enforcement authority to stop abusive mortgage lending practices. However, the legislation, for now, punts on the issue of reforming Fannie Mae and Freddie Mac. "For the first time ever, we will have a Consumer Financial Protection Bureau to watch out for the average citizen in our country when they are abused by the financial marketplace that takes advantage of them on home mortgages and credit cards," Dodd said. The legislation directs federal regulators to establish minimum standards for verifying a borrower's ability to repay a loan and places certain restrictions on loan officer and mortgage broker compensation. The bill (S. 3217) also instructs the Securities and Exchange Commission to create a regulatory body that selects the credit rating agency for initial ratings on MBS. The Senate passed the Dodd bill by a 59-39 vote around 8:30 Thursday evening. The House of Representatives passed similar reform legislation in December but many differences remain between the two bills. House and Senate banking committee leaders will meet in conference to iron out final legislation. The talks are expected to take several weeks and will not be completed until the end of June.

Lenders are tightening underwriting standards on Veterans Administration-guaranteed mortgages even though the VA delinquency rate is lower than on prime loans. "VA has received anecdotal evidence and reports from industry partners that stricter requirements are being imposed on their VA loans," an agency official told members of the House Committee on Veterans Affairs. VA associate deputy secretary Thomas Pamperin said many lenders are using credit scores to qualify veterans, which is not required by the agency. Also, some lenders are considering a downpayment requirement. The VA program is designed to provide no-downpayment loans to veterans. "VA does not have the authority to prohibit lenders from imposing this extra layer of requirements, but additional lender requirements may make it more difficult for veterans to obtain homes," Pamperin testified. The latest Mortgage Bankers Association delinquency report shows that 5.29% of VA single-family mortgages are 90 days or more past due and in foreclosure, compared to 7.08% for prime mortgages. Meanwhile, VA loan production is on track to match fiscal year 2009 when lenders originated $68 billion in such loans. As of April 30 (the first seven months of FY 2010), lenders had originated $36 billion in VA-backed mortgages.

Members of the Federal Reserve's monetary policy committee are concerned the recovery in the housing market has "stalled," according to minutes of its April 28 meeting. Federal Open Market Committee members noted that home prices have stabilized in many parts of the U.S. and in some areas are rising. However, certain members see "elevated foreclosures as posing a downside risk to home prices," according to the transcript. The FOMC minutes reveal that members discussed the Fed's $1.25 trillion MBS purchase program which ended, as planned, on March 31. The discussion centered on when the central bank should begin the sale of MBS as well as the pace of those sales. There was a wide range of views and no decisions were made concerning a strategy. For now, the Fed will continue to allow its MBS portfolio to run off.

Nine mortgage industry groups along with the U.S. Chamber of Commerce are urging the Department of Labor to reconsider and withdraw its recent ruling that requires residential lenders to pay overtime to certain loan officers. "The interpretation constitutes a sharp break from existing law that will result in both very considerable costs to, and adverse effects on, employers and employees alike," the industry groups say in a letter to DOL's director of Wage and Hour Division. On March 24, DOL issued an interpretation that requires lenders to pay overtime to retail loan officers that work in an office. There are currently 110,000 retail mortgage loan officers and they are "well compensated by commissions and frequently work irregular hours," the May 19 letter states. The trade groups contend DOL made the new interpretation without notice and it represents a "sharp break" with the department's 2004 interpretation. "The interpretation should be withdrawn and the department should embark on a new rulemaking with notice and comment if it wishes to change policy or implement new requirements in this area," the joint letter says.

Commercial banks originated $122 billion of single-family loans through retail means in the first quarter, a 17% decline from the previous period. It marks the third quarterly decline since the second quarter of 2009 when originations by banks topped $222 billion during the refinancing boom. New call report figures released by the Federal Deposit Insurance Corp. show that 762 commercial banks and savings banks were active residential lenders in the first quarter, down from 869 in the fourth quarter. Banks are required to report origination data to FDIC only if they have assets of $1 billion or greater or they originated more than $10 million in one-to-four family loans in the past two quarters. The FDIC also reported a decline in wholesale lending activity. FDIC banks purchased $200 billion of residential loans during the quarter, down 19% from the previous quarter and nearly unchanged from a year ago. Banks also sold $359 billion of residential first mortgages.

Banks and thrifts posted their best earnings in two years during the first quarter due to an improvement in mortgage buybacks and lower loan losses, according to new figures compiled by the Federal Deposit Insurance Corp. A key contributor to the bottom line was a steep, 50% drop in mortgage buybacks from the first to the fourth quarter. Overall, banks and thrifts repurchased $9.3 billion of home mortgages, after being slapped with claims from secondary market investors including Fannie Mae and Freddie Mac. Net charge-offs on residential and construction loans both declined in the first quarter, a sign that charge-offs may be peaking. Overall, the industry earned $18 billion. FDIC-insured institutions charged off $13.5 billion of one-to-four family loans, down 13% from fourth quarter. However, the serious delinquency rate rose to 7.98%, up 57 basis points from the previous quarter. Part of the rise may be due to banks shrinking their holdings of residential mortgage loans and loan modification efforts. On construction loans, the percentage of loans 90 days or more past due fell to 22.8% in the first quarter, down nearly 300 bps. But net charge-offs totaled $1.7 billion down from $2.5 billion in the previous quarter.

Sovereign Bank and M&T Bank Corp.--two midsized players in mortgages--have ended their merger talks, according to combined news reports. A report by Dow Jones said the two banks were in advanced merger discussions in recent weeks. The deal would have catapulted Sovereign's owner--Spain's Banco Santander SA--into the upper ranks of U.S. banking along with such other foreign banks as HSBC and ING. Sovereign is also an active player in providing warehouse credit to nonbank mortgage firms. According to figures compiled by National Mortgage News and the Quarterly Data Report, Sovereign ranks 25th nationwide among residential funders, M&T 28th.

First-quarter commercial and multifamily mortgage originations came in higher year-to-year but lower quarter-to-quarter. Originations were up 12% compared to the same period last year but down 26% from the fourth quarter of 2009. "The results of the survey showed changes in commercial and multifamily mortgage loan origination levels varied significantly between investor groups," said Jamie Woodwell, MBA's vice president of commercial real estate research. "However, it's hard to draw conclusions based on first-quarter numbers given seasonal effects, such as the industry's usual push to finalize deals before the end of the year, resulting in lower first-quarter origination activity."

Calyx Software has expanded The Calyx Network with an interface update that provides links to new compliance, fraud prevention and verification vendors. The Calyx Network allows users of the Calyx Point LOS application to connect directly with lenders and mortgage service providers, automating data exchange. The May update contains a new connection to three new mortgage service providers including fraud detection and compliance vendor Interthinx Inc., product and pricing vendor Mortgage Pricing System and verification services T Transcript Processing. The Calyx Network interface update is automatically installed into Point versions 7.0 and higher when users open their software and connect to the Internet.

Impac Mortgage Holdings said its real estate and mortgage services unit earned $1.3 million in the first quarter from an array of vendor activities, including loss mitigation and REO services. In a new filing with the Securities and Exchange Commission, the Irvine, Calif.-based nonbank notes that it would like to begin funding loans again but remains relegated to being a loan broker only. (In the filing it provides no volume figures.) It also reveals that most of its revenue stems from services performed on its own portfolio. A former alt-A lender, Impac is trying to reinvent itself in a variety of field and REO services. Its stock recently began trading on the American Stock Exchange after being on the OTS pink sheets.