Originations

For the fifth consecutive year, title underwriter premiums declined but appear to be showing signs of stabilizing. Last year premiums fell just 4.5%, according to new figures compiled by the American Land Title Association. Premiums peaked in 2005 at $16.9 billion. In 2009, underwriters took in $9.6 billion of premiums. However, ALTA chief executive Kurt Pfotenhauer noted that 2009 mortgage volume was driven by tax incentives and low interest rates. In 2010, he noted, refinancings are expected to contract from the 65% share in 2009, and purchase volume is expected to remain flat. California generated the most premium volume: $1.5 billion, up 8.4% over the previous year. The next three states, ranked by volume, all showed a decline from 2008: Texas, $1 billion (-17.6%), Florida, $700 million (-23.8%), and New York, $585 million (-22.7%). In terms of percentage, Alaska had the largest increase, 26.3%, followed by Wisconsin, 17.6%, and Montana, 15%. "As indicated by these results, the profitability of the title insurance industry always has been and always will be contingent on the cyclical nature of the mortgage market," Pfotenhauer said. "The scattered improvements illustrate real estate is an extremely local business. Each market performs differently depending on local economic conditions."

The former servicing manager of U.S. Mortgage Corp./CU National Mortgage has pleaded guilty to conspiring to defraud credit unions and Fannie Mae in the $140 million mortgage scandal. Leroy Hayden, 47, was convicted of conspiracy to assist U.S. Mortgage/CU National president Michael McGrath in his scheme to fraudulently sell Fannie Mae mortgages that the company was servicing on behalf of credit unions. "Frauds of this magnitude don't happen without someone to cook the books and push the paper," said U.S. Attorney Paul Fishman of Newark, N.J. "Leroy Hayden had to decide whether to go along with his boss' fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice." Hayden told authorities he provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions' portfolios, and falsified records, at McGrath's direction, to conceal these fraudulent sales. Hayden also admitted that he modified data in U.S. Mortgage's servicing system to help carry out the scheme. As many as 28 credit unions in the Mid Atlantic states stand to lose as much as $125 million in the case and are frantically negotiating with Fannie Mae for the return of their mortgages. Several of the credit unions are also in litigation with their insurer, CUNA Mutual Group's CUMIS Insurance Society over coverage of the fraud. McGrath pleaded guilty last June and is scheduled to be sentenced in July.

Though notably slower than a year ago, the pace of sales in California's new home communities picked up a tad between February and March, according to the state's builders. Sales in March at properties with at least 10 units were off 31% from the same month last year, but were up 13% from the preceding month, the California Building Industry Association reported. Still, only 2,189 new houses and apartments sold in the month in subdivisions tracked for the group by Hanley Wood Market Intelligence, Costa Mesa. Single-family sales were up by 5% from the previous month, but down 36% from a year earlier. Meanwhile, sales of townhouses and "plex" style units rose 24% from February but were off 32% from March 2009. Condo sales were up 37% on a month-to-month basis but down 16% year-over-year. The median price of the 2,189 sales was up 7% from last year, from $342,567 to $367,933. According to Hanley Wood's Jonathan Dienhart, the decline in year-over-year sales was due in part to the lower number of actively selling projects. "So while sales overall are off 30% from a year ago, the number of sales per project was off 10%," he said. "Still nothing to celebrate, but better than the 30 percent headline figure."

While the odds of passage remain strong, the process behind the regulatory reform legislation is increasingly chaotic. Senate Banking Committee Chairman Chris Dodd (D-Conn.) took to the floor late Thursday to beg his colleagues on both sides of the aisle to stop adding more amendments, warning the process is in danger of spinning out of control. In a rare spectacle, Dodd rebuffed another senior retiring Democrat, Sen. Byron Dorgan of North Dakota, and argued his plea to debate yet another amendment was threatening the legislation. "I'll be very candid with my friend from North Dakota, it complicates my job," Dodd said. "They all have amendments they want to bring up. ... We run the risk of losing this bill." This past week, several amendments directly affecting the residential mortgage industry were introduced, including language on risk retention, underwriting standards, yield spread premiums, and reverse mortgages.

If Congress fails to appropriate $250 million for the Federal Housing Administration reverse mortgage program, seniors could see the principal amount of a new loan reduced by 30%. "Without the budget request, we would be forced to reduce the amount of funds that would be available to seniors by more than 30%, which is, on average, a $23,000 to $27,000 impact," said FHA commissioner David Stevens. Last year, the Department of Housing and Urban Development requested $798 million in funding for the FHA home equity conversion mortgage program. When Congress rejected that request, HUD reduced the HECM principal limit by 10% for fiscal year 2010, which started October 1. During the first-half of FY 2010, FHA endorsed 45,200 HECMs, down nearly 22% from the same six-month period in FY 2009. The National Reverse Mortgage Lenders Association estimates that a significant portion of that reduction in loan volume is due to seniors coming up short at the closing table: the principal amount of the HECM is not enough to pay off the senior's existing mortgage. NRMLA president Peter Bell noted that funding is very tight with the appropriation process challenging this year. "We want to minimize any further principal limit reductions," he said. "Because every time we lower principal limits, we shut off access to the program for some seniors."

The table funding of home mortgages through loan brokers fell almost 50% in the first quarter, according to preliminary survey figures compiled by National Mortgage News and the Quarterly Data Report. Among lenders reporting so far, PHH Mortgage, Mt. Laurel, N.J., had the biggest year-over-year decline with 57%. NMN is still collecting surveys and the final results could change. However, it's no secret that loan brokers are under extreme pressure with the outlook for their business cloudy. Some elected officials and consumer activists would like to see brokers legislated out of existence. (One amendment to the financial regulatory reform bill would place a cap on yield spread premiums, a key source of income for brokers.) FHA commissioner David Stevens, though, sees a need for loan brokers and wants to see this industry sub-sector survive. Meanwhile, broker-funded originations (as a percentage of all loans produced) have been falling steadily since mid-2007. In the third quarter, table funding accounted for just 13% of originations, the lowest figure ever recorded by NMN/QDR. In 4Q, the broker market share rose slightly to 13.4%.

Callan Associates, San Francisco, said that Sally Haskins joined the firm as a senior vice president in the real estate consulting group. In her new role, Haskins will assist in growing the firm's real estate consulting business. "This is an important step forward in the evolution of our real estate consulting business," said Jamie Shen, senior vice president and alternative investments consulting practice leader at Callan Associates. Haskins joins Callan Associates from ING Clarion where she was a director in the client service and marketing group.

The Principal Financial Group took issue with Standard & Poor's downgrading the insurer's financial strength rating from "A+" to "A". Terry Lillis, chief financial officer of Principal, said "S&P has introduced a new 'stress model' for investment portfolio assets for U.S. life insurers, one we believe is a very simple tool for commercial real estate and is at odds with our more detailed analysis of expected losses for commercial mortgage investments. As we stated in our 1st quarter 2010 earnings call, we believe the real estate market is returning to stability and values will be stable to rising going forward. While we expect higher than normal losses for several quarters, the losses from commercial mortgages will be quite manageable." CRE losses in the company's investment portfolio for the first quarter were $11 million, Lillis said.

Ramco-Gershenson Properties Trust, a real estate investment trust based in Farmington Hills, Mich., priced its public offering of 6 million shares of newly issued common stock at $11.50 per share. The company expects to receive net proceeds from this offering of approximately $65.6 million. Ramco-Gershenson intends to use the net proceeds from the offering to prepay the $33.0 million principal payment of its secured term loan facility, to pay off two mortgages in aggregate of $15.9 million and to reduce outstanding borrowings under its secured revolving credit facility. The joint book-running managers for this offering are B of A Merrill Lynch and J.P. Morgan Securities Inc. Deutsche Bank Securities Inc. and KeyBanc Capital Markets Inc. are acting as lead managers of the offering, and RBC Capital Markets Corp. and Stifel, Nicolaus & Co. Inc. are acting as co-managers. The underwriters have a 30-day option to purchase up to an additional 900,000 common shares to cover over-allotments, if any. Subject to customary conditions, the offering is expected to close on May 18, 2010. Just before noon on May 13, Ramco-Gershenson was trading at $11.65 per share, down $0.84 from the previous close.

Fannie Mae purchased $83 billion of mortgages during March, a 55% increase from the prior month. Compared to the same period a year ago, the government-controlled entity saw acquisitions fall by 11%. The $83 billion it purchased was its best month since last July. (Like everyone else in the mortgage business, Fannie benefited from the expiring federal tax credit for new homeowners.) During the first three months of the year, Fannie bought $191 billion in mortgages, giving it an annual run-rate of $764 billion. Last year it purchased $823 billion in mortgages but 2009 was a stronger year for loan production. Meanwhile, new figures show that homeowners who refinanced during the first quarter again overwhelmingly chose fixed-rate loans, regardless of whether their original loan had a fixed or adjustable rate. Also, shorter-term mortgages gained some favor, according to research conducted by Freddie Mac. More than 95% of refinanced loans during the quarter were FRMs, as interest rates remained historically low. According to the Quarterly Data Report, a National Mortgage News publication, FRMs accounted for 90% of all originations in the third and fourth quarters of last year.

The average weekly rate for a 30-year fixed-rate mortgage has dropped to its lowest level of the year, according to Freddie Mac. This marks the fifth straight week of declines for the fixed-rate mortgage, according to Freddie Mac vice president and chief economist Frank Nothaft. The average 30-year FRM according to the Primary Mortgage Market Survey for the week ending May 13 was 4.93%. This is its lowest level since the week ending Dec. 10, 2009 when it was at 4.81%. A week ago the average 30-year FRM was 5% and a year ago at this time it was 4.86%. The average 15-year FRM rate during the week ended May 13 was 4.30%, its lowest since the week ending Dec. 3, 2009 when it was 4.27%. A week ago the average 15-year rate was 4.36% and a year ago it was 4.52%. The average rate for a five-year Treasury-indexed adjustable-rate mortgage during the week ended May 13 was 3.95%. This is the lowest this rate has ever been since Freddie started tracking it in January 2005. The average five-year hybrid Treasury ARM rate was 3.97% a week ago and it was 4.82% a year ago. The average rate for a one-year Treasury ARM during the week ended May 13 was 4.02%, which is the lowest it has been since the week ending Nov. 4, 2004 when it averaged 4%. The one-year Treasury ARM averaged 4.07% a week ago and 4.71% a year ago. Average points in the most recent week were as follows: 0.7 for 30-year FRMs and 0.6 for all of the other types of loans.

The Federal Housing Administration expects the capital ratio of its reserve fund will be higher at yearend than it is today thanks to improving claim rates. FHA commissioner David Stevens told a Senate appropriations subcommittee Thursday morning that the federal mortgage insurance fund will end fiscal 2010 "where we are or higher." According to outside auditors, the MIF had a capital ratio of 0.53% as of Sept. 30, 2009. But the agency has not provided a public update on the MIF cash position in seven months. Stevens told the panel the fund's capital position is in a "stronger position" today than it was last fall but is still far below its 2% statutory minimum capital ratio. Stevens stressed that early default and claim rates on FHA single-family loans have declined 15% since December, which is a "strong indicator that loan quality is improving." However, he noted that actual foreclosures are increasing. He expects 125,000 foreclosures with a 50% loss on each sale. Last year, FHA paid claims on 76,300 foreclosures.

The Senate Thursday evening approved by unanimous consent an amendment that will exempt "qualified mortgages" from the 5% risk retention provisions in the Wall Street reform bill. As approved, the language will ensure the 5% risk retention provision does not obstruct the securitization of the safest mortgages: loans that generally have 20% down payments or carry mortgage insurance. The amendment, sponsored by Senators Mary Landrieu, D-La., Johnny Isakson, R-Ga., and Kay Hagan, D-N.C., instructs federal regulators to exempt low risk, fully documented loans from risk retention. "We commend the Senate for the passage of the Landrieu/Hagan/Isakson amendment that exempts soundly underwritten, stable, consumer friendly mortgages from the risk retention requirements," said Glen Corso, managing director of the Community Mortgage Banking Project. Sen. Isakson supported the qualified mortgage exemption after his effort to strike the risk retention provision from the bill failed. "Risk retention is not the cure-all for good lending-underwriting is," the Georgia lawmaker said. Sen. Landrieu noted the amendment will ensure that applicants with good credit who finance their home the "old fashioned way" will not face higher interest rates due to risk retention. At the same time, the 5% risk retention provision will "eliminate the risk taking we saw in the home mortgage market between 2004 and 2007," Landrieu said.

Indicating growing investor interest in commercial deals, bidders rushed to a U.S. Department of Housing and Urban Development auction of $306 million in non-performing multifamily and healthcare HUD loans that generated proceeds equal to almost half their unpaid balance, according to loan sale advisor KDX Ventures. KDX said 67 bidders submitted over 200 individual and pool bids for the 26 assets offered for sale in April. Executives said the 12 winning bids submitted on individual assets generated proceeds of over 48% of unpaid principal balance demonstrating "the pent-up demand and liquidity for commercial real estate assets." According to DebtX CEO Kingsley Greenland, even though over the past two years, investors have amassed a tremendous amount of capital to invest in commercial real estate loans, "there has been only a small amount of product available for sale." KDX is a joint venture between boutique investment banking firm KEMA Advisors, Hillsborough, NC, and international online marketplace, DebtX, Boston.

The delinquency rate on loans backing U.S commercial mortgage-backed securities jumped 60 basis points in April to 7.02%, according to Moody's Investors Service. This increase was the second highest in the history of Moody's Delinquency Tracker, surpassed only by the tracker's 69 bp jump the previous month. The tracker follows the history of all U.S. conduit/fusion deals issued in 1998 or later that still have an outstanding balance.

U.S. subprime prices outside of the notorious 2007 vintage continued to show notable signs of a significant rebound in the latest month, according to a Fitch credit default swap index. Overall, the Fitch Subprime Total Market Price index showed a 7% month-to-month increase to 8.71% as of May 1. The 2007 vintage is still down 9% on the year, but since Jan. 1 the 2005 and 2006 vintages have gained by 36% and 22%, respectively.

A recent Fitch Ratings study of securitized non-agency mortgages in California shows high delinquency rates triggered by the level of negative equity can produce "dramatic differences" in local loan performance. The study found that California's 60-plus day delinquency rates for prime loans are at 12%, compared to 10% nationally; for option ARM loans it was 47% compared to 46% nationally, and for subprime loans it was 50% compared to 47% nationally. While mortgage performance in the state "is not substantially different" from the rest of the country, regions with the largest home price increases have also seen "the most precipitous declines," Fitch said. The disparity between various regions within the state's 382 metropolitan statistical areas tracked by Fitch is so great that California is home to both the best performing region in the country (San Francisco-San Mateo-Redwood City in San Francisco) and some of the country's worst performing markets. For example, in Riverdale 90% of the mortgages are now "under water" and 60% of borrowers owe over 150% of the value of their home. Also, in Riverside the prime 60-plus day delinquency rate is 23% or five times higher than the 4% rate in San Francisco. The pattern is consistent among all loan types, including nonprime, option ARM and Alt-A loans, according to Fitch.

Standard & Poor's has revised its criteria for certain federal government-enhanced housing bonds. This could affect the ratings of bond issues that are secured by mortgages that are insured or guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae or FHA if the bonds are reliant on investment earnings for full and timely payment. Specifically, it could affect "the ratings on issues that rely on market rate investment earnings to meet debt service payments for the term of the bonds...unless cash flows have been previously analyzed based on a zero rate of earnings," S&P said. S&P has placed a total of 632 issues on CreditWatch with negative implications as a result.

Ginnie Mae guaranteed more than $32.6 billion in mortgage-backed securities in April. Ginnie Mae II single-family pools totaled more than $18.9 billion and Ginnie Mae I single-family pools were $12.6 billion. Ginnie Mae's multifamily MBS issuance was over $1 billion, marking the second time during fiscal year 2010 that multifamily issuance crossed the $1 billion threshold. March numbers for 90-plus day delinquencies released with the April issuance figures showed late payments of this type dropped to 1.85% from 2.02% in February.

The Greek debt crisis as well as the end of the homebuyer tax credit program both had an impact on mortgage application volume, found the Mortgage Bankers Association's Market Composite Index for the week ended May 7, 2010. The MCI increased 3.9% on a seasonally adjusted basis from one week earlier and on an unadjusted basis, it increased 3.4%. "The recent plunge in rates on U.S. Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefited U.S. mortgage borrowers last week. Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks," said Michael Fratantoni, MBA's vice president of Research and Economics. "In contrast, purchase applications fell almost 10% in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later." The Refinance Index increased 14.8% from the previous week while the seasonally adjusted Purchase Index decreased 9.5% from one week earlier. As a result of the drop in rates, the market share of refi applications reversed its recent decline, increasing to 57.7% of total applications from 51.9% the previous week. The market share of adjustable rate mortgage applications remained at 6.3%. The average contract interest rate for the 30-year fixed rate mortgage fell six basis points from 5.02% to 4.96% for the current week with points decreasing from 0.92 to 0.91 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs declined 2 bps to 4.32%. The average contract interest rate for one-year ARMs declined 17 basis points from 7.03% last week to 6.86% this week.