Originations

Nonbank lender Universal Mortgage of Wisconsin is closing down after failing to find a private equity investor willing to pump capital into the $4 billion servicer. In an interview with National Mortgage News, company president Ron Huiras confirmed that a "sale did not go through," adding that, "We'll be winding down the operation." He said the nonbank was hurt by loan buyback requests from secondary market investors. "Buybacks were part of the problem, absolutely," he said. He declined to elaborate further. Investment banking sources said at one time Phoenix Capital of Denver was shopping around the company and/or its servicing portfolio. At press time Phoenix had not returned a telephone call about the matter. Mr. Huiras has had a long career in mortgage banking, including a stint as a top executive at Fleet Mortgage. The company is hoping to place some of its workforce at other shops, said one source. "It's a shame," said this source. "They were a good shop. Some of these buybacks were on loans that were two and three years old. And some of these loans weren't even delinquent."

The Senate Wednesday morning approved an amendment that sets minimum underwriting standards on single-family loans with a "safe harbor" that essentially limits the points and fees lenders can charge to 3% of the loan amount. The National Association of Mortgage Brokers said the provision would "shut down" the broker channel due to the 3% cap on points and fees. "This amendment will take mortgage brokers completely out of the competitive landscape," said NAMB's top lobbyist Roy DeLoach. The amendment sponsored by Democratic Senators Jeff Merkley (Ore.) and Amy Klobuchar (Minn.) requires lenders to verify a borrower's income and ability to repay the mortgage. As part of an anti-steering provision to prevent borrowers from being forced into higher cost (and riskier) loans, the amendment has a safe harbor provision allowing lenders and brokers to know when they are compliant. Lenders will know they are operating on "sound ground," when their fees do not exceed 3%, said Sen. Merkley. The Senate voted 63-36 to approve the Merkley/Klobuchar amendment, which was drafted to counter an amendment by Sen. Bob Corker, R-Tenn. The Corker amendment would have set minimum underwriting standards including a 5% downpayment requirement on most loans, including FHA-backed mortgages. The Corker amendment also would have stripped the 5% risk retention requirement from the Wall Street Reform bill. Corker's amendment was defeated in a 57-42 vote.

Farmer Mac posted core earnings of $5.4 million in the first quarter, a slight improvement from the same period last year. However, GAAP earnings fell to $1.8 million for the first quarter versus $33.5 million in the year ago time frame. Then again, last year the firm recorded $33.3 million of gains as a result of increases in the fair value of derivatives and trading assets. Farmer Mac had 90-day delinquencies of $70.4 million at March 31, down from $86.2 million a year ago but a $49.5 million gain from yearend. The firm blamed the cyclical nature of payments by producers for the increase in the quarter. It said there are certain segments in the agricultural sector - particularly dairy - that are showing stress and these industries will continue to experience challenges in 2010.

The inventory of existing apartments and townhouses on the market in the tri-county South Florida region has dropped 23% to below 40,000, according to CondoVultures, a Bal Harbour-based consulting firm. The current inventory of condo and townhouse units in Miami-Dade, Broward and Palm Beach Counties is now at the lowest level in the last 18 months. In May 2009, some 52,000 such units were on the market in South Florida. "The inventory is depleting for a variety of reasons, ranging from more investors and second-home buyers purchasing units at prices they think are deeply discounted to primary users taking advantage of the government incentives related to real estate," says Peter Zalewski, a principal in the firm. The inventory does not reflect new units that developers are privately marketing. But the wild card in the mix, says Zalewski, is whether a flood of owners will rush to put their units on the market once they think the market is stabilizing.

The National Credit Union Administration, as liquidating agent for the failed Heritage West Federal Credit Union, has filed suit against several member/borrowers of the defunct Salt Lake City CU, claiming they defaulted on millions of dollars in speculative real estate loans only to buy the properties back at steep discounts in foreclosure sales. The suits, removed to a federal court, are the latest in a variety of legal actions surrounding a troubled Salt Lake City residential development called Castle Stone Homes that was tied closely to the one-time $330 million credit union. Dozens of the project's borrowers, who were promised high returns, obtained loans through the credit union, which was acquired by Virginia's Chartway Federal Credit Union in a December supervisory merger engineered by NCUA. The case is reminiscent of those involving two big credit union failures: Norlarco Credit Union, and Huron River Area Credit Union, that financed speculative real estate projects in Florida's Gulf Coast. In the Salt Lake City case, the members claim that HeritageWest engaged in a variety of schemes to make loans readily available for the residential development. According to various courts documents, between 2005 and 2007 Castle Stone solicited individual investors with high credit scores to participate in their residential development designed to appeal to first-time investors that would provide big profits. After one of the initial lenders for the project, America First CU backed out, HeritageWest agreed to provide capital for the investors. Lawyers for Castle Stone did not return phone calls. NCUA declined to comment, saying it does not discuss cases in litigation.

Although Freddie Mac is beginning to see some relief from residential delinquencies, its multifamily portfolio continues to worsen. According to a new SEC filing, the GSE now holds or guarantees $622 million of nonperforming apartment loans, almost double the amount of a year ago. At the end of March, its multifamily loss reserve was $842 million, compared to $275 million in 1Q09. Even though late payments on these loans have increased, Freddie's 60- and 90-day delinquencies on multifamily were 0.24%, and 0.18%, respectively, far below the industry wide single family delinquency rate of 11%.

Fannie Mae said in its first-quarter securities filing that it made servicers buy back or reimburse it for losses on $1.8 billion of loans, 64% more than a year earlier. It was the first time the government-sponsored enterprise disclosed the volume of its repurchase demands. Previously Fannie only acknowledged that the number of such demands had been on the rise since 2008 as delinquencies worsened. Freddie Mac also has been sending more loans back to lenders: $1.3 billion in the first quarter, up 65% from a year earlier, according to its first-quarter filing last week. In February Fannie announced a "loan-quality initiative" designed to reduce loan repurchase requests. If lenders do a better job on the front end of making sure the loans they deliver meet the GSE's guidelines, Fannie has said, it would not have to make lenders buy back so many defective mortgages after the fact. The initiative will begin next month. Among other changes, lenders will have to pull a second credit report just before a loan closes to check if the borrower has taken on additional debts since submitting the mortgage application.

The Federal Deposit Insurance Corp. on Tuesday revamped its securitization proposal, mandating that depositories hold a 5% risk retention piece, but exempting loans sold to the GSEs and into bonds guaranteed by the Government National Mortgage Association. The initial proposal issued in November required banks to season single-family loans for 12 months before securitization. As a result of industry comments, FDIC dropped the seasoning requirement and is now proposing that banks issuing residential MBS maintain a 5% reserve fund for one year to cover early defaults and breaches of representations and warranties. The new proposal, which will be published for a 45-day comment period, requires bank issuers to retain 5% of each MBS tranche. The FDIC proposal is designed to update the agency's policies on the treatment of commercial and residential MBS when the issuing bank fails. It is also designed to address problems that arose in the subprime market, placing additional requirements on residential MBS issuers, including disclosures by the servicing bank if they own the second liens on the loans being serviced. "We want the securitization to come back the right way, not the wrong way," said FDIC chairman Sheila Bair. Agency officials noted that their measure is similar to a Securities and Exchange Commission proposal that also imposes 5% risk retention on bank and nonbank MBS issuers. Chairman Bair said the SEC proposal, when finalized, will become the "base" for banks. The FDIC board of directors approved the securitization proposal for public comment by a 3-2 vote. Comptroller of the Currency John Dugan and the Office of Thrift Supervision acting director John Bowman voted against the proposal.

Commercial mortgage lender and servicer Red Capital Group, Columbus, Ohio, has been sold by PNC Bank NA to an investor group led by Orix USA Corp., Dallas, a subsidiary of Japan's Orix Corp. Among the members of the investment group is Stonehenge Partners, Columbus. Terms of the transaction were not disclosed. Red provides financing for multifamily, senior living and health care projects through various FHA and Fannie Mae programs. Under the new ownership it will continue to operate under the Red name. Jim Thompson, CEO of Orix USA said, "We are fortunate to be able to add Red's experience in multifamily, senior and health care finance to Orix Capital Markets' commercial real estate capabilities. FHA and Fannie Mae will continue to be important components of the nation's housing finance programs; the Red acquisition enables Orix to deploy its capital into those important markets." William Roberts, Red's founder and chief executive from 1995 to 2007, has resumed that post. Red currently services $12.5 million in commercial mortgage loans. It also has a registered broker-dealer unit that provides underwriting and syndication of multifamily housing bonds and the related tax credits.

An increase in Canada's volatile multifamily housing start sector slightly boosted the country's total seasonally adjusted annual rate of housing starts for April compared to revised March figures. But the multifamily gain was largely offset in part by a month-to-month drop in single-family starts, according to Canada Mortgage and Housing Corp. chief economist Bob Dugan. In total, the seasonally adjusted annual rate of total April Canadian starts was 201,700 compared to 199,200 in March. Contributing to the total increase was a 5.1% jump to 182,500 urban unit starts in April that would have been higher had not a 12.7% drop in single-family urban starts to 83,900 units offset to some extent a 27.2% increase in urban multifamily starts to 98,600 units. Rural starts for the month were estimated at a seasonally adjusted annual rate of 19,200 units.

PNC Financial Services Group Inc. says in a new public filing that the troubled loans it inherited through its purchase of National City Corp.-once a top 10 ranked residential lender-eroded more than expected during the first quarter. PNC, which has emerged stronger from the financial crisis, set aside an additional $100 million to offset future losses from the loans. The Pittsburgh-based depository now has $604 million in reserves to account for future losses it expects to be generated by the $9.8 billion portfolio of loans. PNC has kept most of NatCity's residential production and servicing division intact, but is in the process of winding down its warehouse lending unit. Besides operating a mortgage banking affiliate, NatCity was an active home equity and commercial real estate lender. In late 2008 PNC bought the Cleveland-based regional.

The financial turmoil in Greece and other debt-laden European nations could trigger a rebound of mortgage refinance activity in the U.S., or not. Upheaval in the global markets, such as last week's dramatic sell-offs, has historically prompted a "flight to quality"-investor purchases of Treasury bonds. Surging demand for these safe havens for capital can push yields-and the mortgage rates that move in lockstep-down. This in turn has often sparked interest in refinancing, and some lenders say they are already getting more calls from borrowers, which typically happens when mortgage rates fall below 5%. But many lenders also say they need to see a little more downward momentum on rates before an increase in refinancing is likely to stick. Rates would have to drop another quarter-point or more for refinancing to make sense to the large group of borrowers who already were part of a flurry of refinance activity last year. Borrowers would also have to overcome tighter underwriting and appraisal guidelines. And many borrowers still have little or no equity in their homes, making them ineligible to refinance. "A large part of the population that could refinance likely has," said Mark Freedle, chief executive of NetMore America Inc., Walla Walla, Wash. When the stock market fell by nearly 1,000 points last Thursday the yield on the 10-year declined to almost 3.3% before rebounding somewhat. On Monday the 10-year was trading at 3.56%. Because the average mortgage is paid off within 10 years, the 10-year Treasury serves as a bellwether to where mortgage rates might be headed.

Serious delinquencies for U.S. alt-A residential mortgage-backed securities declined month-to-month for the first time in four years and subprime performance also improved for the second month in a row, according to Fitch Ratings. Alt-A RMBS delinquencies dropped to 34.1% in April from 34.4% in March but are still up from 27.4% in April 2009. Subprime RMBS delinquencies in April slid to 45.2% from 46.3% the prior month but continue to be higher than the 40.1% a year ago. Fitch attributed the improvements to more loan modification activity and better liquidation and roll rates. But Fitch also noted that since 35% of subprime loans and 8% of the alt-A loans are modified these loans face redefault risk, which could hurt performance going forward. Managing director Vincent Barberio said the next few months could determine whether the trends signal a turnaround in alt-A and subprime or a more short-lived seasonal uptick. Prime jumbo performance in April deteriorated slightly month-to-month, but the delinquency rate in this category continues to be far better than that of loans in the two other categories. Prime jumbo RMBS during the past month saw 60-plus day delinquencies rise to 10.2% from 10.1% the previous month.

Stung by increasing credit losses on delinquent home mortgages, Fannie Mae lost $13.1 billion in the first quarter, prompting its regulator to ask the Treasury Department for $8.4 billion in cash to keep the GSE's net worth above zero. A new accounting rule that affects the consolidation onto its balance sheet of 'variable interest entities' added $3.3 billion to its net worth deficit. During the quarter Fannie paid $1.5 billion in dividends on senior preferred stock owned by Treasury. Unlike its cross-town rival Freddie Mac, Fannie saw worsening delinquencies. Its single-family seriously delinquent rate increased to 5.47% at March 31, from 5.38% at year-end. Its credit losses increased to $5.1 billion from $4.1 billion in 4Q. The government controlled mortgage giant noted that it bought $191 billion of loans during the period, $40 billion of which were delinquent loans that came out of its own (existing) securitizations. Fannie also grew its MBS issuance market share to 40.8% in the first quarter from 38.9% in the fourth. With the new request for financial assistance, Fannie Mae's total debt to taxpayers stands at $83.6 billion. Freddie has required roughly $64 billion in aid from the Treasury. Last week Freddie posted a $6.7 billion loss in the first quarter.

Expectations are sinking that big banks can continue to capitalize on their balance-sheet spreads. Net interest margins expanded at most of the nation's biggest banking companies -- all major players in mortgages -- in the first quarter compared with the previous quarter, suggesting banks have found another way to counter continued credit losses. But banks will be hard-pressed to hold on to these healthier spreads amid sluggish loan demand and potentially higher interest rates. "The best they can do over the rest of this year is maintain" margins, said William Fitzpatrick, an analyst at Optique Capital Management, Racine, Wis. He said most of the expansion that took place last quarter likely resulted from aggressive balance-sheet management in recent periods. "Banks will be thrilled if they can keep the margins they have now," he said.

GMAC Inc. may be close to naming a chief financial officer and has considered appointing Barbara Yastine, the former CFO for investment banking at Credit Suisse Group AG and Citigroup Inc., according to a report by Bloomberg. The news service cited "three people with knowledge of the search" but a GMAC spokesman called the story "speculative," adding that it is not making "any management announcements at this time. Jim Mackey continues to serve as interim CFO, and the company continues to move forward with its strategic priorities." Yastine, 50, is considered a prospect because she worked at Citigroup with Michael Carpenter, GMAC's new chief executive. GMAC and its mortgage affiliate both posted a profit in the first quarter. The company is considering its options on Residential Capital Corp., including a possible sale of stock to the public.

CUSO Prime Alliance, Tukwila, Wash., has acquired Dexma, a provider of online mortgage lending technology to more than 1,400 institutions. The combined company will be known as Prime Alliance Solutions. Joe Brancucci, CEO of Prime Alliance, noted that Dexma, Edina, Minn., helped create Prime Alliance, lending a certain amount of irony to the deal. "It is like a child is swallowing up one of its parents," he told Credit Union Journal, a sister publication to National Mortgage News. "I think it's a good move for a lot of reasons. We were ahead of our time in 2001, but today there are lots of opportunities." Financial terms of the deal were not disclosed. According to Brancucci, Prime Alliance has worked closely with Dexma over the past decade in creating new solutions for mortgage lending, especially to credit unions. He said the acquisition will allow the CUSO to take ownership of the technology Dexma produces. "We've always been part of the dialog, and have driven the development of a lot of aspects, but this takes the relationship to a new level." Prime Alliance and Dexma co-developed the Mortgage Lending Suite, which includes retail lending, third-party lending, loan fulfillment and secondary market centers. The two said they combine to handle 35% of credit union mortgage originations. Dexma's clients include U.S. Bank Home Mortgage, Weichert Financial Services and MetLife Home Loans. Since inception, more than 6 million loans have been processed on the Dexma platform, totaling approximately $1.1 trillion in loan volume.

Senate Democrats have defeated efforts by Republicans to curb the power and independence of a new consumer protection agency by a 61-38 vote. The defeat of an amendment offered by Sen. Richard Shelby, R-Ala., paves the way for creation of the Consumer Financial Protection Bureau which will be funded by and housed at the Federal Reserve Board. The CFPB will be totally independent of the central bank and free of the congressional appropriations process. In defeat, Sen. Shelby claimed the measure ushered through the Senate by Sen. Chris Dodd, D-Conn., would create an out-of-control agency with no accountability to Congress. Shelby offered a substitute amendment to create a consumer protection division at the Federal Deposit Insurance Corp. that would have consumer oversight of large non-bank mortgage originators. The FDIC unit also would have authority over other financial providers that repeatedly violate consumer protection laws. "This will give the FDIC board authority to clamp down on the worst offenders of our consumer protection laws without needlessly subjecting law-abiding business to expensive regulation," Shelby said. If the Shelby amendment had passed, it would have been a step "backwards," Dodd argued, claiming the new division could not prevent abuses by finance companies, payday lenders, check cashers, credit card companies, debt collectors and car dealers involved in the finance business. "It is a stimulus package for unscrupulous lenders," Dodd added.

It appears there will be full Senate debate on placing a time limit on how long Fannie Mae and Freddie Mac can remain in conservatorship while placing a $400 billion limit on the government's financial support of the two GSEs. The amendment by Sen. John McCain, R-Ariz., gives Fannie and Freddie two years to become "viable" entities and emerge from conservatorship. Over the next three years, the government sponsored enterprises would operate under new restrictions, including a minimum 5% downpayment requirement and a $417,000 loan limit before they lose their government charter. Thursday evening, the manager of the "Wall Street Reform" bill, Sen. Christopher Dodd, D-Conn., said he would allow a vote on the McCain amendment some time after the Senate resumes consideration of the bill on Tuesday (May 11). "Let me say to my friend from Arizona, I have no intention of tabling anyone's amendment," Dodd said. Currently, the Treasury Department is providing unlimited backing for the GSEs. It hopes to unveil a plan next year concerning the future of the GSEs and the housing finance system in general. "We have not taken a position at this time" on the McCain amendment, a Treasury spokeswoman told NMN.

Industry veteran Rudy Orman has resigned as vice president of Marathon Asset Management, a New York-based private equity fund that invests in distressed residential whole loans and mortgage-backed securities. At press time Orman and officials at Marathon declined to comment on the situation. His departure became official on Friday. Two weeks ago National Mortgage News reported that an affiliate of Marathon was selling about $90 million in distressed whole loans. During his career in mortgages Orman has worked as a vice president at Goldman Sachs & Co. and at lending firms as well. In a statement Orman would only say that he will become a director and senior vice president of business development at Residential Credit Solutions.