Originations

The mortgage insurance subsidiary of American International Group earned $73 million in the first quarter -- its first quarterly profit in three years. AIG's United Guaranty Corp. affiliate reported improving levels of delinquencies and defaults. In the first quarter of 2009, UGC lost $483 million. Despite the good news on the MI unit, AIG's residential finance division, American General Finance, posted a 1Q operating loss of $132 million. In the same period a year earlier AGF lost $203 million. AIG said the improvement resulted from a decline in provisions for loan losses resulting from improved delinquency rates, lower interest expense due to lower average debt balances, and lower operating expenses. Meanwhile, AIG itself reported a profit of $809 million for the quarter, compared with a loss of $2.1 billion the prior year. The giant insurer's financial products unit, which piled up huge losses on credit default swaps during the financial crisis, had a $298 million operating loss -- an improvement over the $1.1 billion lost in 1Q09. AIG Financial Products also reduced the notional amount of its derivatives portfolio during the first quarter to $755.4 billion.

Residential lenders originated $384 billion of new one- to four-family loans in the first quarter, a 20% decline from the same period a year earlier, according to preliminary survey figures compiled by National Mortgage News and the Quarterly Data Report. Almost every single funder reporting to NMN showed a double digit percentage decline in production. Based on the current run-rate, originations will total $1.5 trillion this year, compared to $1.9 trillion in 2009. But some housing analysts, such as David Olson of Access Research, Columbia, Md., believe fundings could be as paltry as $1.2 trillion, maybe lower. However, with Thursday's stock market crash (and subsequent, partial recovery), bond yields fell, dragging down mortgage rates and spurring talk of more refinancings. (For the full story see the Monday print edition of NMN.)

Mortgage companies cut 1,500 full-time workers from their payrolls in March after adding 4,400 full-time employees the previous month. The U.S. Bureau of Labor Statistics reported Friday that employment in the mortgage banker/broker sector fell to 252,500 full time positions in March from 254,000 in February. Mortgage industry employment is down only 6.7% from March 2009, compared to a 21.6% drop during the previous 12-month period. Meanwhile, loan production slowed in the first quarter, which could explain some of the layoffs in March. (See story below.) On the positive side, Friday's nationwide jobs report paints a much improved employment picture with 290,000 new hires in April -- more than analysts expected. March's job additions were revised upward to 230,000 from 162,000. For mortgage lenders and servicers the anticipation is that these workers will be able to make their loan payments or perhaps buy a new or existing home.

Beginning June 1, lenders originating mortgages being sold to Fannie Mae will have to pull a second credit report just before the loan closes. The new quality control requirement is designed to prevent a type of mortgage fraud called "shotgunning," but the guidelines could occasionally send lenders on wild goose chases. By pulling a second credit report, lenders can find out whether other creditors have recently requested information about the mortgage applicant-a red flag indicating someone might be trying to obtain several loans (from multiple, unwitting lenders) on the same property. Typically, a shotgun fraudster skips town with the proceeds of all his loans. Most of the lenders do not recoup a cent because their mortgages are subordinate to the first one recorded and the home will not fetch enough in a sale to cover the junior liens. Will Dillard, a vice president of operations at SettlementOne Credit Corp., a San Diego reseller of credit data, told American Banker that pulling a second credit report would help stop such frauds but that lenders might also waste time checking out false alarms. "If they see another inquiry, Fannie would like to see lenders query those creditors," Dillard said. "If you're at the funding table ready to fund and you see a new inquiry popping up, the question is, do you send your underwriter out...to track down Honda Motor if the borrower is also trying to buy a new car?"

Radian has priced its public offering of 50 million shares of its common stock at $11 per share. The offering is expected to close on May 11. The underwriters have an option to purchase an additional 7.5 million shares. Proceeds will be used to fund working capital requirements and for general corporate purposes. On May 5, Radian closed at $11.31 per share. The next morning it opened at $10.94 and by late morning it was down further to $10.77 per share, although its low point on the day so far is $10.66.

Republican senators Bob Corker (Tenn.) and Johnny Isakson (Ga.) have teamed up to offer an amendment that calls for establishing minimum mortgage underwriting standards as well a study on risk retention. The standards would include a 5% minimum down payment and prohibit warehouse lenders and wholesalers from funding mortgages that don't meet the minimum standards. The federal banking regulators, not the new Consumer Finance Protection Agency that is contained in the financial services regulatory reform bill drafted by Sen. Christopher Dodd, D-Conn., would set the minimum standards. The Dodd bill currently requires mortgage-backed securities issuers to retain 5% of the credit risk. The Corker-Isakson amendment would strike that language and replace it with a study on risk retention by the Federal Reserve Board. Meanwhile, the Senate voted 93-5 to approve a compromise by Senators Dodd and Richard Shelby (Ala.) to create a new mechanism for managing the failure of large financial institutions without government bailouts. The bi-partisan agreement on the "too big to fail" issue shows that the Senate is now moving toward passage of the 1,400-page reform bill.

The average rate for a 30-year mortgage rate dropped to 5% and as of Thursday noon the benchmark 10-year Treasury yield had hit a low of 3.46%, a level not seen in several months. According to Freddie Mac's Primary Mortgage Market Survey for the week ended May 6 the average rate for the 30-year mortgage was down from 5.06% the week previous but up from 4.84% a year ago. The average 15-year FRM rate during the week ended May 6 was 4.36%, down from 4.39% the previous week and 4.51% a year ago. The average five-year hybrid Treasury adjustable-rate mortgage rate was 3.97%, down from 4% the week previous and 4.90% a year ago. The average one-year Treasury ARM rate was 4.07%, down from 4.25% the previous week and 4.78% a year ago. Average points were 0.7 for FRMs and hybrids and 0.6 for one-year Treasury ARMs.

Clear Capital reports a slowdown in both home price gains and real estate owned saturation rates in April suggesting price trends are only in part dependent on distressed sale volume and "re-enforcing the need to understand local markets." The company's Home Data Index Market Report shows U.S. home prices dropped 5% in April, marking an additional 1.1% decline nationally compared to March. The increase in the nation's real estate owned saturation rate slowed down in April, rising less than one percentage point to 29.6%. Analysts note that while REO saturation rates averaged over 33% during the last quarter, the country's highest performing metro areas saw "relatively flat" prices, a trend that was different from lowest performing areas where REO saturation rates were much lower and prices declined 11.1%. "This paradox" suggests that price trends are not wholly dependent on distressed sale volumes, Clear Capital said. HDI also shows "a marked slowdown in the rate of decline" compared to a 3.9% drop compared to February data and "steady" year-over-year price gains at 5.1% in all four regions. It warns however that the decline is "sufficient enough to halt" the recent growth in year-over-year gains for the center regions of the nation.

Freddie Mac lost $6.7 billion in the first quarter, and after accounting changes tied to guarantees issued on off-balance sheet instruments, saw its net worth plunge by $14.9 billion. With its net worth now clearly in the red (by $10.5 billion) the government controlled mortgage giant is asking the Treasury Department for $10.6 billion in aid. The government's policy is to keep both Freddie Mac and Fannie Mae in a positive net worth position, a move designed to assure investors that the bonds they issue are safe investments. The large drop in Freddie's net worth was caused by an accounting change that forced the company to add $1.5 trillion of assets and liabilities to its consolidated balance sheet, which in turn caused its net worth to plunge. (Fannie Mae, which soon will release its 1Q results, is facing a similar problem.) Although Freddie's loss and decline in net worth was indeed bad news, there were some positives in its report. The GSE established credit reserves of $5.4 billion in 1Q, down from $7 billion in the prior quarter. It also reported lower delinquencies on its single-family loans: 4.13% at March 31, compared to 4.2% at the end of February. Freddie's chief financial officer Ross Kari said its 1Q results "were driven significantly" by the Financial Accounting Standards Board-promulgated changes. He added that the firm is seeing some signs of "modest stabilization" in housing. If Treasury grants Freddie's request for new capital, the government's investment in the GSE will increase to $62.3 billion.

The American Bankers Association has signed up SunTrust Mortgage as a "preferred" secondary market investor for its mortgage cooperative, Community Bank Mortgage LLC. The 53-owner banks of the ABA cooperative can now sell residential mortgages, including jumbo loans, on a servicing-released basis to SunTrust. Community Bank Mortgage LLC has two other preferred investors, Wells Fargo Home Loans and Bank of America. Debbie Whiteside, president and chief operating officer of Community Bank Mortgage LLC, said SunTrust has a "viable" jumbo loan program and it will purchase fixed-rate and adjustable rate jumbo mortgages. Wells Fargo purchases only fixed-rate mortgages. "We anticipate that our new partnership with SunTrust Mortgage will have an immediate and positive impact on our owner banks," she said. ABA is a co-owner in the cooperative that was formed in 2007. Community Bank Mortgage LLC paid $2.8 million in bonuses to its owners in 2009.

ComplianceEase technology has been adapted to help originators keep compliant in the face of California's new high-cost lending law. ComplianceEase's ComplianceAnalyzer tool has been updated to enable lenders, brokers, and regulators to identify, in seconds, whether a loan falls under the new "higher-priced" category. Simultaneously, and on a single report, the system includes tests for the various federal statutes that can also place California lending licenses at risk under the new law. Under the new law, starting July in California there will be a new category of loans called "higher-priced mortgage loans." If a loan meets the attributes and thresholds that place it in the "higher-priced" category, originators face prohibitions regarding making "deceptive" or "misleading" statements about the loan to borrowers. Since it will be possible for civil penalties to be as high as $10,000 and directly assessed against individuals, lenders and brokers will need to know whether each loan they originate will be subject to the new restrictions and may make decisions about whether or not they decide to continue originating the new category of loans. California's restrictions in this area follow a growing trend among states to create a "higher-priced" category that is intended to subject a larger quantity of loans to additional restrictions. So far seven other states have created similar loan categories with increased restrictions.

The April 30 deadline for housing tax credits drove a more than 50% month-to-month increase in purchase volume at Total Mortgage Services during April, according to the company. The company said previously refinance loans had prevailed over the past three years. The company's president, John T. Walsh, said declining housing prices, record inventories and what has been a relatively low mortgage rate environment are expected to help the company continue to maintain strong volume going forward despite the tax credit's expiration.

A longtime former rating agency residential mortgage-backed securities analyst has joined Digital Risk LLC in a move the company said reflects expansion plans in line with a renewed emphasis on private-sector involvement within the secondary mortgage market. Jenine Fitter, who most recently was vice president of sales, data/analytics and risk management solutions with First American CoreLogic (BasePoint Analytics), New York, is now senior vice president, client solutions at Digital Risk. Previous to joining First American, Fitter was a director in Standard & Poor's residential mortgage group and for 10 years prior to that she was a senior director in Fitch's residential mortgage group. In her new post, her focus will be on originators that use analytics as well as bond buyers and other securitization market participants.

State Financial Network, Broomhall, Penn., a credit union-owned mortgage banking firm, has promoted Michael Magnavita, its chief financial officer, to the position of president and CEO. John Unangst, current president of the company who also heads nearby Franklin Mint Federal Credit Union, will continue to serve as chairman of the board. State Financial is a wholly owned CU Service Organizations for the $600 million credit union with a mortgage servicing portfolio of more than $500 million.

The homebuyer tax credit deadline pushed purchase mortgage applications up to their highest level since last October, as overall applications have increased from the preceding week, the Mortgage Bankers Association's Market Composite Index for the week ended April 23 found. The MCI increased 4.0% on a seasonally adjusted basis from one week earlier and on an unadjusted basis, it increased 5.1%. According to Michael Fratantoni, MBA's vice president of research and economics, "Purchase applications were up 13% over the previous week and almost 24% over the last month, driven by significant increases in both conventional and government purchase applications. We also saw the Government share of applications for purchasing a home increase to over 50% of all purchase applications last week, which is the highest in two decades." The seasonally adjusted Purchase Index increased 13.0% from one week earlier, which MBA said is the third consecutive weekly increase in purchase applications and the highest Purchase Index recorded in the survey since the week ending October 2, 2009. The Conventional Purchase Index increased 9.4% from the previous week while the Government Purchase Index increased 16.7%. The Refinance Index declined by 2.1% from the previous week. The market share of refi applications continues to decline, falling to its lowest point since the first week of July 2009; refis made up 51.9% of mortgage applications, down from 55.7% the previous week. The market share of adjustable rate mortgage applications increased to 6.3% from 6.0%. The average interest rate for the 30-year fixed rate mortgage fell six basis points from 5.08% to 5.02% for the current week with points increasing to 0.92 from 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 4 bps to 4.34%. The average contract interest rate for one-year ARMs was unchanged from the previous week's 7.03%.

The mortgage business is shrinking. Why that is good news for those who remain.

Invesco Mortgage Capital has completed its public offering of 900,000 shares of common stock, raising $187 million -- cash that will be used for mortgage-related investments. Using leverage, the REIT will purchase loans and residential and commercial mortgage-backed securities. The real estate investment trust also plans to use the net proceeds for general corporate purposes. Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Inc. acted as joint book-running managers for the offering. Keefe Bruyette & Woods, Inc., Stifel, Nicolaus & Company, Incorporated and JMP Securities LLC served as co-managers.

The 30-day delinquency rate on securitized multifamily mortgages fell slightly in April after a 332 basis point spike in March due to the default of the Stuyvesant Town and Peter Cooper Village project in Manhattan. In April, the delinquency rate on securitized multifamily mortgages fell 13 bps to 13.06%. It is the first decline in the multifamily rate since May 2009, according to a Trepp LLC report. The New York firm tracks the performance of commercial mortgage-backed securities. Overall, the 30-day or more past-due rate on CMBS rose 41 bps to 8.02% in April, up from 2.45% a year ago. This marks the first time ever that CMBS delinquencies hit or surpassed 8%, according to Trepp. Office delinquencies rose the most (64 bp) in April followed by retail (41 bp).

Wells Fargo & Co. funded $2.2 billion of interest-only residential loans in the fourth quarter, ranking first nationwide in this category, according to figures compiled by National Mortgage News. PHH Mortgage, Mt. Laurel, N.J., ranked second with $1.2 billion. Overall, Wells' IO production volume fell 6% compared to the same period a year ago. Interest only mortgages have been criticized in some quarters because the loans do not allow consumers to pay down any principal. However, many mortgage firms defend the loan, noting that borrowers (and investors in second homes) who are uncertain how long they might stay in a property can save money over the short-term.

Most banks did not tighten lending standards on prime or nontraditional single-family mortgages during the past three months and there appears to have been some relief on HELOC standards, according a new survey of senior loan officers conducted by the Federal Reserve. Nearly 80% of banks surveyed said their lending standards were unchanged from January. On prime mortgages, only 11% said they tightened credit with the balance saying they eased. "Large bank respondents eased standards on balance, for both prime mortgages and home equity lending lines of credit," the Fed said. However, loan officers told the central bank that demand for residential mortgage loans weakened over the past three months. As for commercial real estate lending, some banks continued to tighten underwriting, but demand for CRE is now showing signs of stabilizing, the survey found. For the first time since the financial crisis began, less than 10% of the respondent banks reported weaker demand for CRE loans, the Fed said. Over 45% of banks reported increased use of loan extensions on existing CRE loans over the past six months.