Originations

Mortgage vulture fund PennyMac Mortgage Investment Trust earned $1.3 million in the first quarter and reported that it's beginning to see more activity in the nonperforming loan market. A publicly traded REIT, the firm said it bought five mostly nonperforming loan portfolios during the quarter. The pools were valued at $115 million based on unpaid principal balances of $208 million. The firm said in early April it agreed to purchase a $141 million pool of nonperformers for $71 million. Company CEO Stan Kurland said, "Market activity for non-performing whole loans accelerated throughout the first quarter, and continues to accelerate into the second quarter of 2010." Meanwhile, the company said it is beginning to gear up its lending conduit by purchasing loans from small and mid-sized banks. The product is then delivered to Fannie Mae and Freddie Mac for securitization. A spokesman noted that, "We're looking at prime agency paper" but added that jumbo lending will be a "natural progression" for the firm.

Mortgage insurer Radian Group posted a first quarter loss of $310 million but signaled its intention to move forward with a $550 million public stock offering. At press time its shares were down 10% to $13.11 with other MI stocks trading down as well. The nation's third largest MI company (in terms of new coverage written) noted that it completed the sale of its remaining equity interest in Sherman Financial, a consumer asset and servicing firm. However, the impact of the sale, which is expected to result in a pre-tax gain of about $70 million, will be reflected in Radian's second-quarter results. The mortgage insurance business at Radian lost $237 million for the first quarter of 2010, compared with a loss of $89 million one year prior. Despite the loss, there was positive news: for the first time in nearly four years Radian had fewer delinquent loans at the end of the quarter compared with the start of the quarter. As of March 31, Radian's book-of-business had delinquencies of 143,914 loans underwritten through the primary channel in default -- or 17.64% of its portfolio. Radian expects to end 2010 with fewer delinquent loans than in 2009.

The wholesale lending division of CitiMortgage is telling its current stable of loan brokers that it will not accept new registrations from third-party salesmen unless they've already been approved to do business with FHA. "Brokers that are currently approved and recertified by FHA for 2010 will retain that approval until December 31, 2010," the lender says in a new notice. FHA, of course, is getting out of the broker approval business, ceding oversight to the wholesalers that fund them and making the actual funder responsible for all broker-sourced loans. CitiMortgage has been whittling down its use of brokers for well over a year now. In 2009 it ranked 14th nationwide in table funding, according to figures compiled by the Quarterly Data Report. Its volume in the channel fell by 69%, the largest decline among a top 20 ranked originator. (For the full story see the weekly edition of National Mortgage News.)

The Obama administration's bank tax proposal could curtail borrowings from the Federal Home Loan Bank system by large depositories and reduce mortgage liquidity for member institutions, according to the American Bankers Association. The administration's proposal would impose a tax on financial institutions with more than $50 billion in assets --but only for firms that were eligible for emergency assistance programs such as the Troubled Asset Relief Program. ABA chief economist James Chessen told the Senate Finance Committee the 15 basis point tax on non-deposit liabilities (including FHLBank advances) would increase the costs of large banks borrowing from the system, and reduce demand for FHLB advances. This has "important implications for the financial stability" of the 12 regional banks and "could lead to a downward spiral" with fewer advances being made, he warned. The trade group is concerned that members will reduce their holdings of the FHLB stock required to borrow, thus shrinking the system and its ability to provide liquidity to all members. Treasury secretary Timothy Geithner said the bank tax could raise $117 billion over 10 years to cover the government's cost of the financial crisis. He stressed the tax will not affect 99% of depository institutions.

The National Association of Realtors anticipates a surge in home sales during the second quarter as buyers rushed to sign sales contracts in March to take advantage of expiring federal tax credits. Tuesday morning NAR reported that its index of pending home sales -- which is based on contract signings -- rose 5.3% in March after rising 8.3% in February. The index serves as a leading indicator of home sales over the next month or two. The tax credit officially expired April 30, but buyers have until June 30 to close and still qualify for two different tax credits -- one for $8,000 and another for $6,000. (In California, a state tax credit for $10,000 is still available but only for buyers of newly constructed homes.) NAR economists believe existing home sales will jump more than 10% from the first to second quarter to a seasonally adjusted annual rate of 5.68 million before falling back to 5.17 million in the third quarter. "Later in the second half of the year and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home prices stabilizing," said NAR chief economist Lawrence Yun.

HRPT Properties Trust, Newton, Mass., has agreed to purchase an Australian real estate investment trust to create a platform for further purchases of Australian properties. The U.S. company plans to buy MacarthurCook Industrial Property Fund and make it a subsidiary. Under part of the agreement, HRPT will buy all of the fund's equity units outstanding at A$0.40 a unit, or about A$39.4 million ($36.5 million) in total. It also will assume or prepay approximately A$46.4 million ($43.0 million) of the Australian REIT's debt. In total, HRPT plans to pay a total consideration of about A$85.8 million ($79.5 million) for the fund. The Sydney-based MacarthurCook Ltd., a subsidiary of AIMS Financial Group, currently owns the fund. Under the terms of the agreement it would continue to manage the fund's properties after the acquisition, with HRP and its manager planning to work together to expand HRP's investments in Australia. HRP said it believes "that Australian properties and the Australian economy generally are well positioned by geography and natural resources to benefit from the economic growth in the Asia Pacific region in the future." But the purchase of the Australian REIT is conditioned upon approvals from the fund's unitholders and other conditions related to cross-border transactions such as Foreign Investment Review Board approval in Australia. If approved, HRPT plans to fund the acquisition with cash on hand and available drawing capacity under its unsecured credit facilities. It said the acquisition could close in the second half of this year.

A quarterly survey by two Chicago professors shows a dramatic increase in the number of "strategic defaults" where an underwater homeowner willingly defaults on his mortgage even though he can afford to make the payments. An estimated 31% of foreclosures involved strategic defaults in March, compared to 22% a year ago, according to the Chicago Booth/Kellogg School Financial Trust Index. The survey is conducted by professors Paolo Sapienza of the Kellogg School of Management, and Luigi Zingales of the University of Chicago Booth School of Business. They said the likelihood of strategic default increases by 23% if a homeowner discovers that a neighbor with negative equity received loan forgiveness from their servicer. The likelihood increases to 29% if homeowners can find alternative financing for a new home. The survey found that 56% of homeowners do not believe that lenders will come after them if they walk away from their home. "With more and more homeowners believing that lenders are failing to pursue those who default on their mortgage, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford the payments," Sapienza said.

Fannie Mae has set new standards for purchasing and securitizing adjustable-rate mortgage products with the aim of ensuring consumers who hold them can sustain their payments beyond the loans' initial interest rate periods. The new standards require ARMs with initial interest rate periods of five years or less to be qualified at the greater of the note rate plus 2% or the fully indexed rate (index plus margin). In addition, qualification criteria for interest-only loans will change such that the maximum loan-to-value ratio cannot exceed 70%, the borrower's credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after closing. Balloon loans, which generally are characterized by lower initial interest rates and a significant balance due at maturity, will no longer be eligible unless they receive special approval. All loans not meeting the new guidelines have to be purchased as whole loans on or before Aug. 31 or delivered into mortgage-backed securities pools with issue dates on or before Aug. 1.

The Rural Housing Service has enough remaining loan commitment authority to continue guaranteeing single-family loans through May 6, according to the Department of Agriculture. "We anticipate funding likely will be exhausted by May 7," the agency said. It was understood RHS would run out of loan authority on April 30 and the House quickly passed a bill (H.R. 5017) last Tuesday to extend the program through Sept. 30. Sen. Michael Bennett, D-Colo., has introduced a similar bill, but the Senate adjourned on Friday without passing it. The Senate resumes legislative activities on Monday. "Depending upon Congressional activity with the proposed legislation, it is possible that the agency may consider issuing conditional commitments," RHS said. The House-passed bill makes the RHS single-family program self-funding by raising the 2% upfront guarantee fee to 4%. RHS is expected to set the fee at 3.44%. The increase means Congress will not need to approve additional funding to keep the RHS guarantee program running.

The Eleventh Federal Home Loan District Cost of Funds Index increased 24.5 basis points between February and March to 1.859%. With the exception of the run-up in the Index caused by the Federal Home Loan Bank of San Francisco removing Wachovia Mortgage FSB from the calculations back in November and December 2009, this is the highest COFI has been since May 2009. For March 22 eligible institutions reported data that FHLB-SF used to determine COFI. Average total funds in March were $38.5 billion and total interest expense $59.6 million. In February, COFI was 1.614% and in March 2009, it was 1.627%.

For the second consecutive month, members of the Mortgage Insurance Cos. of America reported more primary insurance cures than defaults for March 2010. Mortgage insurers had 77,909 cures and 63,126 defaults for a ratio of 123.4%. This compares with 80,758 cures and 68,675 defaults in February for a ratio of 117.6% and 69,931 cures and 84,042 defaults for a ratio of 83.2% in March 2009. March was also the best month of the first quarter 2010 in terms of both applications received and dollar volume of primary new insurance written. Including policies written for loans refinanced in the HARP program, MICA members had $4.5 billion written in the traditional channel and $400,000 in the bulk channel, vs. $3.6 billion total in February and $9.8 billion in the traditional channel and $9.7 million in the bulk channel in March 2009. Primary insurance in force continues to decline, going from $844.4 billion in February to $828.6 billion in March. There was $1.8 million of new pool risk written in March; total pool risk in force at the end of the first quarter was $7.4 billion.

Federal Housing Administration veteran Meg Burns has departed HUD to manage the Federal Housing Finance Agency's newly restructured Office of Congressional Affairs and Communications. A career FHA official, Burns was senior advisor to former FHA commissioner Brian Montgomery and was generally considered the second in command there. The new FHA commissioner brought in Vicki Bott, a Wells Fargo Home Loan executive, to fill that role. On May 10, Burns will join FHFA, as the senior associate director for congressional affairs and communications. FHFA oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks-which Congress will move to restructure next year. Peter Brereton will continue to be responsible for congressional affairs and Mary Ellen Taylor will be responsible for interagency relations and media communications. During her career at the Department of Housing and Urban Development, Burns worked at the former HUD Office of GSE Oversight.

After several quarters of horrendous losses, GMAC's residential mortgage division posted a small profit in the first quarter, attributing the turnaround to improved servicing revenue and lower loan losses and buyback costs. Residential Capital Corp., the nation's fourth largest funder of home mortgages, earned $110 million compared to a loss of almost $1 billion in the same period a year ago. The mortgage division is continuing to dispose of delinquent assets, though like most sellers, is not revealing much information about the buyers of such loans. During a conference call on Monday the company said it is contemplating an initial public offering to help the car and home lender repay some of its $17.3 billion of federal bailout funds. GMAC chief executive, Michael Carpenter, said he plans to meet with Treasury Department officials Tuesday to discuss several matters "which may well include an IPO [to] allow us to repay [the] Treasury in a reasonable period of time." The government has a 56% stake in GMAC. ResCap originated $13.3 billion of home mortgages during 1Q, a 26% decline from 4Q. Compared to 1Q 09, production was relatively flat. GMAC has retained Goldman Sachs & Co. as its advisor.

The completion of the PMI Group Inc.'s sale of common stock and senior notes has contributed enough proceeds to bring the Walnut Creek, Calif.-based company's primary mortgage insurance underwriter back into compliance with the risk-to-capital ratio and minimum policyholders' position requirements some states have. The transactions netted $706 million, of which $586 million went to PMI Mortgage Insurance Co. This had the effect of reducing the company's risk-to-capital ratio on a pro forma basis as of March 31 to 13.4:1. In its first quarter earnings release, the company gave a preliminary risk-to-capital ratio figure of 26.6:1 for the subsidiary, above the 25:1 requirement a number of states have. However because the capital raise took place after that date, this is not being reflected in PMI Mortgage Insurance Co.'s balance sheet, policyholders' position or risk-to-capital ratio for the first quarter statutory filing. Steve Smith, chairman and chief executive noted that this means the PMI Mortgage Insurance Co. is able to continue writing new policies in all 50 states and the company won't have to turn to a reactivated subsidiary to write policies in states with a risk-to-capital or related requirement.

Mortgage software provider Ellie Mae filed to go public Monday morning after posting $38 million of revenues in 2009 and a profit of $1.7 million. The company offers no estimates on how much stock it will sell-or at what price-but notes in its IPO filing that its privately held shares have an estimated value of $47.2 million or $4.69 a share. The firm has entertained buyout offers over the past few years, but never completed a sale. The Pleasanton, Calif.-based company, known for its Encompass software, lost money in 2008 and earned a meager profit in 2007. In its S-1 filing with the Securities and Exchange Commission, the 13-year old firm says its Ellie Mae electronic network connects 55,000 mortgage professionals to lenders and service providers. In 2009, roughly 2.8 million of loans were initiated over its network-or about 20% of the market. Discussing the risks of its business, Ellie Mae cautions about "extreme turmoil" in the residential business, noting that its future performance hinges on attracting more customers to Encompass. Goldman Sachs & Co. is listed as the lead underwriter of the offering.

PennyMac Mortgage Investment Trust, a vulture fund that invests in troubled mortgage assets, will release its first-quarter results on Tuesday morning before the opening of the stock market. Since going public almost a year ago the company has yet to turn a profit but has reviewed billions of dollars in delinquent loans for possible purchase. The company is also working on launching a new lending conduit and could be eyeing the jumbo market.

Entitle Direct, a direct-to-consumer title insurance underwriter, has written a guidebook for loan applicants to help them understand the new good-faith estimate. "We want borrowers to aggressively compare fees from different lenders and third-party service providers, including title insurance companies, before choosing a mortgage," says Timothy Dwyer, chief executive of Entitle Direct Group, Stamford, Conn. "Our guide will help consumers shop for a mortgage, and then compare, analyze and finalize." The Smart Consumer's Guide to the New Good-Faith Estimate walks readers through each section of the GFE, highlighting ways consumers can compare and lower their financing and closing costs. It also covers origination charges.

D.R. Horton Inc. turned a profit in its fiscal second quarter, reporting a 19% increase in completed home sales. The homebuilder reported a 55% spike in new home orders as its results outpaced analysts' expectations. Builders have enjoyed a bump in sales this year as buyers scurry to grab expiring federal tax credits that end April 30 at midnight. However, California recently extended a $10,000 credit for purchasers of new homes. D.R. Horton earned $11.4 million, or 4 cents a share, for the three months ended March 31. A year earlier, it had a loss of $108.6 million, or 34 cents a share. Revenue was $896.8 million, up 16% from $775.3 million.

Wells Fargo Securities said it has expanded its residential mortgage-backed securities unit that previously had limited structuring and distribution capabilities. WFS has been working on expanding the RMBS unit since early this year. The unit is now fully staffed, providing advisory, structuring, research, distribution and trading services to lenders and investors as well as to its own Wells Fargo Home Mortgage unit. Mike Buttner, who previously managed the hedging of Wells Fargo Home Mortgage's servicing rights, loan pipeline and warehouse assets, heads the RMBS unit. In addition to Buttner, key senior executives include Doug Lucas, head of mortgage trading. Lucas most recently ran structured products trading in London for Bear Stearns. Dash Robinson heads residential mortgage finance structuring and lending. Robinson was previously responsible for the execution surveillance and restructuring oversight of Wells Fargo's structured finance transactions.

Even though PHH Corp.'s new CEO says his "transformation initiative" is working, the mortgage banker suffered an earnings decline and lower profit margins in the first quarter. The company had "core earnings" of $13 million in 1Q10 compared to $52 million for the same period in 2009. The performance was driven by a reduction in the mortgage profit margin to 118 basis points from 193 basis points. But CEO and president Jerry Selitto promised investors that PHH has seen the worst of the margin contraction and is confident margins will remain where they are for the rest of the year. The CEO also trumpeted the fact that while mortgage originations at PHH Mortgage fell 12% during the quarter (compared to 1Q09), many top originators suffered 1Q production declines of 30%. He noted that a new private-label client of PHH Mortgage, KeyBank, is adding $1.5 billion of production volume on an annualized basis. PHH's mortgage production unit posted a profit of $25 million, but its servicing division lost $13 million.