Originations

The PMI Group Inc., Walnut Creek, Calif., has priced its common stock offering at $6.15 per share, paving the way for a capital raise of more than $700 million. Its convertible senior note offering will carry an interest rate of 4.5%. PMI estimates the aggregate net proceeds from the concurrent offerings to be approximately $706 million, which is an increase from an initial offering of $400 million in common stock and $200 million in notes. PMI, which closed Monday at $6.46 per share, was selling for $5.87 per share in early afternoon trading.

As anticipated, Senate Republicans stood together and blocked the Senate from starting debate on a game changing financial services reform bill. The Democrats needed 60 votes to bring the bill-crafted by Senate Banking Committee chairman Christopher Dodd-to the floor to start the amendment process. But early Monday evening the final vote fell short, 57-41. One Democrat, Sen. Ben Nelson of Nebraska, voted against the bill. Nelson was concerned that the treatment of derivatives in the Dodd bill would force Nebraska-based Berkshire Hathaway to post additional collateral against its $63 billion derivative portfolio. The vote is a setback for Democrats who were betting adverse publicity about Goldman Sachs and their role in the mortgage crisis would compel some Republicans to vote for a motion to proceed with the bill and start debate. Democratic leaders plan to have more votes this week, showing that its party wants to reform the way Wall Street works and protect consumers. "We will not tolerate efforts to slow-walk this process or water down this reform because it is too important to middle-class families in Nevada and across American," said Senate Majority Leader Harry, D-Nev. Meanwhile Sens. Dodd and Richard Shelby, R-Ala., are expected to continue working on a compromise. After the vote, Sen. Sherrod Brown, D-Ohio, said Dodd has been involved in negotiations with Republicans for months. The Ohio Democrat said the GOP initially intended to stall the bill for months. They want "to delay and kill the bill," Brown said.

As the Federal Reserve begins looking for ways to reduce its $1.1 trillion of agency MBS holdings, a group of private sector policy analysts are advancing a proposal that would finance the transfer of agency MBS back to the GSEs. The move, the Shadow Financial Regulatory Committee argues, would allow Fannie Mae and Freddie Mac to manage and liquidate the assets. "It would place housing debt on the books of Fannie and Freddie where it belongs and remove the Fed from financing U.S. housing policy," according to the group which laid out its ideas at a meeting sponsored by the American Enterprise Institute. Under the proposal, the Treasury Department would issue Treasury debt to Fannie and Freddie and the GSEs would swap the debt for the MBS. As MBS are sold or the mortgages run off, the GSEs would pay Treasury back. Financial consultant Bert Ely said Fannie and Freddie might do a better job of managing the MBS than the Fed-if the GSEs do not overspend on hedging interest rates and prepayment risk. The Treasury note should be structured as a pass-through, he said, "so they don't feel compelled to go out and waste money on Wall Street on hedging." Fed staff estimates the agency MBS portfolio will have a run-off rate of $200 billion a year, according to the Shadow Regulators. Credit Suisse mortgage analysts view the annual run-off rate as too high. They estimate the Fed experienced close to $50 billion in runoff in 2009 mostly due to prepayments. "This year we estimate $100 billion in run-off," said Mahesh Swaminathan, a mortgage strategist at Credit Suisse. During 2009, the Fed was buying agency MBS on a weekly basis, eventually accumulating $1.1 trillion in MBS. The Fed stopped its buying spree in March.

The Goldman Sachs official at the center of an SEC civil fraud case against the company regarding a subprime CDO declared his innocence to a Senate subcommittee on Tuesday. The Goldman executive, Fabrice Tourre, was accused-along with Goldman-of selling a subprime CDO to investors in early 2007 without telling those investors that one of the firms helping pick the collateral was also shorting parts of the bond. Tourre told the Senate Permanent Committee on Investigations that all charges against him are false and that he will defend himself in court. He said the bond in question, which caused an estimated $1 billion in losses, "was not designed to fail."

Mortgage industry and consumer groups are urging members of the House Financial Services Committee to vote against an amendment that would raise the minimum downpayment on Federal Housing Administration loans to 5%, from the current 3.5%. "Increasing FHA's downpayment could disenfranchise more than 300,000 responsible homeowners," eight groups say in a letter to the committee, warning such a hike could derail the fragile recovery in housing. Rep. Scott Garrett, R-N.J., claims FHA is making too many risky loans and the downpayment increase is needed to protect taxpayers. The Financial Services Committee is expected to vote this week on Garrett's 5% downpayment amendment as it marks up an FHA reform bill. The bill (H.R. 5072) includes several proposals to adjust FHA annual and upfront mortgage insurance premiums to replenish the agency's mortgage insurance fund. The Garrett amendment would "do little to strengthen FHA's capital reserve ratio," the eight believe. The organizations that put their name on the letter include the Mortgage Bankers of America, National Association of Realtors, National Association of Home Builders, Center for Responsible Lending, Consumer Federation of America, National Fair Housing Alliance, National Consumer Law Center and National Council of La Raza.

The Federal Bureau of Investigation is currently juggling 3,000 open mortgage fraud cases, but is facing challenges managing its resources. Speakers at an industry trade show on mortgage fraud told attendees that rather than spend more money to prosecute fraud, government agencies must utilize their available resources to be as smart and as effective as possible. Ninety-three U.S. attorneys across the nation are working to determine enforcement efforts to fit the needs of individual cases in local communities, said John D. Arterberry, executive deputy and fraud chief of the Justice Department's criminal division. "Each U.S. attorney has the opportunity to tailor his or her enforcement," he said. "The needs in the Northern District of Illinois are going to be different than Fargo, N.D., compared to what is happening in Phoenix or Washington, D.C.," said Arterberry. Speaking at the same show, which was put together by the Mortgage Bankers Association, FHA officials said they are spending an increasing amount of their time focusing on risk while carefully reviewing early payment defaults for signs of fraud. Vicki Bott, deputy assistant secretary for single-family housing at FHA, said the agency is stepping up enforcement through its Mortgagee Review Board. "We are not afraid to take action on lenders who are doing fraudulent activity," she said. "We are looking at how principles of lenders jump around. We are really beefing up our process around loan-level review. We are bringing delinquencies into our cycle of reviewing."

Ed Raice, a former president of EMC Mortgage Corp., the nonprime mortgage arm of Bear Stearns, has raised private equity money and is in the hunt for a bank, preferably one near his home in Connecticut. Raice, in a brief interview with National Mortgage News, confirmed that he has an interest in buying First Bank of Greenwich, a $55 million asset FDIC-insured depository that has been in business for about three years. He declined to identify his backers. His interest in returning to the banking sector comes at a time when several Congressional panels are closely scrutinizing Wall Street's role in the credit and subprime crisis. However, Raice left EMC and Bear back in 2002, long before subprime lenders began to think of loan underwriting as something they could avoid. EMC was headquartered in Texas.

FHA single-family originations stabilized in March at the $22.7 billion level with the "seriously delinquent" ratio falling below 9% for the first time since November. The Federal Housing Administration reported that lenders originated $22.7 billion of FHA-insured loans in March, up slightly from the $22.3 billion funded in February. FHA monthly originations averaged $23.7 billion in the first quarter, compared to $28.8 billion in the fourth quarter. The government-backed product accounts for about 25% of all new fundings nationwide. Meanwhile, FHA reported that 8.8% of its insured single-family loans are 90 days or more past due, down from 9.17% in February and 9.4% in January. The drop in serious delinquencies may be signaling that FHA's $807 billion single-family portfolio has turned the corner, allowing its insurance fund to rebuild its depleted capital reserves. The positive news also might give Democratic members of the House Financial Services Committee more ammunition to shoot down GOP amendments to tighten FHA underwriting, including a hike in downpayments to 5% from the current 3.5% requirement. The committee is expected to vote on the amendments and approve a FHA reform bill late Tuesday afternoon.

Lender Processing Services, a third-party service provider to the mortgage industry, earned $76.7 million in the first quarter, compared to $60.6 million in the same period a year ago. LPS reported consolidated revenue of $592.4 million for the first quarter of 2010, an increase of 11.8%, compared to the first quarter of 2009. "LPS is off to a strong start in 2010 despite difficult market conditions and a challenging broader macro-economic environment," said Lee A. Kennedy, executive chairman of the company. "Our loan facilitation business posted record growth in a sluggish year-over-year origination market as we continued to gain market share." He noted that the firm's default services division posted strong gains as well.

Top executives at two credit rating agencies defended themselves Friday against charges that, to retain market share, they knowingly issued inflated ratings on mortgage-backed securities before the financial crisis and put off making needed changes in their standards. Officials from Moody's Investors Service and Standard & Poor's tried to rebut a congressional report regarding their actions, arguing that they had been public about flaws in the mortgage market and had made changes to better adjust to risk. "Moody's did see the escalating housing prices and the loosening of standards in subprime lending practices, we published on these observations, and we incorporated our more unfavorable views into the way we assigned ratings," said Raymond McDaniel, chairman and CEO of Moody's, in a hearing by the Senate Permanent Subcommittee on Investigations. But former employees of S&P and Moody's painted a much different picture, telling lawmakers that executives pressured analysts to maintain market share. They were discouraged, they said, from raising questions about the credit quality of some loans backed by mortgages. Eric Kolchinsky, a former director of Moody's derivatives group, testified that in October 2007, days after the firm downgraded $33 billion in subprime bonds, he was reprimanded by e-mail because quarterly market share fell to 94%, from 98%.

Sequoia Mortgage Trust 2010-H1, the first securitization of recently originated jumbo loans since 2008, has been priced in the public market. Issued by Redwood Trust Inc., the deal includes $222 million (principal balance) of class A-1 certificates carrying Moody's Investors Service's top Aaa rating. The notes are being offered with an initial interest rate of 3.75% per annum, subject to adjustments. The deal is currently expected to close on April 28. The lead managing underwriter is Citigroup Global Markets Inc. JPMorgan Securities Inc. also is acting as an underwriter on the offering. The prospectus and supplemental documents indicate the deal has an interest-only class and several other subordinate tranches that are not being offered. "Without seeing the subs sold, we can't really say whether this deal is a valid template for securitization going forward," said one hedge fund manager who is also working on a jumbo securitization deal. The documents also indicate there is one unrated class that is not being offered and one or more REMIC elections for federal income tax purposes. The five-year hybrid adjustable-rate mortgages backing the transaction have an average balance of about $933,000 and range from about $300,000 to $2.5 million in size. They have an average of eight months of seasoning. Seventy-three percent of the loans had no second liens, which the hedge fund manager said suggests "the issuer may have done a post-origination title search to verify the nonexistence of seconds, which might account for the loans' seasoning." Forty-six percent of the loans are from California and 28% of the deal comes from self-employed borrowers, but the borrowers appear to be extremely wealthy, with their average monthly income being $54,000 and their average verified assets at $1.2 million, the hedge fund manager noted.

Federal Deposit Insurance Corp. chairman Sheila Bair said the agency has reduced its projection of the number of bank failures this year. In a cable news interview Friday, Bair said that though closures are still expected to exceed last year's total of 140, the pace is slowing. "We do think things are improving," she said. "We think it will be more than 140" this year "but less than what we were projecting, for instance, three months ago." Bair reiterated a projection that failures would peak "toward the end of this year." She added that it will continue to be predominantly smaller banks that are closed and said some institutions that had been nearing insolvency-and were placed on the agency's "problem" list-have since recovered. "Some of the banks that we thought were going to fail have actually raised capital, and they've come off of our list," she said.

The Federal Reserve Board will hold four public hearings this summer to see if its Home Mortgage Disclosure Act regulations need to be updated. The hearings will start July 15 in Atlanta. The other hearings will be held Aug. 5 in San Francisco, Sept. 16 in Chicago and Sept. 24 in Washington. Most mortgage lenders are required to file HMDA reports that include information on one-to-four family loans they originate or purchase. About 8,400 lenders file annual HMDA reports that include information on approvals and rejections of mortgage applicants and their race, gender and income. Banking regulators use the information to detect discriminatory lending practices. The last major HMDA revisions came in 2002 with the government requiring mortgage bankers to disclose pricing data on subprime loans for the first time. One of the objectives of the hearing is to evaluate whether the pricing data "helped provide useful and accurate information about the mortgage market," the Fed said.

Issuance of Ginnie Mae mortgage-backed securities fell 24% to $22.8 billion in March with consumers taking a more cautious approach to the housing market. It marks the third monthly decline in Ginnie MBS issuance, which is down 46% from December. Issuers used Ginnie Mae execution in March to securitize $22 billion of government-guaranteed single-family loans and $828 million of multifamily loans. Issuance of MBS backed by FHA-insured reverse mortgages totaled $751 million, down from $1.45 billion in February.

A senator from New York where several credit unions were victims of the $140 million U.S. Mortgage/CU National Mortgage fraud is calling on Fannie Mae's regulator to engineer a settlement on the disputed claims. In a letter to Edward DeMarco, director of the Federal Housing Finance Agency, Democrat Charles Schumer urges the agency and Fannie Mae to "work with the affected credit unions to come to a fair resolution of this dispute that does not threaten the viability of the credit unions." Schumer noted, "Ultimately, I am concerned about the fiscal well-being of thousands of my constituents who may suffer adverse financial impacts" because of U.S. Mortgage Corp. "The magnitude of this potential loss will have a significant adverse impact on these credit unions and their members, some of whom are employees of the U.S. government, as well as state and local governments." Schumer declined requests for further comment. The congressional intervention comes as Fannie Mae has begun mediation with several of the credit unions aimed at settling the dispute. Several New York credit unions, including Suffolk FCU, Sperry Associates FCU and TCT FCU, were among 28 credit unions that had their mortgages fraudulently sold to Fannie Mae by CU National president Michael McGrath. McGrath has pleaded guilty to the fraud and is scheduled to be sentenced next month.

The PMI Group, a top-ranked mortgage insurer, posted another large quarterly loss but is seeing some signs of improvement in its defaults. The California-based MI lost $157 million in the first quarter, a 36% increase from the loss suffered a year ago. But it said loan defaults fell to 147,248 on March 31, compared to 150,925 at yearend. With its defaults improving, PMI hopes to raise $600 million through the sale of stock. Analysts at FBR Capital Markets view the proposed capital raise by the company as a positive, saying, "It would significantly reduce the company's capital and liquidity pressures."

With the credit crisis-including a dearth of warehouse financing-beginning to ease, there are new signs that the buyers of freshly originated mortgages are becoming less stingy on what they pay for loans sold "servicing released." According to Glen Corso, managing director of the Community Mortgage Banking Project, a month ago servicing-released premium prices hit an all-time low. But lately, prices have improved. His nonbank members are reporting an improvement due to rising rates. "One member told me that the improvement came at a time when the increase in mortgage rates from below 5% to above 5% took place," said Mr. Corso, who heads up the fledgling trade group. (For more details see the Monday print edition of National Mortgage News.)

Sen. Richard Shelby, R-Ala., is confident his fellow Republicans will vote "en block" Monday evening, preventing the Senate from starting debate on the financial services reform bill. "I believe the 41 Republicans, for right now, will stand together," Sen. Shelby told a meeting of the Independent Community Bankers of America Monday morning. If the GOP can hang together, Shelby said, it will give him a stronger hand in negotiating with Senate Banking Committee chairman Christopher Dodd, D-Conn., on a compromise bill. To prevent bailouts, Shelby wants tighter limits on Treasury and Federal Reserve lending to failing financial institutions. He also wants prudential banking regulators to have more "say" over the activities of a new independent consumer protection agency, which likely will be given sweeping powers over mortgage lenders. Dodd is now working with Shelby but wants the bill to reach the floor soon, so the amendment process can begin. Negotiations with Republicans have been ongoing for months. Dodd estimates there are only 40 to 50 legislative days left this year to pass a bill. The Republicans are wary of the amendment process, however, and want a compromise hammered out in advance of floor debates. If the reform bill passes the Senate, Shelby warned the bill could be in "peril" if changes are made in a conference with the House. The House passed its reform bill in December. Differences in the two bills are usually worked out in a House-Senate conference.

Capital One Financial Corp., a player in both credit cards and mortgages, reported its third straight quarterly profit on lower credit costs. The $200.7 billion-asset McLean, Va., company earned $636.3 million in the first quarter, compared with $375.6 million in the fourth quarter and a $172.3 million loss a year earlier. The provision for managed loan losses fell 20% from the fourth quarter and 30.7% from a year earlier, to $1.48 billion. Capital One's commercial banking operations had a loss of $49.5 million, narrowing from a loss of $136 million in the fourth quarter. The consumer banking business earned $305.4 million, compared with a loss of $7.7 million a quarter earlier. The Capital One group of companies includes the Chevy Chase Bank, and B.F. Saul Mortgage franchises.

Silvergate Bank of California extended warehouse credit of $209 million in the first quarter, a year after launching the program. The La Jolla-based bank said the lines of credit helped its nonbank customers fund 745 mortgage loans during the period. Silvergate said its first quarter performance represented about two-thirds of all the loans funded since it entered the business. Silvergate had net income of $632,000 in the first quarter, up 63% over the previous year. Meanwhile, a reduction in the average balance of mortgage warehouse loans to a more historic level has resulted in lower interest income at Horizon Bancorp, Michigan City, Ind. For the quarter, the company had interest income of $16.1 million, down from $18.7 million for the same period in 2009. Net income at Horizon was $1.8 million, down from $2.6 million in the first quarter of 2009. As of March 31, 2010 Horizon had $96.3 million of mortgage warehouse loans on its balance sheet, down from $166.7 million as of Dec. 31, 2009 and $186.1 million as of March 31, 2009. None of its warehouse loans are non-performing or categorized as real estate owned, Horizon added.