Originations

MGIC Investment Corp. has priced the sale of 65.1 million shares of its common stock at $10.75 per share, for gross proceeds of approximately $700 million. The Milwaukee-based company also priced a $300 million offering of 5% convertible senior notes. Goldman Sachs & Co. is the sole book-running manager for both offerings. A report by FBR Capital Markets analysts Steve Stelmach and Amy DeBone commented, "We generally view the capital raise as a positive as it will bolster capital ratios and should remove liquidity risk at the holding company. Nonetheless, it does limit the potential upside in shares had MGIC been able to manage the current crisis and reach a point where it could have harvested future premiums on the existing book without the added share count." They added the new funds would allow MGIC to write more business and to withstand expected losses. FBR said it expected $700 million to be allocated to writing new business, giving MGIC $900 million for this purpose when adding in the $200 million set aside to write business at MGIC Indemnity Corp. As of midday on Wednesday, MGIC's common stock was trading at $11.58 per share, up $0.52 from the previous close.

A second week of interest rate declines finally brought consumers back to their mortgage originator, as the Mortgage Bankers Association's Market Composite Index for the week ended April 16, 2010 saw an increase in loan application volume. The MCI increased 13.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 13.9% compared with the previous week. According to Michael Fratantoni, MBA's vice president of research and economics, "Treasury rates fell last week causing a decline in mortgage rates. As a result, refinance applications picked up over the week, as some borrowers took advantage of this recent rate volatility to lock in a low fixed-rate loan. Purchase applications continued to increase coming out of the Easter holiday, as we approach the end of the homebuyer tax credit, and are up modestly over last month." The Refinance Index ended a five week long slide, increasing 15.8% from the previous week. The market share of refi applications increased slightly to 60% for the survey period, up from 58.9% during the previous week. The market share of adjustable rate mortgage applications fell to 6.0%, from 6.3% for the previous week. The decline in average contract interest rate for the 30-year fixed rate mortgage wiped out the remainder of the whopping 27 basis points rise two weeks ago to 5.31%. It is now at 5.04% for the current week with points increasing to 0.98 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 fell by 11 bps to 4.34%. The average contract interest rate for one-year ARMs fell 7 bps to 6.95%.

The Justice Department is seeking a permanent injunction against Lend America and a top executive who controlled the company, Michael Ashley-but no monetary penalties-for defrauding the Federal Housing Administration. A privately held nonbank based in Melville, N.Y., Lend America closed its doors in December, though it has not filed for bankruptcy protection, an event expected by many vendors and third parties that once did business with the company. "Rather than seeking monetary relief, the United States seeks equitable relief barring Lend America from engaging in conduct to defraud the United States," said assistant U.S. attorney John Vagelatos of the Eastern District of New York in a new "notice of motion for default judgment." In a civil suit filed last October, Vagelatos' office won a preliminary injunction to stop Lend America from originating FHA-insured loans. The U.S. Attorney's office is now seeking a default judgment because Lend America and its principals have not appeared for hearings or hired attorneys to represent them. If Lend America does not contest the default judgment by April 30, Vagelatos will ask the judge to impose a permanent injunction on Lend America, its agents and employees from originating, underwriting or endorsing FHA-insured loans. (However, for all intents and purposes, Lend America has no employees left and is out of business.) The AUSA also will ask the court to permanently enjoin those individuals from "advertising, marketing to the public or otherwise soliciting business to originate or otherwise make federally related loans or federally-insured home loans, including but not limited to, those loans defined in the Real Estate Settlement Procedures Act." Vagelatos filed the motion for default judgment on April 19 with the U.S. District Court for the Eastern District of New York.

Lenders would be exempt from risk retention ratios on MBS issuance if they originate low-risk, fully documented mortgages under an amendment Senator Johnny Isakson, R-Ga., plans to offer when the Senate takes up the regulatory reform bill. Under the amendment, "qualified mortgages" would be exempt from a 5% risk retention requirement when a lender sells loans in the secondary market. Qualified mortgages could not have interest-only payments, balloon payments or negative amortization. In addition, any mortgages with loan-to-value ratios exceeding 80% must have private mortgage insurance. The subprime mortgage crisis resulted from "shoddy underwriting," Sen. Isakson said. Qualified mortgages would mark a return to the "gold standard" and the "good old days" when mortgages were well underwritten, he added. Mortgage funders and investment bankers would have to retain 5% of the credit risk on riskier mortgages, however. Borrowers that take out safer loans "should not have to pay the higher interest rates that would result from across-the-board risk retention," said Glen Corso, managing director of the Community Mortgage Banking Project. Industry groups are concerned that risk retention will increase the cost, and reduce the availability of credit to homebuyers. For over a year the industry has been seeking support for a qualified mortgage exemption.

Reverse mortgage production fell to below 6,000 loans per month as of March 31, according to figures released in Philadelphia at the National Reverse Mortgage Lenders Association's 2010 Road Show conference. The industry is coming off its best year ever in fiscal 2009, when originations topped 114,600, according to the Department of Housing and Urban Development's figures. But production started tailing off in November, reported Erica Jessup, a housing program policy specialist in HUD's Office of Single-Family Program Development, and has fallen 'considerably' since then. In March, the Federal Housing Administration endorsed policies for only 5,800 for government-insured reverse loans, she told the meeting. Officials at the conference offered several reasons for the drop in production. Some said the Oct. 1 HUD deadline that changed the formulas for how much of their equity seniors could tap with reverse mortgages caused many borrowers to move up their decisions, essentially robbing lenders of production in fiscal 2010. Others said that with lower home values, borrowers don't have as much equity as they believed, so they are postponing their decisions. And still others said the business is being haunted by negative publicity that is not justified. NRMLA President Peter Bell called them the "three misses: misunderstanding, mischaracterization and misperception." According to HUD's Jessup, California is the top state in terms of traditional HECMs so far this year, with 5,377 loans, followed by Florida (4,214) and Texas (3,405). At the midway point in the government's fiscal year, California also leads in refinancings (1,020) followed by Maryland (381) and New York (350).

The first private-label security backed by "new" originations seen since 2008 marks the start of the residential mortgage-backed securities market's comeback, but pending regulation and other challenges mean its full return is likely to take some time, according to the American Securitization Forum. The $222 million Redwood Trust Inc. deal backed by "extremely high quality" jumbo loans "signals that the private RMBS market is beginning to return, but it does not signal that RMBS has returned," said Tom Deutsch, executive director of the American Securitization Forum. "The market is extremely fragile and we need to be very careful, especially as policymakers consider new regulation, that we act thoughtfully to ensure vitally needed private credit starts flowing again to American consumers."

Fidelity National Financial Inc. is selling its 32% stake in Sedgwick Claims Management Services Inc. to Stone Point Capital LLC and Hellman & Friedman LLC. The other owners of Sedgwick -- Thomas H. Lee Partners and Evercore Capital Partners -- also are selling their stakes in the company. The total cash price for Sedgwick will be $1.1 billion, of which FNF expects to receive $220 million for a net gain of $95 million. The deal is expected to close during the second quarter of 2010. William P. Foley II, chairman of FNF, said the deal meets the company's goal of creating significant value for its shareholders. He added it was "a very successful four-year investment for FNF."

Mortgage brokers will no longer have to go through the expense of an audit to originate Federal Housing Administration loans. For the rest of this year, they can coast without paying a certified public accountant to verify their net worth. "Mortgage brokers already approved by FHA will be authorized to continue to originate FHA-insured loans through the end of the calendar year." Starting January 1, brokers will have to team up with FHA-approved direct endorsement lenders to originate FHA-insured single-family loans. These changes are all part of a long-awaited final rule that eliminates Federal Housing Administration's approval process for mortgage brokers. After three years, HUD will raise the net worth requirements again. Beginning May 20, 2013, "approved lenders and applicants to FHA single-family program must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million," the final rule says. The final rule caps the maximum worth requirement at $2.5 million. HUD originally proposed a $2.5 million net worth for all FHA-approved lenders. (See related story.)

The Department of Housing and Urban Development Tuesday morning published its final rule that sets higher net worth requirements for Federal Housing Administration-approved lenders. Starting May 20, 2011, most FHA-approved lenders must have a minimum net worth of $1 million, four-times the current requirement of $250,000. Non-supervised FHA-approved lenders that qualify as small businesses have to meet a $500,000 net worth standard. HUD estimates there are 260 small-business non-supervised approved lenders with net worth less than $500,000. In three years, HUD plans to raise the net worth requirements again. Beginning May 20, 2013, "approved lenders and applicants to FHA single-family program must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million," the final rule says. HUD capped the maximum worth requirement at $2.5 million. The department originally proposed a $2.5 million net worth for all FHA-approved lenders.

First California Mortgage of Petaluma said it began originating loans under a new Fannie Mae warehouse pilot program last week -- 90% of it coming from loan brokers. Over the past two years several warehouse lenders have trimmed their menus to limit the financing of mortgages sourced through loan brokers. The commitment is for $50 million, which will allow the privately hold nonbank to fund an additional 5,000 mortgages this year. The lender is Natty Mac. Christopher Hart, president of FCM, said his firm continues to use the wholesale channel even though other firms have exited the sector. "There's hope out there for brokers," he told National Mortgage News. "We don't like just any broker. We like the 'right' broker." In 2009 FCM, a nonbank, originated $1.1 billion, which is about what it funded the year before. It currently has three warehouse providers. Its product menu includes Fannie Mae and Freddie Mac loans, including what he called "conforming jumbos." Under the pilot program with Fannie, the GSE commits to buying the loans in a shorter time frame, which means they stay on the Natty Mac warehouse line for a shorter period of time. Freddie has a similar program.

The nation's GSE regulator wants more information about the Federal Home Loan Bank of Seattle's capital restoration plan before it lifts the bank's "undercapitalized" designation. The Federal Housing Finance Agency is giving the Seattle bank 120 days to develop and submit the requested material. "During this period, FHFA will maintain the Bank's 'undercapitalized' classification absent further developments, and the accompanying restrictions will remain in place," said the GSE regulator. Under the restrictions, the Federal Home Loan Bank cannot pay dividends to member institutions or redeem or repurchase member stock. FHFA reaffirmed the Seattle bank's 'undercapitalized' status in November 2009 even though the FHLB met all statutory and regulatory minimum capital requirements in the third quarter. Acting director Edward DeMarco noted the institution's earnings have been hurt by its investments in private-label MBS and expects those losses could continue. The Seattle FHLB reported a $162 million loss in the fourth quarter.

MGIC Investment Corp., the nation's largest mortgage insurer, saw a slight improvement in its first quarter results, losing $150 million compared to a loss of $185 million for the same period last year. However its volume of new business continues to slide, with only $1.8 billion of new insurance written in the first quarter versus $6.4 billion for the first quarter of 2009. (The 1Q10 total, however, does not include nearly $685 million of insurance written on loans modified under the Home Affordable Refinance Program.) MGIC had total loan delinquencies of 18.14% compared to 13.51% a year ago. In the safe harbor portion of its earnings release, MGIC said it expects to incur substantial losses for this year and cannot assure investors when it will return to profitability. During the first quarter, rescissions mitigated MGIC's paid losses by $373 million. (For the full year 2009, rescissions mitigated paid losses by $1.2 billion.) The lawsuit Bank of America filed over the rescission policy has been moved back to California Superior Court in San Francisco from the U.S. District Court for the Northern District of California. MGIC also started an arbitration action against B of A and Countrywide on the rescission matter. Countrywide filed a response objecting to the arbitrator's jurisdiction over the matter. In its response, the lender said it is seeking damages of at least $150 million. MGIC also has commenced a public offering of $700 million of common stock and $300 million of convertible senior notes due 2017. Proceeds will be used to pay off at maturity or purchase prior to maturity $78.4 million in debt due in 2011 and for general corporate purposes, including increasing capital at its mortgage insurance subsidiary.

In recent weeks mortgage lenders have experienced a flurry of new applications from prospective homebuyers who see the April 30 federal tax credit expiration fast approaching and want their $8,000 "gift" from Uncle Sam. "We're getting calls from people who are frantic and want to get their contracts in," said John Walsh, the chief executive of Total Mortgage Services, a Milford, Conn., nonbank that funds loans in 21 states. Like many mortgage companies, Walsh has had decent volumes this year, but he said he fears that once the $8,000 tax credit for first-time homebuyers and a related one for move-up purchasers sunset at month's end, loan officers might be hard pressed for business. "I could be wrong," Walsh said, "but a lot of customers know the timing of this thing and they realize the end is near." He said he fears the second half of 2010 could be deadly quiet for new originations. Brian Benjamin, a loan broker based in the northern New Jersey suburbs, said he too has seen a pickup in applications. "To be eligible" for the tax credit, "they need to get the contract signed by April 30," he said. (For the full story see the weekly edition of National Mortgage News.)

The Securities Industry and Financial Markets Association has appointed a former Federal Home Loan Bank president with extensive mortgage experience as the head of its securitization group. The new SIFMA appointee, Richard A. Dorfman, resigned Friday as president and chief executive officer of the Federal Home Loan Bank of Atlanta and was named to the SIFMA post on Monday. Jill Spencer, who has been the Federal Home Loan Bank of Atlanta's executive vice president and general counsel, was named interim president and chief executive officer following Dorfman's departure. Prior to joining the Federal Home Loan Bank of Atlanta in 2007, Dorfman was managing director and head of the U.S. agencies and mortgage business at ABN Amro. He also worked in Lehman Brothers' mortgage division as managing director and head of originations in its U.S. government and agencies business. In addition, he has been an attorney for the Federal Deposit Insurance Corp. and held positions at mortgage banking firms.

After originally canceling its public offering last Friday, Two Harbors Investment Corp., a Minnetonka, Minn.-based real estate investment trust that invests in mortgage backed securities, has reversed course, reinstating the offering, but cutting the number of shares proposed to be offered to 11,000,000 shares, plus an over-allotment option of 1,650,000 shares. Originally, the company sought to offer 14,000,000 shares. When it cancelled the offering, Two Harbors said the available share price would result in an unacceptable dilution of book value to existing shareholders. After closing on Friday at $9.20 per share (up $0.45 over the previous day's close), Two Harbors was trading at $9 per share late Monday morning.

Goldman Sachs, its image tarnished by a new subprime-related legal action brought by the government, on Monday made additional comments on the case, including a revelation that it too lost money on the CDO transaction in question. Goldman now claims the firm lost more than $90 million on the deal, which is still paltry compared to almost $1 billion in estimated losses suffered by investors. In answering allegations levied by the Securities and Exchange Commission, the Wall Street firm says it made "extensive" disclosures to investors IKB, a large German Bank, and ACA Capital Management, which it called "sophisticated CDO market" participants. Goldman says the "risk associated with the securities was known to these investors." On Friday the SEC accused Goldman and an executive involved in the transaction of misleading clients on a subprime bond known as ABACUS 2007-AC1. Goldman marketed the offering in 2007. The SEC accused the firm of civil fraud, saying it created the CDO with the help of a hedge fund that was shorting the same bond but did not disclose the relationship to investors.

Buyers purchased more than 700 new condominium units in Greater Downtown Miami during this year's first quarter, nearly twice as many as in the same period a year ago when 390 apartments were sold, according to a new report from Condo Vultures, a Bal Harbour, Fla.-based consulting firm. Of the 82 projects started in the area since 2003, 35 are now sold out and 24 are at or beyond the halfway point, the report said. But six, including a two-tower, 324-unit property near the new Florida Marlins baseball stadium that was just taken back by lender iStar Financial, still have not sold a single unit. The inventory of unsold product in the area has now dipped below the 6,600-unit level. The jump in sales was fueled largely by lower prices, as developers and lenders which have taken back properties dropped their prices from $300 per square foot to $200. Now, some are attempting to bump back up to $300-per-foot range, according to Peter Zalewski, a principal in Condo Vultures, who says "time will tell if the new pricing sticks."

The second half of this year will bring continued challenges for the housing market, according to two Wells Fargo Securities economists, who expect higher mortgage rates and new home price declines. "The housing market will not return to a position of strength until late next year or in 2012," said Mark Vitner and Adam York. In their April "Housing Chartbook," they note that the housing recovery so far has been based on tax incentives, artificially low mortgage rates and "unprecedented" assistance for struggling homeowners. The Federal Reserve stopped buying agency MBS at the end of March and the homebuyer tax credit is set to expire late in the Spring. "We have significant concerns about the sustainability of the housing recovery once the stimulus is removed from the marketplace," the economists say, adding that an excess supply of 2 million unsold homes will continue to exert downward pressure on prices. "We estimate housing prices could fall an additional 6% to 8% from their current levels before they ultimately bottom out," York told National Mortgage News. But he noted that most of the drop in prices will come from sales of higher-end homes.

A new regulatory report says the collapse of Cal State 9 Credit Union of Concord, Calif., was caused by the lender's ill-fated foray into subprime residential lending, which eventually comprised more than 92% of its loans. "Specifically, management committed an exorbitant percentage of the credit union's assets in an indirect 'Home Equity Line of Credit' program without adequate controls in place to oversee and manage the risks in the program's operations," according to a "material loss review" conducted by the National Credit Union Administration's Office of Inspector General. Virtually all of the indirect HELOCs were of the subprime variety that included loans with stated income, high loan-to-value ratios, and negative amortization second liens, most of which were made to borrowers with low credit scores. More troubling, according to the report, was that the risky loan program even jeopardized at least three nearby credit unions and one bank with the sale of $190 million in non-recourse loan participations to those four institutions. The report on the collapse of the $440 million asset Cal State 9-the biggest credit union failure ever in California-comes as the Senate Subcommittee on Permanent Investigations is planning additional hearings on the collapse of Washington Mutual, the biggest depository failure ever which was also caused by subprime lending. Like Washington Mutual, Cal State 9, failed in 2008. Its demise will cost the NCUA insurance fund $206 million, making it the costliest credit union failure to date.

Citigroup executives say they are seeing better performance in the bank's $152 billion North America residential mortgage portfolio, thanks in part to asset sales and loan modifications. The serious delinquency rate (90 days or more past due) on its $96.4 billion portfolio of first liens fell to 10% in the first quarter, down 115 basis points from the previous quarter. It is the first quarterly drop in a long time. "Net credit losses on first mortgages declined 24% to $819 million in the first quarter driven by HAMP loan conversions and improvement in loan loss severity and $1 billion in assets sales during the quarter," Citi said during a conference call. In the first quarter, Citigroup converted more than $2 billion of delinquent mortgages into permanent modifications under the Home Affordable Modification Program. The bank said HAMP modifications are performing better than other loan restructurings and "early results indicate the re-default rates are likely to be lower." The bank did not break out the results of its CitiMortgage subsidy in reporting a first quarter profit of $4.4 billion. However, the company said it originated $31.5 billion of single-family loans in the first quarter down slightly from the previous quarter. As reported by National Mortgage News recently, CitiMortgage has shown some interest in growing its wholesale division again, contacting certain high performance brokers that once sourced loans to the firm.