Originations

The Treasury Department and the Department of Housing and Urban Development will be holding public hearings this summer and fall to solicit advice from all stakeholders on the role the federal government should continue to play in the housing finance system and the future of Fannie Mae and Freddie Mac. "The public's input will be invaluable as we think through these difficult and complex issues," HUD Secretary Shaun Donovan said. In preparation of the hearings, Treasury is soliciting written comments on seven questions regarding the future structure of the housing finance system, how it fits within broader housing policy goals, and how system changes will contribute to sound underwriting standards and prevent abusive and deceptive lending practices. The Obama administration also is seeking comment on how to transition "from where we are today to a stronger housing finance system," Donovan told the House Finance Services Committee. Committee Republicans claim the questions and hearings just show the administration has no plan to deal with Fannie and Freddie and the mounting taxpayer costs of their conservatorships. Republicans lawmakers have proposed a bill that would close down the two government-sponsored enterprises. "This housing recovery remains fragile," the secretary warned. "Any hasty action to quickly change the composition of the GSEs or eliminate them, I have no doubt, would drive down this housing market and cause taxpayer losses to increase."

Senate Banking Committee chairman Christopher Dodd on Wednesday defended his massive regulatory overhaul bill, saying the GOP is involved in a "Wall Street lie" by claiming his legislation would perpetuate bank bailouts. Speaking on the floor of the Senate, chairman Dodd said his bill will end bailouts and set up a mechanism to wind down large failing institutions, while ensuring that taxpayers are not on the hook for the losses. However, Sen. Dodd said political strategists and bank lobbyists are spreading "false talking points" to kill the reform bill. "And that's why I've been so dismayed to hear members of this body repeat the utter falsehood-concocted by special interests whose jobs and pensions are plenty secure, thank you very much-that this bill will lead to more bailouts," he said. Democratic leaders are planning to bring Dodd's bill to the Senate for debate as early as next week. The chairman stressed that he has worked with Republican committee members in crafting the bill. "My friends on the other side of the aisle may not like every line in this bill. But, at the very least, let's not pretend that the bipartisan work that produced this legislation didn't happen," Sen. Dodd said.

Ginnie Mae will begin purchasing single loans in July in an initiative to help smaller lenders improve their bottom lines, HUD secretary Shaun Donovan said at the Mortgage Bankers Association's annual National Policy Conference in Washington. The Housing and Urban Development secretary also announced that in early May, HUD will begin releasing a regular scorecard on all of the Administration's housing recovery programs so the overall effort can be judged in its totality rather than piecemeal. "Viewing the Administration's efforts through a single lens fails to capture the full scope and results of our efforts to date," he told the MBA. Secretary Donovan offered few details on the forthcoming Ginnie Mae single loan program, but he did say that the GSE has the technology and ability to allow lenders to deliver single loans that would eventually be pooled with other loans into a Ginnie Mae security. Currently, community banks and rural lenders must either sell their production to aggregators or hold loans on their books "at a substantial cost and risk" until they have enough volume to create a pool large enough to sell to Ginnie Mae. Under the new initiative, they will be able to deliver what "technically" amounts to single-loan pools on a daily basis that Ginnie Mae will subsequently place into a multi-lender pool. "It will be interesting to see how (the program) works," said Rob Couch, a former HUD general counsel who left the agency in the last months of the Bush Administration. "But it sounds pretty creative to me."

During its earnings call Wednesday, mega bank JPMorgan Chase hinted that the loan buyback plague may have peaked but the bank isn't quite ready to declare that its battles with Fannie Mae and Freddie Mac are over. In a question and answer period with Wall Street analysts, JPM chairman and CEO Jamie Dimon noted that the company has established a "litigation reserve" of $2.3 billion to cover residential buybacks, saying the company, at this time, has no reason to update the figure. He cautioned that it appears delinquencies are improving and there is solid improvement in conditions as measured by credit scores, and loan-to-value ratios. Dimon also said jumbo lending doubled at JPM during the quarter and he believes that the nonagency securitization market will revive. JPM, for now, is letting its home equity and subprime portfolios run off. The company predicted that home equity losses could reach $1.4 billion over the next several quarters. It projects $600 million in losses on prime mortgages, and $500 million on subprime. However, these loss projections exclude residential assets acquired from Washington Mutual, the troubled mega thrift it bought with federal assistance in the fall of 2008. WaMu's residential problems, alone, added $1.2 billion to JPM's credit costs in the first quarter of 2010. At the end of March, its loan loss reserves (company wide) totaled $38.2 billion, compared to $27.4 billion in the same period a year earlier.

Deutsche Bank and a group of Saudi Arabia-based investors have formed a joint venture providing home financing compliant with Islamic law. The Saudi investors will have a 60% ownership stake in the venture, which is called Deutsche Gulf Finance. DB's Riyadh branch will own the remaining 40%. Deutsche Bank said the company will have an initial capitalization of approximately $110 million. It is starting by providing Shariah-compliant home financing for properties located in Saudi Arabia and plans to expand its operations into Bahrain, Qatar and Kuwait in the future. Deutsche Gulf Finance already has started financing completed units as well as those under construction on individual lots or at real estate developments. Doug Naidus, managing director and global head of residential MBS lending and trading at Deutsche Bank, said Islamic finance is key to the company's global mortgage platform and Saudi Arabia is an important country in DB's emerging markets strategy. Deutsche Bank research projects Saudi Arabia will need 1.2 million additional housing units by 2015. The bank estimates that when a new Saudi mortgage law is enacted the legislation will contribute to incremental demand of about 55,000 additional units per year.

Former Washington Mutual CEO Kerry Killinger on Tuesday blamed federal regulators and an insular Wall Street culture for the demise of the mega thrift, saying that firms that were "too clubby to fail" were protected during the financial crisis of 2008. The Seattle-based thrift, once the nation's largest, was a top-ranked subprime and payment-option ARM lender. Last decade, it grew rapidly by purchasing prime and nonprime shops, including A- to D lender, Long Beach Mortgage, a firm controlled by subprime magnate Roland Arnall. Killinger, in prepared testimony before the Senate Homeland Security and Governmental Affairs Committee, complained of "unfair treatment" of WaMu, the largest thrift (or bank) failure in history in 2008, when it was seized by the government and then sold to JPMorgan Chase. Killinger, who was forced out prior to the JPM sale, argued that the seizure "was unnecessary" and said the company "should have been given a chance to work through the crisis." However, committee chairman Carl Levin said the thrift's subprime loans were rife with fraud and may make a criminal referral to the Justice Department. Levin is holding four hearings on the financial crisis. Based on an 18-month investigation, Levin said, he believes that certain provisions of pending financial reform legislation, such as the creation of a consumer protection agency and a requirement that lenders maintain a stake in loans they sell to the secondary market, could have helped avoid, or lessen the impact of, the thrift's failure. "A lot of proposed reforms will gain additional support, we believe, from these findings," Levin said. "It is my hope that these hearings, these findings, give a boost, a momentum to strong regulatory reform in many, many different ways."

GMAC Financial Services has agreed to sell its European mortgage assets-including performing and nonperforming loans-to Fortress Investment Group, LLC, a company managed by former Fannie Mae CEO Daniel Mudd. No price was disclosed. A spokesman for GMAC said Fortress will take control of active lending units of Residential Capital Corp. in Germany, the Netherlands and the United Kingdom. At press time no information was available on the production or servicing volume of these divisions. Fortress is also taking title to 6,000 whole loans of GMAC/ResCap but no dollar amount was provided. The sale of its European assets is the latest move by GMAC to divest its exposure in residential finance in favor of auto lending. Its U.S. mortgage operation is currently on the auction block, though it remains to be seen who might buy it. Mudd currently serves as CEO of Fortress, a publicly traded equity fund and investment manager. He was fired by the government as CEO of Fannie Mae when it took control of the GSE in the fall of 2008. In a statement, GMAC said, "The agreements to sell the European mortgage assets and businesses are key steps toward our objective of reducing the ongoing exposure for GMAC from the legacy mortgage operation. This is a significant achievement and will contribute in putting GMAC on a path toward improved performance."

A federal court agreed to consolidate lawsuits brought by three credit unions asking for the return of more than $35 million of mortgages fraudulently sold to Fannie Mae by U.S. Mortgage and its subsidiary CU National Mortgage. While several smaller credit unions have settled claims, the three plaintiffs-Picatinny Federal Credit Union, Proponent Federal Credit Union and Sperry Associates Federal Credit Union-are among the biggest victims in the fraud in which CU National sold almost $140 million of mortgages owned by 28 credit unions to Fannie without their knowledge and kept the funds. In his order, Judge Garrett Brown of the U.S. District Court in Newark, N.J., ruled that the consolidation of the cases is in the best interests of the credit unions. Meanwhile, two more former executives of the now-defunct mortgage company are preparing to plead guilty in the massive fraud. Michael McGrath, the president of U.S. Mortgage and CU National Mortgage, has pleaded guilty in the case and next month is expected to be sentenced to up to 20 years behind bars. The fraud has created a tangle of legal claims, with several of the credit union victims suing CUNA Mutual Group to ensure coverage of any losses they end up with, and CUNA Mutual suing the credit unions for a declaratory judgment that it is not liable for the coverage.

First American Corp., Santa Ana, Calif., has received an $850 million credit facility that will finance the operations of its Information Solutions Group once the unit is split off into a separate publicly traded company. In addition, First American Financial Corp., the company that will be the parent of its title insurance business, has an agreement in place to receive a $400 million line of credit concurrent with the split which will occur June 1. The ISG credit facility consists of a $500 million secured revolving credit line due in 2012, and a $350 million term loan due in 2016. It is secured by substantially all of the group's assets. The First American credit facility is partially secured and due in 2013. First American also commenced a cash tender offer for all $350 million of its outstanding public debt securities. It is soliciting consents from debt holders to amend the indenture agreement to expressly affirm that the split does not conflict with the terms of the indentures. First American will pay an early consent fee of 100 basis points over par for holders of the 5.7% senior notes due 2014 and the 8.5% capital securities due 2012 if they are tendered by 5 p.m. Eastern time on April 23, 2010.

Not only has Redwood Trust purchased jumbo loans for a planned nonagency MBS, but is actively shopping the mortgages to rating agencies, according to officials familiar with the company's plans. The publicly traded REIT has been working on reviving its "Sequoia" jumbo MBS program for several months. "A year ago there were no buyers for an AAA-rated jumbo MBS," said one mortgage official familiar with Redwood's efforts, "but the situation has reversed." Sources say Mill Valley, Calif.-based Redwood has purchased at least $100 million of jumbo loans with hopes of securitizing them. The REIT declined to comment but in a recent company report said it is working "closely with credit rating agencies to model a safer and more straightforward securitization structure that will promote investor and public confidence in a time of higher scrutiny and uncertainty." Except for "re-securitizations" there have been no new jumbo MBS issued in about two years.

John Vella, executive vice president of portfolio servicing strategies for Residential Capital Corp., has resigned from the company, effective immediately, and is on the verge of taking a job with Fannie Mae, industry officials told National Mortgage News. At press time, Fannie Mae had not commented on the matter. According to a memo from GMAC mortgage chairman Tom Marano, Vella's duties will be given over to chief servicing officer Joe Pensabene. Vella joined the nation's sixth largest residential servicer in the fall of 2008. In his memo Marano said, "John provided leadership for our mortgage employees in Dallas, Carlsbad and Costa Mesa during a time of considerable change as we sought to reduce costs, and restructure and refocus our operations." Last month, NMN reported on the departure of about eight servicing managers at ResCap.

At least two bidders still have an interest in buying National City's warehouse lending group from PNC Financial Services, but time is running out on the unit, according to sources close to the situation. A PNC spokesman confirmed that the bank plans to wind down the operation this summer and would not speculate on a possible sale. At yearend the NatCity warehouse group had just over $1 billion in commitments. A source close to the matter said that although some investors are still looking at the division, "nothing is imminent." Several of NatCity's nonbank warehouse customers said they have been looking for alternative financing since January and have found an improved market. According to figures compiled by the Quarterly Data Report, NatCity/PNC ranks third nationwide in terms of warehouse commitments. Over the past six months more regional banks have entered the space but will only finance nonbank firms that lend in their bank footprint.

JPMorgan Chase is working on in-house, targeted principal reduction programs but has strong reservations about the government's efforts to develop a large-scale, broad-based principal reduction program for first and second mortgages. "We know this will be surprising to some, but we have found that [interest] rate reductions and term extensions-not principal reductions-have the largest impact in achieving payment affordability and result in more modifications," said David Lowman, chief executive of Chase Home Lending. In testifying before the House Financial Services Committee, Lowman said Chase is using principal reductions to refinance conventional borrowers into Federal Housing Administration loans. This summer, Chase will offer delinquent borrowers an option to refinance through the FHA's Hope for Homeowners program if they need a principal reduction or a second lien extinguished. Chase also is developing a principal reduction program for certain payment-option ARM borrowers and conducting targeted tests to see if principal reduction is effective for "other high-risk borrowers," Lowman said. "Once we observe the results of these tests, we will be able to better evaluate the effectiveness of a broader principal reduction program."

As the Senate prepares to debate regulatory reform legislation, Sen. Carl Levin is using the failed Washington Mutual as evidence that the bill's most contentious provisions are necessary. The chairman of the Permanent Subcommittee on Investigations is prepping four hearings related to the financial crisis, the first of which is scheduled for April 13 and will focus on WaMu's risky lending practices. Based on an 18-month investigation, Levin said, he believes that certain provisions of the reform legislation, such as the creation of a consumer protection agency and a requirement that lenders maintain a stake in loans they sell to the secondary market, could have helped avoid, or lessen the impact of, the thrift company's failure. "A lot of proposed reforms will gain additional support, we believe, from these findings," Levin said. "It is my hope that these hearings, these findings, give a boost, a momentum to strong regulatory reform in many, many different ways." The now defunct WaMu entered the subprime space about a decade ago when it bought Long Beach Mortgage from subprime magnate Roland Arnall. The thrift eventually became one of the largest subprime lenders in the nation, funding billions of dollars in A- to D loans, and selling them into securitizations through Wall Street. The thrift failed in the fall of 2008 and was sold to JPMorgan Chase. Mr. Arnall died in early 2008 by which time he had sold most of his subprime holdings.

GMAC Financial Services has agreed to sell its European mortgage assets -- including performing and nonperforming loans -- to Fortress Investment Group, LLC, a company managed by former Fannie Mae CEO Daniel Mudd. No price was disclosed. A spokesman for GMAC said Fortress will take control of active lending units of Residential Capital Corp. in Germany, the Netherlands, and the United Kingdom. At press time no information was available on the production or servicing volume of these divisions. Fortress is also taking title to 6,000 whole loans of GMAC/ResCap but no dollar amount was provided. The sale of its European assets is the latest move by GMAC to divest its exposure in residential finance in favor of auto lending. Its U.S. mortgage operation is currently on the auction block, though it remains to be seen who might buy it. Mr. Mudd currently serves as CEO of Fortress, a publicly traded equity fund and investment manager. He was fired by the government as CEO of Fannie Mae when it took control of the GSE in the fall of 2008. In a statement, GMAC said, "The agreements to sell the European mortgage assets and businesses are key steps toward our objective of reducing the ongoing exposure for GMAC from the legacy mortgage operation. This is a significant achievement and will contribute in putting GMAC on a path toward improved performance."

NCB FSB, the thrift unit of an organization (NCB Financial Group) dedicated to lending to cooperatives, originated over $21.7 million in new loans for 131 residential coop owners during the first quarter of 2010. "NCB FSB's ability to provide consistent and competitive financing, even in light of the current economic environment, is an important resource for consumers looking to purchase a home, pay for capital improvements or refinance existing debt," said Chris Goettke, director of residential lending. "The bank's commitment to providing these creative lending solutions was born out of its mission, to provide financial assistance to the cooperative market." By region, NCB FSB lent $11.7 million for the West Coast cooperative housing market, $5.8 million for the New York market and $2.1 million in new loan originations in the Washington Metropolitan area.

The seasonally adjusted annual rate of Canadian housing starts tracked by Canada Mortgage and Housing Corp. fell slightly in March based on revised numbers for the previous two months. At 197,300 units, seasonally adjusted March starts were down 1.5% from the previous month's revised seasonally adjusted start rate of 200,400 units. February's revised seasonally adjusted start rate was up 6% from January's revised seasonally adjusted start rate of 189,000 units. January's revised seasonally adjusted start rate put its month-over-month gain at 7.5%. "The moderation in March housing starts was due to a decrease in the volatile multiple starts segment. Helping to offset this was an increase in singles starts as well as more activity in rural areas," said Bob Dugan, chief economist at CMHC.

The Federal Home Loan Bank of New York will provide up to $250 million of disaster relief loans to member institutions that can turn around and use the money to help troubled homeowners in flood affected areas in parts of New York and New Jersey. The money is being made available through the FHLB's community lending program, and can be used as gap financing while insurance settlements are being worked out. Before a loan can be made the area must be designated as a flood-affected area by the Federal Emergency Management Agency. A few weeks ago parts of New York and New Jersey were affected by heavy flooding caused by heavy rains. Alfred A. DelliBovi, president and chief executive of the FHLB-NY, said, "The funds we are making available today will allow our members to make an immediate, positive impact on recovery efforts, while providing the flexibility our members need to suit these efforts to the individual communities they serve." The money can be used for housing, small business and economic development lending. The funds are available for relief efforts in every county in New Jersey except for Sussex, Warren, Hunterdon and Hudson. In New York, the areas covered are Nassau and Suffolk counties on Long Island, Courtland and Chenango in central New York and Allegany, Cattaraugus, Chautauqua and Erie in western New York.

Meridian Capital Group LLC, one of the nation's largest commercial real estate mortgage brokerage firms, has hired industry veteran Marty Lanigan as senior managing director of origination and strategic initiatives. Among his duties, Lanigan will be responsible for overseeing the firm's origination efforts nationally. He will report to company president and CEO Ralph Herzka. During his career Lanigan has worked at Prudential Mortgage Capital Co., and GMAC Commercial Mortgage, among other firms. In 2001, he founded Mezz Cap, which eventually grew into a mid-market commercial mezzanine lender. The New York-based Meridian was founded by Herzka in 1991. To date it has placed more than $100 billion in commercial real estate debt.

Pan American Mortgage, Chicago, has filed notification with the state that it is about to lay off a large number of loan officers employed at the firm. Princess Santos, an official at the firm confirmed to National Mortgage News that the layoffs are coming but said, "they haven't happened yet." It's unclear how many loan officers might lose their jobs but firms that terminate at least 50 workers in a single action must notify them at least 60 days in advance under federal law. Ms. Santos declined to discuss numbers, referring questions to company owner Adam Dayan. According to the Illinois Department of Corporations, PAM also does business as Senior Mortgage Network, and Charter Mortgage Network. The lender is privately held and no loan volumes were available.