Originations

The Federal Housing Administration will begin accepting electronic signatures on third party documents originated and signed outside of the lender's control, such as real estate contracts. A Mortgagee Letter detailing FHA's new streamlined process is posted on the HUD website. "This is just the beginning of FHA's commitment to use more electronic documents in our loan approval process," said FHA commissioner David Stevens. "Over time, we will be expanding the number and types of documents with electronic signatures which will be acceptable to FHA." The FHA expects lenders to employ the same level of care and due diligence with electronically signed documents as for paper documents with "wet" or ink signatures. Lenders are reminded that the electronic signature and date should be clearly visible in the document and that electronic documents will be subject to the same document retention requirements as paper documents.

Former executives and regulators, testifying Thursday before the Financial Crisis Inquiry Commission, all tried to shift blame for the giant company's problems. Charles Prince, Citigroup's former chief executive, pointed a finger at the credit rating agencies and overly complex products-like collateralized debt obligations-that no one understood. (Mr. Prince was onboard when Citi made several disastrous investments in subprime lenders, including its acquisition of assets from Ameriquest and Argent.) Robert Rubin, a former Treasury secretary and former chairman of Citi's executive committee, laid the blame on a confluence of market events while saying he was out of the loop for most of the company's decisions. The bank's regulators, meanwhile-John Dugan, the comptroller of the currency, and his predecessor, John D. Hawke-criticized the institution, its managers, other regulators and the market in general. If there was an underlying consensus, it was this: the financial crisis was either entirely unforeseeable or should have been spotted first by somebody else.

New research on the Cook County multifamily housing market by DePaul University's Institute for Housing Studies says significant price declines have occurred during the past three years, accompanied by a sharp increase in foreclosures, especially last year. The study looked at Chicago and 76 surrounding communities. The research found that the multifamily financing market has been virtually abandoned by all but two financial institutions: Fannie Mae and Freddie Mac. The authors note that policy makers in Washington should keep this thought in mind as they "contemplate short- and long-term" changes to the GSEs. The study was written by James Shilling, the Michael J. Horne chair of Real Estate Studies at DePaul. IHS researchers analyzed Cook County Recorder of Deeds property data for repeat sales for 25,822 small (two-to-six unit) and 591 large (seven-plus unit) rental buildings in Cook County from 1998 to 2009.

Credit default swap indices compiled by Fitch Solutions show subprime residential mortgage-backed securities prices have continued to strengthen with some variation by vintage. Month-over-month, subprime RMBS overall were up 7% as of April 1. The 2006 vintage, which was up 15%, reached a high not seen since December 2008 in the most recent month. The 2004 vintage was up 9% and the 2005 vintage was up 6%. The relatively weak 2007 vintage, which managed to gain 4% during the market, was still at its third-lowest-ever value. Fitch Solutions' loan-level analysis shows the constant default rate for all vintages dropped during the period. In addition, the constant prepayment rate fell across the board. "While refinancing remains challenging for subprime assets, the general drop in default rates is an encouraging sign," said Fitch Solutions managing director Thomas Aubrey.

During the height of the mortgage boom, a thriving private-label MBS market "threatened" Fannie Mae financially, driving the congressionally chartered mortgage giant into the alt-A market which ultimately led to huge credit losses at the company, a former top Fannie official told a congressional panel Friday. The growth of the private-label securities market threatened Fannie "financially" along with its "relevance" to its seller/servicers, said former Fannie executive Robert Levin in testimony before the Financial Crisis Inquiry Commission. Speaking before the same panel, former Fannie Mae CEO Daniel Mudd testified that the GSE gradually entered the alt-A market and understood the risks. Fannie's alt-A loans performed better "by a factor of two" than alt-A loans generated by the Wall Street conduits, Mudd said. But FDIC chairman Phil Angelides noted that alt-A, subprime and other high-risk loans caused 69% of Fannie's credit losses in 2009, even though they comprised only 24% of total loans. He also noted the GSE was highly leveraged. (At one point, Fannie's alt-A holdings totaled $350 billion.) Mudd said the bulk of Fannie's alt-A loans were bought during the peak of the housing boom and their performance suffered as a result of declining house prices and the nation's economic downturn. In September 2008 the Federal Housing Finance Agency seized control of Fannie, placing it into conservatorship. Upon the GSE's seizure, Mudd was fired. In his opening remarks to the commission, Mudd said the GSE's business model and structure could not "withstand a multiyear 30% home price decline on a national scale, even without the accompanying global financial turmoil."

The Department of Housing and Urban Development is raising the net-worth requirement for FHA-approved lenders-but by not as much as expected. HUD had originally proposed raising the $250,000 net-worth requirement to $2.5 million within three years. A final rule, expected to be released shortly, raises it to $1 million starting next year-but there are breaks for firms that are considered "small business" lenders. "Current FHA-approved small business lenders must possess a minimum net worth requirement of $500,000," HUD said. This means an independent mortgage-banking firm with less than $7 million in total annual receipts will qualify as an FHA small business lender. One source said an FHA lender that funds roughly $250 million in loans annually should qualify for the lower $500,000 net-worth requirement. Depository institutions with less than $175 million in assets also can qualify as an FHA-approved small business lender. The final rule also eliminates FHA's approval process for mortgage brokers.

Several medium-sized nonbanks are exploring the possibility of buying depository institutions using cash from stellar residential profits enjoyed over the past 18 months, according to investment banking officials. In interviews with National Mortgage News this week, three active mortgage advisors noted that "the play" for these nonbank acquirors is to solidify warehouse financing. "Even though the warehouse situation has improved in recent months it's still not great," noted one New York-based advisor. "The idea here is to self-fund." These investment bankers did not want to be identified because they are currently working on transactions that haven't closed. One noted that a Midwestern-based wholesaler he's been working with earned $29 million on originations of $1.6 billion last year. He called such a profit performance "unheard of." One risk for nonbank buyers is dealing with delinquent commercial real estate loans of troubled banks. Another challenge is gaining approval from the Federal Deposit Insurance Corp. "In the end will the government accept their business plan?" asked one investment banker.

A marketplace for illiquid asset-backed securities will include manufactured housing ABS, the company that operates the exchange said. SecondMarket, which already has platforms to trade residential and commercial mortgage-backed securities, has created the ABS platform based on the "significant interest" from its buyer and seller bases. "Over the past several months, we have seen significant buy- and sell-side interest from our market participants in a variety of securities across multiple sectors," said Elton Wells, head of structured products at SecondMarket. "The increased demand and completion of numerous ABS deals prompted us to officially launch this new market."

Generation Mortgage Co., Atlanta, has introduced a new fixed-rate Home Equity Conversion Mortgage product with no origination fee and no servicing fee to provide senior clients more upfront loan proceeds at a lower cost. This Federal Housing Administration-insured reverse mortgage product is available through the company's retail and wholesale production channels. It allows qualified borrowers to receive additional, upfront loan proceeds of up to $10,000 or more, depending on the equity in their home. "We are in the business of helping clients put as much money as possible back into their pockets, and the best way to do that is by regularly evaluating how we can maximize each client's reverse mortgage," said Scott Peters, president and chief executive of Generation Mortgage. "This attractive option is a function of positive market conditions. It makes sense for seniors to investigate this option now as these conditions can change at any time."

A new coalition of commercial real estate interests is urging the government and Congress to act quickly to revive CRE lending and help speed up the economic recovery. In a "Roadmap to Recovery," the Commercial Real Estate Coalition outlines 51 recommendations to revive the CRE sector and refinance $1.3 trillion in CRE mortgages that mature by the end of 2013. Right now, "the capital necessary to refinance those loans remains largely unavailable," said Steve Bartlett, president and chief executive of the Financial Services Roundtable. The coalition is calling for special tax breaks to boost investment in CRE mortgage and easing accounting, capital and appraisal standards to facilitate refinancings. One of the major goals of the coalition is to restart the commercial mortgage-backed securities market. The roadmap points out that Financial Accounting Standards 166/167 combined with risk retention proposals and recent risk-based capital changes "can virtually halt the securitization credit markets and restrict overall credit availability." The coalition also points out that banks hold $1.5 billion in CRE loans and property values have dropped by as much as 40% in some areas. Meanwhile, CRE lending and securitizations have plummeted to extremely low levels. "The liquidity crisis will be exacerbated by those small and community banks that will be hard hit by CRE losses," the roadmap says.

Home prices could decline on a nationwide basis this year, with a "prolonged" recovery starting next year although some locales could see a quick revival, according to the chief economist of Fiserv. "Nationally, Fiserv Case-Shiller data points to a further 7% decline in home prices through the end of this year, with a prolonged recovery beginning early in 2011. In many markets, the emphasis is on the word 'prolonged,'" said chief economist David Stiff. Some markets, such as Pittsburgh, Columbia, S.C., and certain metropolitan areas in Texas, Washington state and upstate New York are poised for a relatively fast recovery. But in areas such as California, Florida, Arizona and Nevada, it may take 15 or more years for home prices to climb back to their peak as several powerful forces in the market will severely hinder housing recoveries, Mr. Stiff said.

Federal Reserve officials are worried that serious delinquency and foreclosure rates are moving higher and house prices are still under downward pressure. "We have yet to see evidence of a sustained recovery for the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures," Fed chairman Ben Bernanke told the Dallas Regional Chamber on Thursday. The minutes of the March 16 Federal Open Market Committee reveal that Fed officials are not impressed by the improvement in home sales in the second half of last year. It may largely reflect "transitory effects from the first-time homebuyer tax credit rather than a fundamental strengthening of housing activity," the minutes say.

Rising bond yields have pushed the weekly average rate for 30-year fixed-rate mortgages to its highest level in eight months, according to this week's Freddie Mac Primary Mortgage Market Survey. "Once again, mortgage rates followed bond yields higher amid a positive March employment report," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 30-year FRM rate during the week ended April 8 was 5.21%, up from 5.08% the week before and from 4.87% a year ago. The average rate for a 15-year FRM was 4.52%, up from 4.39% the previous week but down slightly from 4.54% a year ago. This was the highest the average weekly 15-year FRM rate has been since Dec. 31, 2009. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.25% during the most recent week, up from 4.10% the previous week but down from 4.93% a year ago. The average one-year Treasury ARM rate for the latest week was 4.14%, up from 4.05% a week ago but down from 4.83% a year ago. Average points were 0.6 for all the aforementioned products except one-year Treasury ARMs, for which average points were 0.5.

Wells Fargo Bank NA, San Francisco, has agreed to allow the NAACP to review its lending practices as part of its settlement of a lawsuit involving alleged fair lending violations. Under the agreement, the NAACP can make recommendations to improve credit availability for African-Americans and assist borrowers facing foreclosure. "We are committed to working constructively with the NAACP and our communities to help stabilize neighborhoods across our country," said Jon Campbell, head of Wells Fargo's Social Responsibility Group. The NAACP commended Wells Fargo for its commitment. "In these tough economic times marked by limited credit and homeowners struggling to stay to afloat, we are pleased that Wells Fargo has stepped forward to be a partner in our efforts to increase fair lending," chairman Roslyn Brock said. Since 2007, the NAACP has sued over a dozen lenders for "systematically" placing blacks into higher-cost subprime loans. The civil rights group said it remains in litigation with 14 other financial institutions, including JPMorgan Chase, Citibank and HSBC, over allegations of unfair lending practices and lending discrimination.

The dollar volume of defaulting loans in Japanese commercial mortgage-backed securities rated by Moody's Investors Service decreased somewhat in the latest monthly reporting period. Defaulting loans totaled about 271.7 billion yen ($3 billion) at the end of March, representing a decline of about 6% from February, according to Moody's. The rating agency said it also found that between January and March "special servicing activities for defaulting loans had intensified compared with the previous year."

The latest monthly data from Fitch on U.S. jumbo, prime-credit residential mortgage-backed securities show serious delinquencies continue to rise while the much higher subprime credit delinquency rate has dropped slightly. In March, late payments of 60-plus days on prime jumbo RMBS rose for 34 consecutive months and passed the 10% mark while subprime delinquencies of this type have dropped slightly month-to-month to 46.3% from 46.9% but remained far above the 39.8% rate seen a year ago. "The improvement in subprime delinquencies may be nothing more than a seasonal anomaly of tax refunds being utilized to help borrowers catch up on mortgage payments," said Fitch managing director Vincent Barberio in the rating agency's Performance Metrics report. In the jumbo sector, California continues to have the highest volume of prime loans outstanding and its 60-plus-day delinquencies during the month were 11.8%, up from 11.6% the previous month. This represents about 44% of the outstanding jumbo market, according to Fitch.

The National Association of Realtors will press Congress to quickly pass a bill that extends the flood insurance program and makes it retroactive to March 29. Congress went on recess at the end of March and allowed the National Flood Insurance Program to expire. The lawmakers don't return to Washington until April 12. "Flood insurance is required by law for home sales on properties located in 100-year floodplain areas, which are left unprotected by this lack of congressional action," said NAR president Vicki Cox Golder. Homeowners with existing flood insurance policies are insured for flood damage. However, the Federal Emergency Management Agency cannot write new policies, renew policies or increase coverage until Congress passes a NFIP reauthorization bill. The Senate inserted a NFIP provision in a tax bill to extend the flood insurance program until April 30. But Republican senators blocked passage of the bill. Recent flooding in New England highlights the importance of flood insurance, the Realtors said.

FHA single-family originations have tailed off during the first two months of 2010 as loan production fell to $22.3 billion in February-off 25% since December. Lenders originated $30.1 billion in FHA-insured loans in December and $26 billion in January. February's loan production could be off because of severe winter weather. FHA's monthly activity report shows that the serious delinquency rate fell to 9.17% in February, down from 9.4% in the previous month. However, the "FHA Outlook" shows the federal mortgage insurance program is seeing heavy demand for streamline refinancings, which could be problematic. Streamlines involve refinancings of existing FHA borrowers so they can lower their mortgage payments. They used to be considered low-risk transactions. But FHA completed 329,400 streamline refinancings in the fiscal year that ended Sept. 30, 2009 and 5.5% are already 90 days or more past due, according to FHA. As of Feb. 28, FHA endorsed another 134,800 streamline refinancings. FHA is projecting it could do 311,500 streamlines by Sept. 30 when FY 2010 ends.

A study released by the Mortgage Bankers Association shows 1.2 million households were lost between 2005 and 2008 despite a population increase of 3.4 million in the area examined. The study, "What Happens to Household Formation in a Recession," was sponsored by the Research Institute for Housing America and conducted by a USC professor. "It is clear the most recent recession impacted individuals' decisions to move out on their own and caused many Americans to join already formed households," said Gary Painter, associate professor in the School of Policy, Planning and Development at the University of Southern California. "Due to data limitations, my analysis had to focus on household formation as of 2008. Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all."

Rate surges drove a decline in overall mortgage applications, the Mortgage Bankers Association's Market Composite Index for the week ended April 2 found. The MCI, a measure of mortgage loan application volume, decreased 11% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 10.5% compared with the previous week. According to Michael Fratantoni, MBA's vice president of research and economics, mortgage rates reached their highest level since August 2009. This had an effect on refinancings as The Refinance Index decreased 16.9% from the previous week. However, the increase had little or no effect on home purchase applications as seasonally adjusted Purchase Index increased 0.2% from one week earlier. The government purchase index increased significantly for the third straight week. The share of purchase applications for government lending programs increased to 49.9%, its highest level since February 1990 and the third highest level in the history of the survey. The market share of refi applications fell to 58.7% for the survey period, down from 63.2% during the previous week. This is the lowest share for refi applications since the week of Aug 28, 2009. On the other hand, the market share of adjustable-rate mortgage applications is up to 6.2%, from 5.2% for the previous week. The average contract interest rate for the 30-year fixed-rate mortgage is up 27 basis points to 5.31% from 5.04% for the previous week, with points declining to 0.64 from 1.07 (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 increased by 20 bps to 4.54%. The average contract interest rate for one-year ARMs increased 15 bps to 7.03%.