Originations

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%.

The Securities and Exchange Commission is proposing that private issuers of mortgage-backed securities retain 5% of the credit risk when conducting an expedited sale or shelf offering. Issuers would no longer need to get an investment grade rating. The SEC commissioners voted 5-0 to issue the proposed changes to its asset-backed securities rules for a 90-day comment period. As proposed, "the ABS sponsor would hold 5% of each class of asset-backed securities and not hedge those holdings," SEC said. In addition, the issuer's chief executive must certify that the assets have characteristics that provide a reasonable basis to believe they will produce cash flows as described in the prospectus. SEC chairman Mary Schapiro said the changes would increase investor protections and "better alignment of the interests of issuers and investors through a retention or 'skin in the game' requirement." But commissioner Kathleen Casey warned that the 5% risk retention requirement would create a permanent competitive advantage for Ginnie Mae, Fannie Mae and Freddie Mac MBS, which are exempt from SEC ABS rules. The SEC proposal also requires issuers to provide computer-readable loan-level data to investors and the SEC five days before the first sale in an offering. Issuers would be expected to update this loan level data on an ongoing basis if the proposal is adopted and finalized later this year.

Financial Freedom, a subsidiary of OneWest Bank and a lender and servicer of reverse mortgages is making a reduction in the interest rate margin on its LIBOR-based reverse mortgages and the introduction of the Financial Freedom Senior Saver, a fixed-rate reverse mortgage which eliminates origination and servicing fees. The company, based in Irvine, Calif., says changes to both loan programs dramatically reduce costs and provide significantly more cash benefit to borrowers. The Financial Freedom Senior Saver is a fixed-rate Home Equity Conversion Mortgage, which waives the origination and servicing fees normally paid to lenders, offering seniors a typical savings of $3,500 - $10,000 in costs on a reverse mortgage. Financial Freedom has also reduced the interest rate margin on the Financial Freedom HECM LIBOR from 250 basis points to 175 basis points. On a typical $150,000 reverse mortgage, the reduction of the margin will provide the borrower with additional benefit of approximately $10,000. The Financial Freedom Senior Saver does not eliminate all closing costs. Borrowers are still responsible for the mortgage insurance premium required on HECM loans under HUD guidelines as well as third-party costs that include title search and insurance, appraisal, inspections, recording fees, mortgage taxes, and credit checks.

The Federal Housing Administration is going easy on independent mortgage bankers as it increases its net worth requirements for larger lenders to $1 million, according to a long-awaited final rule. The final rule raises the net worth requirement from $250,000 to $1 million one year from now. For FHA-approved "small business lenders," the net worth requirement will be $500,000. Meanwhile, mortgage brokers will no longer have to go through the FHA approval process, which included an annual audit. "Mortgage brokers or other third-party originators, already approved by FHA, will be authorized to continue to originate FHA-insured loans through the end of the calendar year without sponsorship of an FHA-approved lender," HUD said. After three years, the Department of Housing and Urban Development will raise the net worth requirements again. "Approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million."

Nearly nine in 10 Americans, including seven in 10 who are delinquent on their own mortgages, do not believe it is acceptable for people to stop making payments on an underwater mortgage, according to the latest National Housing Survey by Fannie Mae. However, when asked if financial distress makes it okay to stop paying, 15% answered yes. Furthermore, the study found that not just delinquent borrowers but also those who are current on their payments are more than twice as likely to have seriously considered stopping their payments if they know someone who has already defaulted. The survey, which was conducted in December and January and polled some 3,000 owners and renters to assess, among other things, their confidence in home ownership, found that non-financial motivations have once again eclipsed investment factors as the primary reason for owning. But many people believe achieving and holding ownership status is more difficult for them than it was for their parents and will be even more so for their children. "Consumers are still committed to owning a home, but are showing increased cautiousness, regardless of whether they rent, own their homes outright or have a mortgage," said Fannie Mae's chief economist, Doug Duncan. "They are rebalancing their attitudes toward housing and home ownership by adopting a more realistic, long-term approach, and are less willing to take risks." Seven out of 10 respondents said they believe buying a home continues to be one of the safest investments available, and three-quarters think housing prices will go up or stay the same over the next year.

Independent mortgage bankers made $890 on each single-family loan they originated and sold in the fourth quarter, down slightly from a $902 per loan profit in the previous quarter, according to a Mortgage Bankers Association quarterly report. "Production profits remained favorable in the fourth quarter because of strong servicing rights valuations and secondary market gains," said Marina Walsh, MBA associate vice president of industry analysis. She warned, however, that mortgage repurchase demands by investors "may weaken profitability in upcoming quarters." The MBA report shows that 76% of the 300 firms surveyed posted pre-tax profits in the fourth quarter, compared to 82% in the previous quarter. It has been a wild ride during the financial crisis for independents. While the government was bailing out banks and Wall Street in the fourth quarter of 2008, small mortgage bankers made only $289 per loan. But they hit the jackpot when the Federal Reserve started buying mortgage-backed securities. In the first quarter of 2009, the independents pocketed $1,088 per loan.

National homebuilder Pulte Homes Inc. has changed its name to PulteGroup Inc., as part of a branding strategy, which includes a new corporate logo and brand identity standards to present a consistent look and message to customers. "We are separating the corporate function from the consumer-facing brand names. The PulteGroup umbrella creates a house of brands model-a first in homebuilding-allowing us to emphasize the names of our homebuilding brands in the marketplace," said Richard J. Dugas, Jr. chairman, president and CEO of PulteGroup Inc. PulteGroup refers only to the corporate entity while the national consumer-facing brand names will remain Centex, Del Webb and Pulte Homes. Regional brands include DiVosta Homes in Florida and Fox & Jacobs in Texas. Following its merger with Centex last summer, PulteGroup embarked on an innovative strategy through which it will align its specific brands with defined homebuyer segments: Centex for first-time and value-conscious buyers; Pulte Homes for the move-up market; and Del Webb for active adults age 55 and better. The name change was approved by the shareholders in August 2009 and will not affect the Company's stock ticker of PHM on the New York Stock Exchange.

KB Home, in partnership with the U.S. Environmental Protection Agency's WaterSense program, will be the first national homebuilder to construct homes to meet the WaterSense specification. According to the EPA, WaterSense labeled new homes use 20% less water than conventional new homes and save homeowners more than 10,000 gallons of water per year. A new WaterSense labeled home built by KB Home will also allow homeowners to significantly reduce their water and energy consumption, resulting in lower monthly utility bills. KB Home currently includes WaterSense lavatory faucets as a standard feature in all its new homes. With its new commitment to the WaterSense program, the homebuilder will incorporate additional water-efficient products and features inside and outside its homes at select communities that meet the full WaterSense guidelines-all at no additional cost to the homebuyer. To meet the criteria of a WaterSense labeled home, builders must upgrade to more environmentally friendly features. This includes installing WaterSense labeled showerheads, faucets and toilets and utilizing landscaping designs and technology that minimize water usage. Additionally, the program calls for the use of energy-efficient hot water distribution systems.

The National Association of Realtors has seen a jump in homebuyer activity in February, which could be a sign the homebuyer tax credit is going to stimulate sales in March and April. NAR's index of pending home sales jumped 8.6% in February to 97.6 after falling 7.7% in January. The index is based on contract signings that are expected to close in one or two months. "Anecdotally, we're hearing about a rise of activity in recent weeks with ongoing reports of multiple offers in more markets," said NAR chief economist Lawrence Yun. So the March sales report could "demonstrate additional improvement from buyers responding to the tax credit," Yun said. The homebuyer tax credit expires April 30. But buyers have until June 30 to close and still qualify for the tax credit. The Realtors are forecasting that existing home sales will hit nearly 5.5 million this year, up 6.5% from 2009.

The Department of Housing and Urban Development has taken actions against two lenders and banned them from making Federal Housing Administration-insured loans. HUD's Mortgagee Review Board permanently withdrew the privileges of RSA Financial Inc., Atlanta, and 1st Alliance Mortgage, Houston, to participate in the FHA program. The board also imposed a civil money penalty of $267,900 against 1st Alliance and a $15,000 CMP against RSA Financial. 1st Alliance allegedly used independent contractors to originate 708 FHA loans after certifying they were full-time employees. HUD also claims the Houston-based firm failed to properly ensure that fees "paid outside of closing" were listed on the borrower's HUD-1 settlement statement. HUD discovered that the owner of RSA Financial had a criminal conviction and had been debarred by HUD on two occasions. The MRB also claims that the Atlanta mortgage company was not properly licensed in Georgia. And RSA engaged in prohibited branch arrangements and violated other FHA standards, it found. HUD also reported that Franklin First Financial, Melville, New York agreed to pay a $413,500 civil money penalty and indemnify FHA for possible losses on 31 loans.

Mortgage companies added 4,400 full-time employees to their payrolls in February, reversing 3,900 layoffs seen the previous month, according to the most recent jobs report. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 254,000 in February from 249,600 in January. It is the first sign of hiring since July when the mortgage industry had a 267,300 workforce. This unexpected increase comes as industry executives are bracing for a sizable decline in loan production in 2010, compared to last year when the Federal Reserve sparked a refinancing boom. However, servicing shops are straining to keep up with demands for loan modifications and many companies have relied on temporary workers and contractors to deal with the workload. (There is a one-month lag in BLS reporting of mortgage industry employment data.) In another good sign, the construction sector shed only 15,000 jobs in March, compared to an average of 72,000 lost jobs in the prior 12 months.

The Department of Housing and Urban Development has taken actions against two lenders and banned them from making Federal Housing Administration-insured loans. HUD's Mortgagee Review Board permanently withdrew the privileges of RSA Financial Inc., Atlanta, and 1st Alliance Mortgage, Houston, to participate in the FHA program. The board also imposed a civil money penalty of $267,900 against 1st Alliance and a $15,000 CMP against RSA Financial. 1st Alliance allegedly used independent contractors to originate 708 FHA loans after certifying they were full-time employees. HUD also claims the Houston-based firm failed to properly ensure that fees "paid outside of closing" were listed on the borrower's HUD-1 settlement statement. HUD discovered that the owner of RSA Financial had a criminal conviction and had been debarred by HUD on two occasions. The MRB also claims that the Atlanta mortgage company was not properly licensed in Georgia. And RSA engaged in prohibited branch arrangements and violated other FHA standards. HUD also reported that Franklin First Financial, Melville, New York agreed to pay a $413,500 civil money penalty and indemnify FHA for possible losses on 31 loans.

JER Investors Trust Inc., McLean, Va., reported the sale of its interest in $152.9 million of face amount of CMBS for proceeds of $5.5 million, most of which was used to repay matured securities. The company said up to $4.7 million were used to repay, in full, amounts outstanding, including accrued interest, on JERT's repurchase agreement with J.P. Morgan Securities Inc. that matured on March 29, 2010. As of March 31, 2010, JERT has an unrestricted cash balance of $1.1 million and continues to be in default of its payment obligations under its ISDA Master Agreement. The agreement is dated as of December 1, 2004 -as subsequently amended- with National Australia Bank Limited and its Junior Subordinated Notes due in 2037.

Commercial lenders throughout the country are becoming increasingly aware of their need to enter into modification agreements with their borrowers, says Kevin Levine, executive vice president of Strategic Asset Services of Woodland Hills, Calif. Levine explained that commercial loan values are falling in most markets, and that the office buildings, retail centers and multifamily residences are losing tenants at an increasing pace due to the economic recession. As a result, borrowers are experiencing compressed cash flow, and are unable to meet their loan payments. "Unless the loan is modified to reduce the payments, the lender inevitably will be forced to commence foreclosure proceedings," he says. "But balance sheets of banks and other lenders are only able to absorb a limited number of foreclosed properties, and that limit is being approached or exceeded by many lenders." When his company first began offering commercial loan modification services in early 2009, many lenders were reluctant to recognize the seriousness of their commercial loan problems and modify the loans, he added. Levine said in the past several months that recognition has increased dramatically. "Commercial lenders are now being compelled to negotiate with their borrowers. It is preferable for them to have a paying asset, even at a reduced return, than to go through the expense of foreclosure and incur property management expenses during a two-three year holding period while attempting to sell the property."

Freddie Mac issued $29.5 billion in mortgage-backed securities in February, down 18.5% from the previous month and 27% from a year ago. The secondary market agency also reported that its holdings of Freddie guaranteed MBS has declined by nearly $14 billion during the first two months of this year to $360.9 billion. Freddie said it purchased $22.6 billion in refinanced single-family mortgages in February, which matched its January purchases. The GSE regulator reported recently that Freddie refinanced 14,750 loans in January through the Home Affordable Refinancing Program, which involves mortgages with loan-to-value ratios above 80%. The Federal Housing Finance Agency report shows Freddie completed HARP refinancings on 717 loans with LTVs between 105% and 125%, compared to 590 in December.

The Securities and Exchange Commission will consider changes to its regulations to ensure better disclosures and protections for investors in private-label mortgage-backed securities. At an April 7 meeting, the commissioners are expected to discuss risk retention, which requires the MBS issuers to retain a portion of the credit risk. The Obama administration supports risk retention and Congress is working on legislation that would require securitizers to retain 5% of the credit risk. Industry groups are very concerned that risk retention, combined with recent changes to accounting and capital rules, will make a revival of the private-label securities market very difficult. In a letter to Senate Banking Committee leaders, 21 banking, housing and real estate groups urged the lawmakers to weigh the entirety of changes so legislative reforms "support, and not impede, a recovery in the securitized credit markets that fuel our overall economy."

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Recent comments by a banking regulator about commercial real estate lending are making it tough for builders to get construction financing, according to the National Association of Home Builders. "We have received scores of reports from builders across the nation who have been unable to obtain acquisition, development and construction financing for viable projects or have experienced adverse treatment regarding an outstanding loan," said NAHB president Bob Jones. Due to pressure from regulators, banks are not issuing new AD&D loans and they are calling in existing construction loans to "get them off their books," Jones said. Comptroller of the Currency John Dugan recently called on the regulators to impose hard limits on CRE and construction loans. He stressed, however, that limits should be carefully phased in so problems at distressed banks are not exacerbated. But NAHB contends the comptroller is sending the wrong signal. "With the housing market struggling to regain its footing, regulators need to be issuing more flexible guidelines that will encourage banks to maintain funding for residential AD&C loans in good standing that fall below their underlying value," said Jones.

Lenders participating in a new Federal Housing Administration refinancing program to help homeowners with underwater mortgages can pool those FHA loans in standard Ginnie Mae mortgage-backed securities. In reducing the principal to a 97.75% loan-to-value ratio, the "FHA Short" refinancings will be treated like standard FHA refinancings and placed in Ginnie Mae I and Ginnie Mae II pools, according to sources. A previous FHA principal reduction program, known as Hope for Homeowners, had more restricted pooling options. Ginnie Mae only allowed pooling of H4H refinanced loans in multiple-issuer MBS. The Obama administration unveiled its new FHA Short Refinancing program last Friday and it requires principal reductions of at least 10%. FHA officials said claim and default rates on these refinancings won't be counted toward the lender's Credit Watch score.

House prices rose 0.3% on a seasonally adjusted basis in January following a similar rise in December, according to the Standard & Poor's/Chase-Shiller 20-city house price index. On a non-adjusted basis, prices fell 0.4% in January following a 0.2% decline in December. Prices are down only 0.7% from January 2009 on a non-adjusted basis. "Fewer cities experienced month-to-month gains in January than in December 2009 on both a seasonally adjusted and unadjusted basis," said David Blitzer, chairman of S&P's index committee. "The rebound in housing prices seen last fall is fading," he said. Citicorp mortgage analyst Robert Young said, "Home prices could drop another 5% from current levels." He noted that the housing market is being negatively impacted by the large inventory of distressed properties and seriously delinquent mortgages. "Although we are not expecting a flood of foreclosures, the inventory is going to weigh on home prices for years. So we are not expecting much appreciation for quite a while," Mr. Young told MortgageWire. Of the 20 cities in the Case-Shiller HPI, only Los Angeles and San Diego posted price increases in January on a non-adjusted basis. In Los Angeles, prices rose 0.9% during the month and 3.9% over the previous 12 months. San Diego experienced a 0.4% price increase in January and is up 5.9% from January 2009.