Originations

Fairway Independent Mortgage Corp., Sun Prairie, Wis., has promoted Paul Walnick from senior vice president of information technology to president of mortgage operations and Dan Cutaia from chief operating officer to president of capital markets and risk management. Walnick will oversee Fairway's day-to-day mortgage business and underwriting operations while providing branch and product support. Cutaia will oversee the overhaul of Fairway's loan origination platform, as well as all technical and compliance related issues, systems and secondary business. In 2009, Fairway closed $3.3 billion in mortgage volume, a 70% increase from the prior year. Steve Jacobson remains as chief executive. Walnick has held sales management positions at both Waterfield Financial Corp., and American Home Mortgage, where he oversaw retail sales production in Texas and Arizona. Cutaia was the founder and former president of Aucita Mortgage Capital and held executive positions with Waterfield Financial, where he oversaw numerous infrastructure initiatives involving post production and delivery, and product and credit risk.

Phoenix-based CCG Catalyst, a bank consulting firm providing strategic guidance for financial organizations, now offers merger and acquisition services for financial institutions that are designed to quickly deliver a higher rate of return to the acquirer's shareholders. CCG Catalyst delivers a road map document communicating new strategies and business objectives based on the original rationale for the transaction; a communications plan announcing the transaction and its transition details to key stakeholders; a human resources plan assisting with the retention and integration of staff following the merger or acquisition; a management information systems integration plan defining workable implementation objectives; a product and service integration plan defining the go-forward product and service mix and an operations integration plan establishing a detailed vision of how things will work in the future and what steps need to be taken to get there.

According to Aite Group senior analyst John Jay, the impact of adjustable-rate mortgages resetting at higher rates is now expected to be less severe than feared. Low interest rates, loan modification efforts and the fact that many borrowers have already defaulted, mean less rate hikes and fewer defaults, said Jay. "The fact that the number of exotic, adjustable-rate mortgages scheduled to reset to higher rates is shrinking should not be taken as a sign that this sector is 'OK.' It is only manageable from here because so much of the sector already fell into default and required loan modifications or some other type of lender remediation," he added. "If such products are to be offered ever again in the future, lenders are advised to underwrite the loans to the fully-indexed and maximum loan sizes. In addition, the creditworthiness of the borrower must be able to withstand economic scenarios. After all, the current remaining nontraditional ARMs were underwritten to what was assumed to be a real estate market that would never decline."

Bank of England data showing approvals for purchase loans in January were down 2% on the month but up 20% on the year are in line with an industry group's forecasts for activity to be subdued early in 2010. The Council of Mortgage Lenders said it believes this reflects its forecast for uncertainty about the political and economic outlook as well as the recent end of a previous housing-related tax break. A new tax break for certain buyers "is likely to boost activity in the coming months, although it is extremely difficult to assess how many potential buyers will qualify and what the impact will be," the CML said. Refinancing, in contrast to purchase activity, was up 12% on the month but down 21% on the year.

The HUD Office of Inspector General has found significant underwriting deficiencies in Federal Housing Administration-insured loans originated by a subsidiary of homebuilder D. R. Horton Inc. The Department of Housing and Urban OIG auditors also discovered that DHI Mortgage placed "unallowable" covenants on FHA loans that restricted the sale or rental of the property for one year. The Fort Worth, Texas, builder strongly disagrees with the auditors' findings and claims the anti-flipping covenants were recorded "without its knowledge or approval." The builder also said the covenants on eight FHA-insured properties were unenforceable and presented no harm to the homebuyer. The OIG auditors reviewed 20 FHA loans at DHI Mortgage and spotted improper calculation of borrowers' income, inadequate documentation of income, inadequate determination of credit and/or debt, and inadequate compensating factors when the debt-to-income ratio exceeded FHA's benchmark ratio. DHI Mortgage strongly disagrees with the OIG findings and filed a 22-page comment letter in response. The HUD IG is recommending that HUD Mortgagee Review Board require DHI Mortgage to indemnify FHA for possible losses of $1.2 million on seven loans and reimburse HUD for $265,000 for losses on three loans. The company had not responded to a request for comment by press time.

Flagstar Bancorp Inc. has priced a public offering of 500 million shares of common stock at $0.50 per share, which is below the stock's 52-week low. Over the past 12 months, the stock hit a low of $0.54 per share on Dec. 16, 2009, according to Yahoo. On March 25, the stock closed at $0.72 per share. But after news that the offering is being priced at $0.50 per share, the next morning Flagstar opened at $0.54 per share. The company will receive total gross proceeds of approximately $250 million. The Troy, Mich., based company expects to close the sale on March 31, 2010. The underwriters will have a 30-day option to purchase up to an additional 75 million shares of common stock at the offering price, less underwriters' discounts and commissions solely to cover over-allotments. The public offering is being underwritten by Sandler O'Neill & Partners, L.P., as book-running manager, and Keefe, Bruyette & Woods, Inc., as co-manager.

American General Financial Services, a subsidiary of AIG, will be coming out with two deals backed by legacy mortgage assets within the next two weeks. RBS Securities is lead manager on the first deal, which will be backed by Alt-A legacy mortgages. Deutsche Bank Securities is co-manager on the transaction. The offering is expected to price within the next two days. The second transaction, which will be backed by subprime mortgage assets, will be led by Deutsche Bank. Both deals will be in the $800 million range. With the dearth in new-issue securitized mortgage deals, sources said that investors are excited about having new-issue mortgage transactions come to market. "With credit enhancement two to three times more than it was three years ago and the fact that these transactions are backed by loans that have seasoned and performed well, these structures are much better all around," Ryan Stark, a director at Deutsche Bank said. At the end of last July, the company also came to market with a more than $1.57 billion deal that was backed by sub- and nonperforming whole loans - many of which are non-prime in quality, according to a report from Asset Securitization Report, a sister publication of National Mortgage News. Credit Suisse was lead manager on the deal.

Executive of major banks will be testifying before the House Financial Services Committee soon on their efforts to modify and write down second liens. Committee chairman Barney Frank, D-Mass, has summoned Bank of America, Citigroup, JPMorgan Chase and Wells Fargo to testify on April 13. Chairman Frank is concerned that the major banks have become the "principal obstacle" to modifying first mortgages because of their large holdings of second liens and home equity loans. And he has been pressuring the banks to fully participate in the Treasury Department's fledging second lien modification program. "We will be urging the banks to show full cooperation with this plan at a hearing," Rep. Frank said, and "we hope they will be able to explain how they are working with it." The committee chairman also welcomed the Obama administration's new initiatives to assist unemployed homeowners and underwater borrowers. "I was particularly pleased that the administration has adopted the proposal that many of us have been advocating to provide help to the unemployed. While clearly there are some people in trouble on their mortgages who bear some of the responsibility for their plight, this is not true of the unemployed who are fully deserving of this help," Rep. Frank said.

California Gov. Arnold Schwarzenegger has signed legislation that re-establishes and extends the state's $10,000 tax credit for homebuyers, a program that proved so popular last year that it ran out of money by the end of June, eight months before it was set to expire. The measure sets a $10,000 credit, up to 5% of the purchase price, for buyers of newly built homes and a similar credit for first-time buyers who purchase existing homes. The credit will be available on "personal residences" purchased between May 1 and Dec. 31, and "principal residences" acquired between Dec. 31 and Aug. 1, 2011, as long as long as they were purchased pursuant to a contract executed on or before Dec. 31. The $200 million allocated for the program, which is offered in addition to the revised and extended federal tax credit, will be split evenly between new homebuyers and buyers of existing houses. The credit comes with two caveats, however: It must be claimed in equal installments over a three-year period, and buyers must live in the homes they buy for two years or forfeit the benefit. Despite the restrictions, both builders and Realtors hailed the measure. "The tax credit will help push prospective buyers off the fence, clear out inventory, and jump start the home building industry, which will help create jobs and reinvigorate the state's economy," said Liz Snow, president of the California Building Industry Association. Nearly 40% of first-timers said they wouldn't have purchased a home if the federal credit to buyers was not offered, according to CAR research conducted last year.

The Federal Housing Administration is taking another crack at creating a refinancing program that requires principal writedowns and gives investors an option to cut their losses on underwater conventional loans. The FHA refinance option requires servicers to write down the principal amount of the mortgage by at least 10% so the loan can be refinanced into a standard, fully underwritten FHA mortgage with a 97.75% loan-to-value ratio. To qualify, the borrower must be current on the existing mortgage and payments on the new FHA-insured mortgage cannot exceed 31% of the borrower's income. If there is a second lien on the property, the refinanced combined LTV cannot exceed 115%. "This refinancing will help homeowners by setting monthly payments at the affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth," according to a summary of the new refi program. This new refinancing option will be available in the fall, possibly earlier. For the past two years, FHA has been trying to get a principal writedown program called Hope of Homeowners off the ground without a lot of success. The congressional mandated H4H program has too many restrictions and places too many obligations on the borrowers and investors. The new FHA refinancing program is much simpler and it appears administration officials believe it will be attractive to investors and homeowners. The minimum FICO credit score is 500.

The Obama administration is expanding its flagging HAMP program to address the two main drivers of foreclosures-job loss and underwater mortgages where borrowers owe more on their loan than the property is worth. Under the new initiative, the Treasury Department will pay incentives to Home Affordable Modification Program servicers for allowing unemployed homeowners to skip three to six months of payments while they look for work. The Treasury also is encouraging servicers to consider principal writedowns for HAMP-eligible borrowers who owe more than 115% of the current appraised value of their home. Incentives will be paid for each dollar of principal writedowns by servicers and investors to bring the loan-to-value ratio below 115% and the monthly payments down to 31%, along with lowering the interest rate and extending the term. Lenders will treat the writedowns as forbearance over the first three years. The principal reduction does not become permanent unless the borrower is current on the modified mortgage for all three years. Treasury also is increasing incentives for investors to writedown or to relinquish their claims on second liens.

Citing volatility and an expected decline in market fundamentals for the multifamily sector, Zacks Equity Research's Bear of the Day for March 24 was BRE Properties, a multifamily real estate investment trust based in San Francisco. In its press release, Zacks said its long-term recommendation for the company's stock is underperform. "BRE Properties also has exposure to some weakening multifamily markets, notably, the Inland Empire, Los Angeles, and Orange County. However, home values in most of BRE Properties markets are still among the highest in the country and the rent-to-own gap remains high. The company also maintains strong occupancy levels and high operating margins. If the company can weather the current storm, it may expect a reversal of fortunes." But Zacks has a target price of $32 per share as it thinks BRE will perform "well below the broader market." During the morning on March 25, BRE has been trading at or near its 52-week high, with a price of $37.44 around midday.

CMG Mortgage, San Ramon, Calif., has acquired General Mortgage, a banker/broker based in San Diego, and its four retail offices. The deal comes on the heels of CMG opening new offices in Kirkland, Wash., Minneapolis and Denver. "The opportunity for us to expand into a vibrant new market ties directly into our strategic plan," said Chris George, founder and chief executive of CMG Mortgage. "Establishing a retail presence in the San Diego area enables us to fast-track our company's ability to offer our proprietary Home Ownership Accelerator loan product to an even broader base of consumers. We are continuing to evaluate additional growth opportunities and will do so throughout 2010." CMG recently re-introduced the HOA product that it originally introduced in 2005. After funding $2.5 billion of the HOA over a three-year period, the company suspended offering the mortgage in 2008 due to the onset of the mortgage market meltdown.

The average rate for a 30-year fixed-rate mortgage during the week ended March 25 rose a little bit over the previous week but stopped just short of 5% despite a more pronounced rise in bond yields near the end of the period, according to Freddie Mac's Primary Mortgage Market Survey. "Mortgage rates inched up slightly this week as bond yields rose even further," said Frank Nothaft, vice president and chief economist at Freddie Mac. "Interest rates on 30-year fixed mortgages, however, were still below 5% for the fourth consecutive week." The average 30-year FRM rate was 4.99%, up from 4.96% the previous week and from 4.85% a year ago. The average 15-year FRM rate was 4.34%, up from 4.33% the previous week but down from 4.58% a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.14%, up from 4.09% the previous week but down from 4.98% a year ago. The average one-year Treasury ARM rate was 4.20%, up from 4.12% the previous week but down from 4.85% a year ago. Average points were 0.6 for all aforementioned types of loans.

Interactive Data Corp.'s pricing and reference data business is providing daily independent evaluations for Ginnie Mae HMBS fixed-rate reverse mortgage securities. The program is designed to provide liquidity for reverse mortgage lenders who originate the Federal Housing Administration Home Equity Conversion Mortgages which make up these securities. IDC said HMBS holders have had to rely on broker quotes or information from a dealer to assess the current market value of their securities. IDC clients, added Liz Duggan, managing director, evaluations, interactive data pricing and reference data, "are increasingly requesting evaluations for these structures."

Wolters Kluwer Financial Services, Minneapolis, is marketing its new RESPA Post-Implementation Audit Service to banks and credit unions. The company said that since changes to the Real Estate Settlement Procedures Act went into effect on Jan. 1, 2010, financial institutions have found several common compliance challenges, including meeting the new fee tolerance and good-faith estimate redisclosure requirements. Another challenge is the lender responsibility to make certain their mortgage brokers and settlement agents are in compliance as well. The review includes an examination of an institution's lending, compliance, vendor management and staff training procedures. It also includes a loan file review that looks at GFEs and HUD-1 and HUD-1A forms for accuracy and adherence to all RESPA requirements. WKFS highlights any areas of potential concern and suggests ways in which policies, procedures and documentation can be improved.

The newest participant in the government's Second-Lien Modification Program is Citigroup. It becomes the fourth participant in the program, joining Bank of America, Chase and Wells Fargo. "It is our priority and commitment at Citi to help homeowners in need," said Vikram Pandit, chief executive. "The 2MP program will further improve the affordability on mortgages and help families facing financial distress stay in their homes."

The Department of Labor late Wednesday declared that commissioned loan officers are entitled to overtime pay, reversing a 2006 ruling that favored the mortgage firms that employed them. If DOL's declaration stands, it could increase compensation costs for mortgage originators at a time when production volumes are beginning to decline thanks to rising loan rates and expiring tax credits. "If your primary job duty is to sell loans inside an office, then (under this ruling) you are entitled to overtime," said Rachhana Srey, a senior associate at the law firm of Nichols Kaster which represents LOs working for Quicken Loans and Rock Financial. The Quicken/Rock overtime case is scheduled for trial in June. (Nichols Kaster is based in Minneapolis, Quicken and Rock in Michigan.) In its brand new ruling, DOL found that a mortgage loan officer's primary duty is sales, which "falls squarely on the production side of the business." A DOL ruling in September 2006 requested by the Mortgage Bankers Association classified LOs as administrators, which are not entitled to overtime under the Fair Labor Standards Act. "We're obviously disappointed with the Labor Department's ruling," said MBA senior vice President Steve O'Connor. "It has been, and remains our contention that those who fall into the category of mortgage loan officers described in the opinion spend a majority of their time performing exempt administrative or executive duties; thus they should be exempt from FLSA coverage."

The Association of Community Organizations for Reform Now Inc., a group that often over the years had an adversarial relationship with lenders but also partnered with some on occasion, said it plans to bring its operations to a close over the coming months. ACORN said it will be closing its remaining state affiliates and field offices by April 1 as well as developing a plan to resolve its outstanding debts and other obligations. The group lost its government funding after right-wing political activists pretending to be involved in prostitution distributed a video of a group representative advising the "prostitute" to misrepresent her profession in financial dealings. The group has responded by noting, among other things, that one of the activists involved in creating the video has been arrested in a separate incident. It also said it has challenged the loss of government funds in court and received a ruling in its favor. Nevertheless, the group has decided the obstacles are too great to continue operating. While the larger organization is folding, some previously involved are still operating under different names. Two separate groups of people who previously were involved with ACORN's New York and California affiliates, for example, have said they are respectively establishing new organizations in those states.

Investment bank Greenhill & Co. Inc. is building a real estate placement advisory business. The company has hired four managing directors to focus on the effort: Bill Thompson, Fredrik Elwing, Walter Stackler and Pamela Wright. All four previously were senior members of Credit Suisse's real estate private fund group. The new effort's real estate related advisory activities are slated to focus on capital raising for funds, joint ventures and recapitalizations, as well as advice for real estate fund investors seeking to sell interests in the secondary market.