Originations

Mortgage applications fell 1.9% during the latest week tracked by the Mortgage Bankers Association's seasonally adjusted Market Composite Index from the previous week. That index fell 1.7% week-to-week on an adjusted basis during the week ended March 12. The MBA's Refinance Index slid 1.7% from the previous week and the seasonally adjusted Purchase Index dropped 2.3% on a week-to-week basis. The unadjusted Purchase Index was down 1.8% week-to-week and represented a 13.9% drop from the same week a year ago. Four-week moving averages are as follows: for the Market Composite Index, up 0.8%; for the seasonally adjusted Purchase Index, up 1.1%; for the Refinance Index, up 0.8%. Close to two-thirds (67.3%) of total applications in the latest week were for refinances, just slightly more than the previous week's 67.2%. The percentage of applications that were for adjustable-rate mortgages fell to 4.6% from 5.1% the previous week. The average contract interest rate for 30-year fixed-rate mortgages as tracked by the MBA during the week ended March 12 was 4.91%. This was down from 5.01% the previous week, but the MBA noted that a week-to-week increase in average points for this loan type (including the origination fee) to 1.30 from 0.82 left the effective rate unchanged. Somewhat similarly, an increase in average points (including the origination fee) for 15-year FRMs to 1.47 from 0.88 means the effective rate for the borrower actually increased even though the average contract rate for these loans fell to a record low for the second time in the last three weeks. (The average contract 15-year rate was 4.24%, down from 4.32% the previous week.) The average contract rate for one-year adjustable-rate mortgages fell to 6.75% from 6.8% with points unchanged at 0.30 (including the origination fee). All average rates and points as stated are for mortgages with 80% loan-to-value ratios.

The Federal Open Market Committee issued a statement Tuesday indicating that the Federal Reserve will follow through with its plans to end its purchases of agency mortgage-backed securities this month as well as with plans to end a program supporting loans backed by new-issue commercial MBS in June. The agency MBS and debt purchases "are nearing completion, and the remaining transactions will be executed by the end of this month," the FOMC said. However, the committee also noted that it will "continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability." The FOMC also said in its statement that the Fed plans to follow through with its plans to close its Term Asset-Backed Securities Lending Facility program for loans backed by new-issue commercial mortgage-backed securities on June 30 and close the TALF program for loans backed by other types of collateral by March 31.

If Sen. Christopher Dodd cannot get any Republican support for his new financial services regulatory reform bill, it is highly unlikely the legislation will ever reach the Senate floor, according to a top banking lobbyist. The Senate Banking Committee is slated to begin a markup of the massive reform bill on Monday (March 22). Right now Chairman Dodd has no Republican support for his bill, according to Floyd Stoner, chief lobbyist for the American Bankers Association. If the committee approves Dodd's bill on a straight party-line vote, "it is almost certain not to get to the Senate floor, unless there are further negotiations after that point," Stoner told his bankers at ABA's Washington summit. After the committee starts the markup, the members might realize "it is possible to work out a bipartisan agreement," he said. In that case, the negotiations would begin again in private. ABA opposes Dodd's latest bill and his proposal to create a Consumer Financial Protection Bureau that would be housed at the Federal Reserve Board. Stoner said the CFPB would be too independent of the Fed and other banking regulators. ABA lobbyists are amazed that some liberals are attacking Dodd's CFPB proposal.

The changes in the Real Estate Settlement Procedures Act and the implementation of the SAFE Act mean that in the future there will be a viable mortgage broker industry that will grow in size again, declared Federal Housing Administration commissioner David Stevens. Speaking at the Regional Conference of Mortgage Bankers Associations in Atlantic City, in response to an audience member's question, he said that in his opinion, "mortgage brokers play a valuable role in the marketplace." This is because it is a scalable business model that can grow when the mortgage industry as a whole grows and because brokers service areas where other lenders will not serve. But like other parts of the mortgage industry, Stevens said he did not believe mortgage brokers policed themselves well during the run up to the crisis. As for the proposal by FHA to allow wholesale lenders to approve the mortgage brokers they wish to do business with, rather than the agency itself, he told the attendees he believes the end result will be more mortgage brokers being able to originate FHA-insured loans.

Warehouse credit is becoming more available, but only for the smallest and biggest mortgage lenders, said a member of a panel discussing the state of the industry at the Regional Conference of Mortgage Bankers Associations in Atlantic City. Peter Norden, president and chief executive of AMA Advisors LLC, said those companies that want a line of between $10 million and $15 million can find someone willing to provide the credit, although not at the terms the industry is used to. On the other hand, larger lenders are seeing interest in Wall Street firms providing funding, Norden said. However, at minimum these providers are looking for at least $10 million in liquid net worth. If the lender wants a $100 million line, the requirement is $20 million in liquid net worth. There are only 45 or so companies that qualify for the $10 million standard and about 15 for the $20 million, Norden said. Furthermore, warehouse providers are looking for high levels of haircuts, as high as 10 points, with 5 points being the norm, he said. Providers are restricting the types of loans that can be put on the line and they want the loan off of the line in 30 days. Norden added there are no "hospital" lines available for buybacks or loans with document problems and he doesn't know of any provider allowing lenders to borrow against the value of their servicing portfolio.

The offices of Covino & Co., a South Salem, N.Y.-based wholesaler that also does business as Luxmac, are closed until March 22 because of the Nor'easter that slammed the greater New York metropolitan area this past weekend. A statement in an e-mail and on the company's website said the closure is a result of a power outage in the office. "We apologize for any inconvenience this may cause. We are confident that the power crews will restore power to our area by the end of the week." Covino & Co. is managed by industry veteran Michael Covino. The firm also brokers loans on occasion.

A new Consumer Financial Protection Bureau could examine any mortgage banking company, servicer or mortgage brokerage and take enforcement actions against those entities if the Senate passes a bill crafted by Banking Committee chairman Christopher Dodd, D-Conn. The CFPB would be housed at the Federal Reserve Board but operate as an autonomous unit when writing rules to curb abusive mortgage lending and credit card practices at banks and nonbanks. If a banking regulator objects to a CFPB rule, it would take a two-thirds vote of the members of the new Systemic Risk Council to kill the rule. The CFPB's authority over banks and credit unions depends on size. Institutions with assets over $10 billion could be subject to the bureau's exams and enforcement actions. The primary regulators of smaller institutions would retain that authority. Sen. Dodd said he wants the banking committee to markup and vote on his "Restoring American Financial Stability" bill next week. The massive bill merges the Office of Thrift Supervision into the Office of the Comptroller of the Currency, regulates derivatives, increases oversight of credit rating agencies and establishes risk retention for mortgage-backed securities.

The number of apartment units under construction at the end of February plunged to 180,000 dwellings on a seasonally adjusted annual basis, according to new figures released by the Commerce Department. The government found that construction of buildings with five or more rental units fell 51.4% compared to February 2009. The sequential decline was less startling: down 6.7%. (The numbers represents dwellings that are "under construction" at month's end, not necessarily started.) The poor performance is being blamed, in part, on severe snowstorms in the mid-Atlantic and Northeast. Construction of one-unit dwellings fared better in February: 301,000 (seasonally adjusted), a slight increase from the January rate but an 18% decline from February 2008. Total housing starts-which include both one-to-four family and multifamily construction-fell by almost 6% in February from January but posted a small gain compared to the same month a year ago. The government's report on housing comes a day after the National Association of Home Builders said builder confidence in the market is falling due to poor weather conditions and distressed property sales, the latter of which is suppressing housing prices. Also, there are concerns among both builders and lenders that the government's departure from the MBS market as a buyer could cause mortgage rates to rise in the coming weeks.

Over the past 12 months consumers have seen the paper value of their homes rise by $1.1 trillion, the first year-over-year increase in almost four years, according to a new report by Deutsche Bank. DB analysts write that the "upshot" is that household buying power in the first quarter "will show a meaningful improvement relative to recent history." Basing its estimate on figures compiled by the Federal Reserve, DB says home equity grew by $540 billion and $420 billion in the second and third quarters of last year, respectively, and less slowly in the fourth quarter. Even though DB seems somewhat bullish on home values, the housing and mortgage markets fear that when the government halts its MBS buying program on March 31 that rates could rise on 30-year fixed-rate loans, snuffing out an improvement in housing values. Concerns remain on delinquencies and an anticipated wave of foreclosures if both employment and values do not improve over the next two quarters.

The mortgage industry is becoming increasingly worried that if risk retention language for MBS in a new bill from Sen. Chris Dodd is not clarified, nonbanks could disappear, the nation's megabanks will get even larger, and consumers will have fewer retail choices. In particular, mortgage bankers fear that a 5% risk retention requirement will apply to all loans, particularly "A" paper credits guaranteed by Fannie Mae and Freddie Mac, which currently account for 70% of all fundings. The capital requirement could force small- to medium-sized lenders to either exit mortgage lending/servicing entirely or become correspondents for Wells Fargo, Bank of America and JPMorgan Chase, the three largest players in residential finance. "This will cause a huge rollup of mortgage bankers," one former MBS trader said. "At a time when the government wants to prevent 'too-big-to-fail' they will be creating more of it. The big banks will be in charge." The Community Mortgage Banking Project, a trade group headed by former mortgage insurance executive Glen Corso, says the new Dodd bill "needs a clear exemption for well underwritten, lower-risk traditional loans." The senator's financial regulatory overhaul bill requires securitizers to retain at least 5% of the credit risk when loans are packaged into bonds. The legislation that Sen. Dodd will mark up next week allows federal banking regulators and the Securities and Exchange Commission to reduce the risk retention on loans that exhibit high-quality underwriting. However, the direction given the regulators seems to be very vague when clarity is needed, one source said. Industry groups are urging the lawmakers to create an exemption for 30-year fixed-rate mortgages and other "qualified" loans. But the Dodd bill does not provide such a blanket exemption. The regulators also have the discretion to require originators to retain a portion of the credit risk.

American Advisors Group, a reverse mortgage lender based in Irvine, Calif., will remove Peter Graves' image from its national television advertising following the actor's passing. Since October 2009, Mr. Graves had been the celebrity spokesman for the company. In a statement, AAG chief executive Reza Jahangiri said, "We will talk with his family and representatives at a later date about the future. Peter Graves was selected as AAG's spokesperson because of the man he was on and off the camera. He represented everything AAG aspires to be-trustworthy, respectful, intelligent and positive. We felt his values reflected ours, and our professional relationship was always positive for both parties." In an AAG press release earlier this year, Mr. Graves commented about why he was selected as a celebrity spokesman for reverse mortgages. "Well, it's a compliment certainly and I am humbled by the trust seniors have placed in me." Mr. Graves is best known for his role as Jim Phelps in the television series "Mission Impossible" and for his comedic turn as Captain Clarence Oveur in the movie "Airplane!"

Securitizers of mortgages and other assets would have to retain at least 5% of the credit risk with some exceptions for loans that meet certain regulatory standards, according to a bill introduced by Senate Banking Committee chairman Christopher Dodd, D-Conn. The financial services regulatory reform bill that chairman Dodd plans to mark up next week allows federal banking regulators and the Securities and Exchange Commission to reduce the risk retention on loans that exhibit high quality underwriting. However, the direction given the regulators seems to be very vague when clarity is needed, one source said. Industry groups were urging the lawmakers to create an exemption for 30-year fixed rate mortgages and other "qualified" mortgages. But the Dodd bill does not provide such a blanket exemption. The regulators also have the discretion to require originators to retain a portion of the credit risk.

Weighted average delinquencies in nonconforming United Kingdom mortgage-backed securities were stable in January, according to Moody's Investors Service. Weighted average delinquencies during the month were 19.3%. This is stable in the short-term and compared to June 2009's high of 21%. "In total, the performance of the UK nonconforming transactions has stabilized in recent months. However, the delinquency levels remain very high, and the prepayment rates remain low," says Georgij Ludmirskij, a Moody's senior associate.

The level of U.S. commercial real estate loan delinquencies in collateralized debt obligations has decreased slightly, according to Fitch Ratings. The CREL CDO delinquency rate in January dropped to 12.5% from 13% as a result of asset managers extending loans and disposing of troubled assets, according to Fitch. But Fitch continues to forecast an increase in delinquencies that will reach 25% by the end of the year. "The credit characteristics of many restructured loans remains questionable," said Fitch senior director Karen Trebach. Fitch's statistics reflect its CREL CDO delinquency index, which includes loans and assets that are 60 days or more delinquent, matured balloon loans and the current month's repurchased assets.

It was a productive year for special servicers in 2009, but there's a lot more where that came from, according to a new Fitch Ratings report. Special servicers resolved $8.7 billion in distressed loans last year, or 50% more than the previous year, but there is $74 billion still left in special servicing, Fitch said. In addition, "Recoveries on loans with losses are down markedly compared to prior years," said Fitch managing director Stephanie Petosa.

Moody's Investors Service has placed 40 RMBS resecuritization tranches with a current outstanding balance of $500 million on watch for possible downgrade. The ratings changes affecting these resecuritizations of mortgage-backed securities originally issued from 2005 to 2008 stem from a reconsideration of loss projections on the underlying MBS whose collateral includes: payment option ARMs, alt-A, jumbo and subprime-related loans. Moody's believes the increased loss projections on the underlying certificates are likely to affect not only principal recovery on junior resecuritization bonds but probably on senior resecuritization bonds as well. In December and January, thousands of resecuritized RMBS tranches from the 2005-2008 vintages were placed on watch for possible downgrade as a result of the loss projections.

The Granite Companies, Denver, Colo., are launching a new division to administer and develop new core business opportunities in public and private commercial construction lending markets. Granite Excell Management will be positioned to provide consulting and other professional services to lenders under the Granite umbrella. "Granite is strategizing for the changes lying ahead," said Bill Cobb, president and co-founder of The Granite Companies. The company said it expects to be in growth mode this year and beyond. Granite's other affiliates include Granite Loan Management, Granite Commercial Management and Granite Construction Inspections. GCM and GLM offer risk mitigation services, including construction REO and workout services, property condition assessment reports, and contractor acceptance. GCI provides residential and commercial property inspection services including construction draw, status/audit, damage assessment, tenant improvement, acquisition and development.

Lured by less competition for jobs, more and more immigrants are putting down permanent roots outside the major gateway cities of Los Angeles, Chicago and New York, according to a new paper by the University of Southern California's Lusk Center for Real Estate. The study of 60 mid-sized cities found an average rise in their immigrant populations of 27%, while the gateways are losing residents. "The anticipated rapid growth of U.S. immigrant populations in the coming decades coupled with their movement into mid-size metro areas has the potential to transform communities," said one of the paper's authors, director of research Gary Painter. "Our data suggest that immigrants are attracted to homes near active support networks of fellow immigrants and in places with lower rates of immigrant growth resulting in less competition for entry-level jobs." The study found that immigrants continue to have a lower ownership rate than native-born Americans with the same income and education levels, a finding that Mr. Painter said indicates that many may be waiting for other family members to join them. He suggested that cities trying to lure immigrants with employment opportunities also start developing networks of real estate agents and lenders with the same ethnic backgrounds and a willingness to build strong ties to the new arrivals. "Nurturing links within the immigrant community are key to building a new rank of homeowners," he said. The researcher pointed out that areas with declining home values could see prices stabilize thanks to a wave of first-time buyers who speak English as a second language.

One third of the streamlined refinanced loans that the Federal Housing Administration insured in 2009 are probably underwater, according to a New York University economics professor. Professor Andrew Caplin and his colleagues at the National Bureau of Economic Research estimate that 33.4% of the 330,000 FHA loans refinanced through the streamlined process during the first nine months of 2009 started out with negative equity. The professor told a congressional panel that the federal mortgage insurance agency and its auditors are underestimating the number of FHA underwater mortgages and the default risk of those loans. FHA doesn't require new appraisals when an existing FHA loan is refinanced, provided borrowers are current on their payments. FHA simply records the value of the property on a streamlined refinancing at the original purchase price, which ignores any decline in home values. In addition, the auditors treat streamlined refinancings as new loans instead of loan modifications. "Misclassification of streamlined refinances not only compromises the [FHA] loss model, but also results in underestimation of underwater mortgages," the professor testified. The NBER economists used the Federal Housing Finance Agency housing price index to estimate the number of underwater loans. "With all other house price indexes, the proportion in negative equity is even higher," Mr. Caplin told the House Financial Services housing subcommittee.

Sales of homes priced above $750,000 are starting to pick up after being frozen at a very low level last year. For most of last year, first time homebuyers were driving sales and they were focused "almost exclusively" on foreclosed properties and other bargains priced under $250,000, according to Walter Moloney, economics spokesman for the National Association of Realtors. "Beginning in October for the first time we started seeing increases in other sales categories," Mr. Maloney said. Sales of homes priced from $750,000 to $1 million jumped 40% in January from a year ago, yet accounted for only 1.3% of total sales. Over 70% of sales in January involved properties priced under $250,000. Sales in all price classes rose in January. "The trade-up market is now beginning to benefit," Mr. Moloney said. Despite this movement in the top tier, foreclosure and short sales are expected to remain at a very high level. Last year, distressed sales comprised 36% of existing home sales. "Maybe it will come down to 33% this year," said NAR chief economist Lawrence Yun. In a normal market, distressed sales make up 15% of sales. "By historical standards, we have never seen anything like this before," Mr. Yun said.