Originations

Morgan Keegan & Co., Memphis, Tenn., will market Farmer Mac loan programs designed specifically for its bank clients which hold agricultural loans in their portfolios. The primary program to be offered under this agreement is Farmer Mac's Long-Term Standby Purchase Commitment, which shifts the credit risk on loan pools from the bank to the government-sponsored enterprise. Michael Gerber, president of Farmer Mac, said the LTSPC program is designed to give banks that lend on agricultural properties "a reasonable price option to improve a major indicator of their financial health and to help restore their ability to grow their balance sheets." Loans in the LTSPC program are expected to receive favorable capital treatment, freeing up the bank's capital to be used for other purposes.

Fitch Ratings, Chicago, believes that the title industry's 2010 revenue decline could range between 10% and 15%, based on the projected fall-off in mortgage origination volume. This level of title revenue deterioration would lead to further pressure on profit margins; three out of the four national title groups were profitable in 2009, and the fourth, Stewart, was profitable in the fourth quarter. But any item that affects profitability will likely lead to further expense initiatives by title underwriters, said the Fitch report, written by Douglas Pawlowski, title sector head and senior director. The report noted the two largest national title companies, Fidelity and First American, reported underwriting results that were markedly better than the competition, Stewart and Old Republic. Because they had better operating margins, Fidelity and First American are in a better position to report profits for 2010, the report said. Right now, Fitch has the title industry on "negative" outlook status. To improve it to "stable," there needs to be evidence of title insurers being able to generate sustainable profits and margins nearer to historical averages. This, Fitch continued, will foster improved capitalization from retained earnings. Mr. Pawlowski added "given expectations for a significant decline in title revenue in 2010, an underwriter that does not demonstrate an ability to modify expenses to match revenues or has insufficient surplus to cushion against another downturn in profitability will be at greater risk for a downgrade in the near term."

The Federal Deposit Insurance Corp. sold $1.37 billion of structured guaranteed notes backed by residential and construction loan assets from Corus Bank. It follows its debut offering from last week. Sources familiar with the deal said the offering was priced into strong demand, according to a report in Structured Finance News, an affiliate of National Mortgage News. The sale included $150 million of 1.62-year notes that priced at 18 basis points over Eurodollar swap futures; $850 million of 2.62-year notes that priced at 21 basis points over interest rate swaps; and $377.35 million of 3.62-year notes that priced at a spread of 24 basis points over swaps, market sources said. Barclays Capital was sole underwriter for the offering, which was the same for last week's deal. The sale follows last week's sale of FDIC's $1.8 billion securitization backed by option ARM mortgages that also priced via underwriter Barclays Capital. That deal was divided into a $1.33 billion floating-rate transaction and a $480 million fixed-rate deal. The transaction saw its floating rate portion priced 10 points tighter than the initial price guidance of 65 basis points over one-month Libor and a portion of the fixed rate tranche priced five to 10 points tighter than the initial price guidance of 90 to 95 basis points over i-swaps. The two deals are part of the total $3.85 billion of securitizations that the FDIC is selling to investors that are guaranteed by the government. All of the deals are backed by residential mortgage loans and construction loan assets from failed banks that the FDIC took over.

GMAC Financial Services has hired Goldman Sachs to start the process of selling the company's money-losing mortgage unit Residential Capital Corp., according to a new published report. In recent weeks spokespersons for GMAC have repeatedly said that a sale is not under consideration at this time but only that the company is considering its "strategic alternatives." Several weeks back, news reports surfaced that GMAC had engaged Goldman and that Berkshire Hathaway was in talks with the company regarding ResCap, the nation's fifth largest residential servicer. As reported by National Mortgage News, over the past two weeks several managers have been let go in ResCap's servicing division, including 24-year veteran Tony Renzi. Investment bankers following ResCap say selling the company could prove difficult because of the representations and warranties the government-owned company would need to provide any buyer. The new report concerning ResCap was published by The New York Post. On Friday a GMAC spokeswoman declined to specifically address the sale issue raised by the Post story.

GMAC Mortgage LLC's corrective actions related to an unusual servicing practice that could hurt ratings on nearly $6 billion of RMBS it services are scheduled for completion by April 1, according to a Moody's Investors Service report. The rating agency said it is monitoring the corrective actions and will consider them in the context of almost $6 billion GMACM RMBS currently on review for possible downgrade. The practice being corrected is that of netting the cash flows of multiple residential MBS in a single custodial trust. This could lead to competing claims in a bankruptcy scenario, particularly given that GMAC's parent company, Residential Capital LLC, has the lowest rating possible before default, said Moody's vice president and senior credit officer Eric Fellows. (GMACM and ResCap are both downstream affiliates of GMAC Financial Services, a bank holding company.) The netting practice is not typical in the industry, said Bill Fricke, a Moody's VP/SCO whose responsibilities include a focus on servicing issues. He said if the rating agency did discover another servicer using such a practice it would be a "red flag," regardless of what the rating of the corporate entity involved was. Moody's said GMACM also previously had a similar issue involving "certain notes associated with its servicing advance facility" that it believes the ResCap subsidiary has corrected by establishing "segregated trust-specific custodial accounts for RMBS trusts." There were roughly several hundred million dollars worth of SAF notes that were placed on watch for possible downgrade in February as a result of this and they will probably remain there until Moody's has finished monitoring them through a full cycle ending in March, Mr. Fellows said. Moody's said GMACM has a similar corrective plan for the close to $6 billion in RMBS affected by the more recent review for possible downgrade. Moody's also will monitor this in a similar manner, Mr. Fellows said. ResCap, which has issued a statement saying it is correcting the situation, did not return a call for further comment. Mr. Fellows said the company has been "very receptive" to correcting the problem.

Mortgage bankers funded roughly $414 billion of new home loans in the fourth quarter, the industry's worst quarter of the year and an indication that production -- as anticipated -- will be weaker in 2010. During the quarter, refinancing volume represented 59.1% of all loans originated, the worst showing since 4Q08 when refis amounted to 44.4% of volume. According to figures compiled by National Mortgage News and the Quarterly Data Report, all residential lenders funded $1.9 trillion of loans in 2009, a 19% gain from 2008, a year when the housing and credit markets collapsed. If the 4Q run-rate keeps pace for the next four quarters, 2010 will turn out to be a $1.6 trillion year for lenders. But with interest rates expected to rise and Fannie Mae and Freddie Mac continuing to tighten their underwriting requirements (and fees), mortgage bankers are uncertain about the year.

The Obama administration is working on a national program to address negative equity, but first it wants to test existing programs managed by state housing finance agencies. Finance agencies in Nevada, Arizona, Florida, Michigan and California are expected to submit proposals to the Treasury Department in a few weeks. "Many of these state agencies already have programs up and operational that we could enhance or change -- that could get going very quickly," HUD secretary Shaun Donovan told Senate appropriators. The Treasury Department is offering to divvy up $1.5 billion to state agencies, testing their efforts to assist underwater borrowers in negotiating with lenders to write down their mortgages. The funds also will be used to assist unemployed homeowners. "We want to test models that potentially could be used in other states," the secretary told Sen. Patty Murray, D-Wash., who chairs the Department of Housing and Urban Development appropriations subcommittee. Sen. Murray wanted to know if the 250,000 underwater homeowners in her state would benefit from the $1.5 billion program that President Obama unveiled in Nevada several weeks ago. "We are looking at broader national efforts around negative equity and unemployment that could target the issues that you are talking about in your state," Secretary Donovan said.

The Federal Deposit Insurance Corp. has extended its "safe harbor" policy for six months while its board continues to work toward the adoption of new securitization standards. The safe harbor, which was due to expire March 31, assures investors that the FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. The blanket policy applies to all securitized assets. But going forward, FDIC chairman Sheila Bair wants to condition this protection to securitizations that meet certain standards. In November, FDIC issued a proposed rule that outlines new securitization standards, which are designed to prevent a re-occurrence of the originate-to-distribute model that fueled the subprime boom. The standards include risk retention that would require banks to retain 5% of the credit risk when they securitize mortgages and other assets. The comment period on the proposal ended February 22 with the proposal drawing strong opposition from several industry groups. Even FDIC directors are divided on the issue. However, chairman Bair says she cannot ignore the losses FDIC has suffered due to the "misaligned incentives in mortgage finance. We hope to foster a sustainable securitization market that emphasizes transparency, improved clarity in transaction structures and responsibilities," she said. "We appreciate the board's decision to extend the existing Safe Harbor protection to September 30th," said Tom Deutsch of the American Securities Forum. "As our members indicated in our letter to the FDIC last month, the ASF strongly believes the proposals, which include significant preconditions for safe harbor protection, will create substantial uncertainty for investors, thus harming the drive to reopen securitization markets and get credit flowing to Main Street," the AFS executive director said.

Stung by warehouse lines it made to the now-defunct Taylor, Bean & Whitaker, Ocala, Fla., Sovereign Bank of Pennsylvania has decided to exit the sector, according to warehouse lending officials and customers that received credit from the bank. Sovereign officials declined to comment. The bank's decision to leave the market comes as more banks are considering either getting into warehouse lending or expanding their presence in the market -- but only for well capitalized nonbanks. "I think the days of unavailable warehouse credit being a huge problem could be coming to an end -- if you have enough capital," said one New York-based mortgage advisor. Meanwhile, at least two investors are still talking with PNC Financial Services about buying the warehouse division it inherited through its purchase of National City Corp. The NCC unit recently extended some of its existing lines to certain nonbank customers. PNC declined to comment.

An appraiser working with an appraisal management company has on average more than 15 years of experience appraising residential properties, according to a new survey conducted by the Title Appraisal Vendor Management Association. Furthermore, 87% of appraisers used by TAVMA members are certified appraisers, a designation that requires more experience and an additional level of testing above the state-licensed level. Opponents of the Home Valuation Code of Conduct have questioned the experience and expertise of appraisers that work through AMCs. Jeff Schurman, executive director of TAVMA, said "We surveyed our members to answer the allegations that brokers and Realtors have been making in the media, regarding the experience levels of AMC appraisers. Our member survey clearly shows that not only are AMC appraisers experienced, the vast majority hold the higher, certified-level, appraisal credential."

Many owners of health care facilities are finding that projects that could have gotten financing directly from commercial banks are unable to access that source now, according to an attorney who is an expert in the field. Andrea C. Barach, a partner in the Health Care Practice Group at Bradley Arant Boult Cummings LLP, Nashville, said this is due to tightened credit requirements, increased cost and/or inability to access funds through interbank markets. Ms. Barach, who advises health care facilities regarding financing options, said this has led those who need credit to reconsider applying for Federal Housing Administration-insured loans. "The terms are extremely attractive, and in many cases the FHA financing will be the only viable option for many borrowers. FHA financing offers a way for owners to control costs and maintain a predictable level of debt service," she said. While the FHA program still has its heavy red tape and compliance requirements, it has been streamlined. "The new Lean processing system should make financing more attractive by reducing processing time and bureaucratic red tape," said Ms. Barach, who added borrowers should work with lenders who have experience doing the Section 232 program.

Nearly half of all purchasers who bought existing homes in California last year were first-timers, according to a report by the state's realty professionals. At 47%, the share of rookie buyers was the highest since 1995, when half of all buyers were first-timers, and exceeded the long-run average of 38.6%, the California Association of Realtors study found. "It is clear that the federal tax credit for home buyers worked well in 2009 and is continuing to drive home sales," said CAR president Steve Goddard. "The credit is arguably the most successful strategy employed by the government to stimulate the economy." Nearly 40% of last year's buyers said they would not have purchased a home without the credit. Statewide, meanwhile, almost half the deals last year were distressed sales, up from 35.6% in 2008. Lower prices improved affordability ratios for buyers, but they cut heavily into sellers' profits. Indeed, a third of all sellers last year sold their properties at a loss. That's the highest percentage since CAR started tracking net cash losses in 1989, and well above the long-run average of 9.3%. It also was the fifth consecutive year that the number of losers increased, the association reported. On a more positive note, the median price in the Golden State hit bottom in February 2009 at $245,170. Since then, the median home price has increased steadily in month-to-month comparisons. Still, the median remained below 2008 levels throughout 2009. The annual median price is projected to increase this year by $9,000 to $280,000.

The average rate for a 30-year mortgage inched down a little further below 5% during the week ended March 11, according to Freddie Mac's Primary Mortgage Market Survey. "During a light week of mixed economic reports, mortgage rates eased somewhat," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 30-year FRM rate was 4.95% compared to 4.97% the previous week and 5.03% a year ago. The average 15-year FRM rate was 4.32%, down from 4.33% the previous week and from 4.64% a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.05%, down from 4.11% the previous week and 4.99% a year ago. The average one-year Treasury ARM rate was 4.22%, down from 4.27% the previous week and 4.80% a year ago. Average points were 0.7 for 30- and 15-year FRMs, and 0.6 for five-year Treasury hybrids and one-year Treasury ARMs.

Data from Integrated Asset Services LLC, Denver, Colo., show that national home prices fell 2.3% in January, when there was somewhat less variation than usual at micro-market levels. The IAS360 House Price Index said "severe winter weather" in large regions of the country likely lay behind the relatively widespread depressed home prices even in micro-markets. The default management and residential collateral valuations provider found that all four of the U.S. census regions fell in January. The Northeast was down another 0.5% and the South was down 2.2% due to double-digit declines in Georgia and Alabama. The West saw a 2.6% decline and Midwest prices dropped another 2.6% for the month, following a drop in December. The Midwest region, which includes hard-hit states like Illinois (-4.9%), Missouri (-4.4%), and Minnesota (-3.5%) has now given back all of its 2009 gains. In addition, national home prices saw their largest single-month decline in the index in over a year, down 30% from its high in mid-2007.

Tighter credit standards, along with Congressional approval of higher annual mortgage insurance premiums will enable the Federal Housing Administration to replenish its capital reserves by 2013, possibly as early as 2012, Congress heard. The Department of Housing and Urban Development is on track to raise the FHA upfront premium 75 basis points this April to 2.25% and raise its down payment requirement on homebuyers to 10% for borrowers with credit scores below 580, HUD secretary Shaun Donovan testified at a Senate Appropriations Committee hearing. But FHA would prefer to set the upfront premium at 1% and raise the annual premium to 90 basis points on single-family mortgages with loan-to-value ratios above 95%. FHA is asking Congress to raise the cap on annual premiums from 55 bps to 1.55%. Raising the annual premium would be "safer for homeowners and better for the health of the FHA fund," Mr. Donovan told Senate appropriators. The secretary also noted that the new premium structure is more in line with the private mortgage insurance companies, which have seen their market share shrink as FHA's has grown in the past three years. "Increasing the premiums is the single most important thing FHA can do to encourage the private market to return," the secretary testified. He noted that private insurers are already moving back into the market on the expectation that FHA is increasing the upfront premium to 2.25%. If Congress approves the annual premium adjustment, FHA will be able to meet its minimum 2% capital ratio in a few years, the secretary told committee chairwoman Sen. Patty Murray, D.-Wash. "We believe the 2% is achievable by 2012 or 2013 based on conservative assumptions," Mr. Donovan said.

Reversing recent trends, most U.S. subprime vintages increased in value during the past month, according to a Fitch Solutions index. The U.S. Subprime RMBS Total Market Price Index, which is based on credit default swaps of residential mortgage-backed securities, had increased by a little over 6% from the previous month as of March 1. The index was 7.63 as of that day, up from 7.17 as of Feb. 1. The 2006 vintage performance was the strongest with a 17% increase. The 2004 and 2005 vintages respectively saw 3% and 9% increases month over month. Only the 2007 vintage declined in value, dropping 2% to a record low at 2.06. Fitch Solutions loan level analysis found that declines in both the constant prepayment rate and constant default rate drove the rise in value for the 2006 vintage. The three-month CPR dropped to 1.8% from 2.4% and the three-month CDR fell to 25.7% from 26.3% for the vintage. In addition, that vintage's historical 60-day delinquencies dropped to 1.65% from 1.77%. "The different performance of the CPR and CDR across diverse vintages reinforces the need to drill down and extensively assess each vintage from a broader perspective," said Fitch Solutions managing director Thomas Aubrey. "This explains why the 2007 and 2006 vintages are showing such different pricing movements."

Most commercial mortgage investor groups saw an increase in their loan delinquency rates in the fourth quarter, according to data gathered by the Mortgage Bankers Association. MBA's Commercial/Multifamily Delinquency Report found between the third and fourth quarters, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities rose 1.63 percentage points to 5.69%. The 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.01 percentage points to 0.63%. The 90-plus day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.04 percentage points to 0.15%. The 90-plus day delinquency rate on loans held by banks and thrifts rose 0.49 percentage points to 3.92%. In a rare bit of good news, the 60-plus day delinquency rate on loans held in life company portfolios decreased 0.04 percentage points to 0.19%. Jamie Woodwell, MBA's Vice president of commercial real estate research, said, "Continued job losses, consumer restraint and a lack of household growth all sustained the pressure on commercial real estate operations and mortgages during the fourth quarter."

A scathing report by a Congressional watchdog examining the bailout of GMAC Inc. found that the Treasury Department did not adequately protect taxpayer money. The government should have orchestrated a strategic bankruptcy of the auto finance and mortgage lender last year rather than invest $17.2 billion to save it, according to a draft of the report to be released Thursday by the Congressional Oversight Panel of the Troubled Asset Relief Program. GMAC is the parent company of Residential Capital Corp., an active residential funder and the nation's fifth largest servicer. "The rescue came at great public expense," the 152-page report says. The oversight panel also found that GMAC was treated more favorably than other companies in comparable circumstances, including both General Motors Corp. and Chrysler Group LLC, which were forced into bankruptcy. Last month, the report says, the oversight panel asked for "assurances from witnesses" that no third-party shareholder in GMAC would receive a return on its investment before taxpayers. The government currently owns 56.3% of the company. "The fact remains that the only way to ensure that result would have been through a bankruptcy," the report stated. "The panel remains unconvinced that in 2008 or very early 2009 bankruptcy or a similar restructuring, including a sale of the automotive financing business, was not a real possibility; nor has the panel been convinced that even now a GMAC or ResCap bankruptcy or sale of the automotive financing is impossible." In 2006 a consortium led by Cerberus Capital agreed to pay $14 billion for a 51% stake in GMAC. After the government takeover of the company, Cerberus' position in GMAC has been severely reduced with the value of its investment becoming almost worthless.

The sale of commercial mortgage-backed securities servicer Centerline Servicing Inc. to an Island Capital affiliate has reversed the ratings damage caused by its corporate parent's financial woes, according to analysts. Fitch said Wednesday due to CSI's sale to C-III Capital Partners LLC it has upgraded CSI's CMBS servicer ratings, reversing a December 2009 downgrade based on the financial condition of its corporate parent, Centerline Capital Group. Fitch, which noted that its servicer ratings in part are driven by companies' ability to retain staff and their operational strength, said C-III "has indicated that it plans to retain CSI's servicing management and staff, its servicing and asset management systems and policies and procedures."

ICP Capital has agreed to transfer its domestic and international capital markets businesses to PrinceRidge Holdings LP to create an international investment-banking boutique serving investors and issuers in the institutional fixed income markets. The combined firms will operate under the PrinceRidge Holdings name and ICAP will become a partner of PrinceRidge. ICP president and CEO Tom Priore will be advising on the combined firm's continuing international expansion as well as "strategic development initiatives" in the United States. The companies expect integration and closing to be completed in the second quarter, subject to regulatory approvals. PrinceRidge has been working on a capital markets effort targeting the underserved U.S. jumbo mortgage market.