Originations

Two subsidiaries of the government-owned AIG have agreed to pay at least $6.1 million to resolve charges that they discriminated against African American borrowers by failing to monitor loan brokers that charged excessive fees. The loans in question were funded through the wholesale channel by AIG Federal Savings Bank, and an affiliate, Wilmington Finance Inc. Neither is still active in wholesale lending. According to the Department of Justice, AIG FSB and WFI "failed to supervise or monitor brokers in setting broker fees. This practice had a disparate impact on African American borrowers, who were charged higher broker fees than white, non-Hispanic borrowers on thousands of such loans from July 2003 until May 2006." American International Group - whose empire includes mortgage firms and a mortgage insurance company - was placed under government control in the fall of 2008. It has received upwards of $150 billion in financial aid and guarantees. The settlement, brought under the Fair Housing and Equal Credit Opportunity Acts, was filed Thursday in conjunction with a complaint made by DOJ in U.S. District Court in Delaware. The settlement, which is subject to court approval, stipulates that the AIG affiliates will pay up to $6.1 million to African American customers who were charged higher broker fees than similarly-situated, non-Hispanic white customers. The two also will invest at least $1 million in consumer financial education efforts. AIG is in the process of liquidating its $20 billion nonprime whole loan portfolio.

With perhaps one exception, the MBS market Friday did not have much of a reaction to an acceleration in Freddie Mac's prepayment speeds which reflected buyouts of a large number of delinquent loans. By staging the massive buyout of loans delinquent by 120-days-plus in a single month, Freddie Mac saw a "colossal" spike in its speeds, according to a Barclays Capital report. But there were "no surprises" there, the report indicated. "The only surprise for the market was some of the lower coupons came in faster than expected," said Walter Schmidt, senior vice president, manager, structured product strategies at FTN Financial Capital Markets. He said Friday morning that as a result swaps between Freddie Mac Gold securities and Fannie Mae securities "have underperformed a little, not by huge amounts."

Hudson City Bancorp, a top ranked residential lender in the New York metro area, wants to convert its thrift subsidiary to a national bank charter. However, company CEO Ronald Hermance Jr. is vowing that the institution will not change its current business model of "originating and purchasing first mortgage loans on residential properties." He said the strategy will continue if it becomes a national bank. He said the thrift may become a national bank because its regulator, the Office of Thrift Supervision, may be eliminated by legislation being promoted by the Obama Administration. "At a time when trust and confidence in the banking industry is being challenged like never before, we believe it is important to stay ahead of any legal and regulatory changes implemented with regard to federal financial oversight," he said. In 2009, Hudson City originated $6 billion and purchased $3 billion in residential mortgage loans.

The Federal Deposit Insurance Corp. is planning to extend its "safe harbor" policy past March 31 while its board continues to work on new securitization standards. The safe harbor provides comfort to investors that FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. FDIC chairman Sheila Bair said the current safe harbor will be extended while the agency works with industry and other regulators on securitization standards. One of the standards involves risk retention where banks are required to retain 5% of the credit risk when they securitize mortgages and other assets. "These reforms would prevent the conflicts of interest we've seen in the past and give investors confidence that they can understand and manage the risks associated with asset-backed securities," Ms. Bair told a joint meeting of minority real estate groups. The comment period on permanently extending the safe harbor and establishing new securitization standards ended Feb. 22. Industry groups, including the American Securitization Forum, are urging FDIC to extend the current safe harbor until the end of this year. ASF noted that Congress is currently working on financial regulatory reform that includes risk retention requirements. "We are concerned about the potential impact of multiple layers of securitization legislation and regulation without coordination among legislators and regulators," ASF says in its comment letter.

Navy Federal Credit Union has committed to originating $7 billion in mortgages for its members in 2010. In 2009, the Vienna, Va. based FCU had production of over $6.2 billion, the best year for mortgage originations in its history. Due to "opportunities in the current market," it is making available 100% financing up to $650,000 nationwide, according to Cutler Dawson, president and chief executive. "Navy Federal has contributed to the recovery in 2009 by extending more than $31.4 billion in credit, more than any other credit union, and is committed to providing even more credit to members in 2010," Mr. Dawson said." The mortgage business has been steadily growing at Navy FCU, with volume of $4.8 billion in 2006, $5.1 billion in 2007 and $5.7 billion in 2008.

Even though Freddie Mac's departure from the interest-only loan market could hurt the ability of some companies to originate the product, at least one firm thinks it will benefit from the GSE's decision. "I'm not concerned about it," said Craig Cole, senior vice president of Union Bank, San Francisco. "It's good for us. More business might come our way." Union Bank, unlike some lenders, does not sell its IOs into the secondary market, and instead holds them in portfolio. Many of its IOs are high balance loans and fall into the jumbo category. However, some mortgage bankers are not happy with Freddie's decision to exit the market in the fall. (For more details see the Monday edition of National Mortgage News.)

Deutsche Bank Securities Inc. has named Wall Street veteran Steve Abrahams as its new chief of securitization/MBS research within the firm's global markets division. Mr. Abrahams, most recently founder and a managing director at Citadel Capital Partners, will carry the title of managing director. During his career, he also worked at Bear Stearns as global head of liquid product strategy, and at Freddie Mac as a credit portfolio manager. Art Frank, who had been DB's director and head of mortgage-backed securities research, has left the company. Mr. Frank could not be reached for comment. Also departing DB is Karen Weaver, who headed securitization research. Ms. Weaver, one of the first on Wall Street to predict the housing bubble and mortgage crash, is retiring. A longtime mortgage researcher, Mr. Frank previously worked for Barclays Capital and for several years headed MBS research for Nomura Securities. In addition to Mr. Abrahams, Deutsche Bank Securities recently hired Dominic Konstam as global head of rates research. Mr. Konstam comes to the firm from Credit Suisse where he was in charge of global interest rate research.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.

The mortgage industry shed 3,500 full-time workers in January, after shedding 1,900 jobs the previous month, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 250,000 from 253,500 in December. Overall, the mortgage industry reduced its workforce by 9% over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating loan demand. BLS reported that 48,000 temporary jobs were created in February. Since September 2009, "temporary help services employment has risen by 284,000," BLS said. The nation's unemployment rate held steady at 9.7% in February and only 36,000 workers lost their jobs despite severe winter weather in parts of the country. It also may be a good sign for servicers that the number of long-term unemployed persons has been holding steady for the past three months, but still remains at a high level. The new jobs report shows the number of persons that have been unemployed for more than 27 weeks was 6.1 million. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Embrace Home Loans, Newport, R.I., is moving its Internet origination division, which is comprised of 50 employees, to an 18,000 square foot building located in Providence, R.I. "As a company, Embrace Home Loans has experienced significant growth," said Kurt Noyce, president. "Most recently we've added several new retail branches along the Eastern Seaboard, and completed a substantial acquisition to further increase our geographic footprint. We are proud of the work we've accomplished and are pleased to be able to add additional office space right here in our local economy. The addition of a new building in Providence not only provides a space for our growing Internet origination division, but also provides the ability for our company to add more local jobs in the future."

There is now a certification program for the person who has a strong understanding of the FICO credit score and how it impacts both the lender and the consumer. Minneapolis-based FICO has teamed up with AllRegs, Eagan, Minn., to create the Certified FICO Professional designation or FICO Pro for short. In order to receive this certification, candidates must agree to a code of ethics and successfully complete three one-hour online courses delivered by AllRegs Academy: Exploring FICO Scores, Analyzing the Credit Report, and Communicating Credit Information. Registration in the program includes access to all three required courses. FICO Pro certification candidates have 12 months to complete the program from the date of enrollment.

The homebuyer tax credit is stimulating home sales but residential construction is stagnant at best, according to Federal Reserve's Beige Book. The periodic report on regional economic activity noted the adverse weather in February hampered home sales and construction activity in the New York, Philadelphia and Atlanta Federal Reserve bank districts. Most district banks "attributed stronger home sales to the homebuyer tax credit with several contacts apprehensive about future sales once the credit expires on April 30," the Beige Book said. In the Dallas district, sales of lower priced homes were the strongest. "Sales of higher priced homes were weak, reflecting difficulties in obtaining financing for larger loans," the Dallas bank said. The San Francisco bank reported that home sales were largely unchanged since December but home prices "rose a bit further" in some areas of the district. "However, the number of available homes for sale remained elevated, which substantially offset builders' incentives to increase the pace of new home construction," the San Francisco bank said.

The aggregate value of commercial real estate loans priced by DebtX to collateralize mortgage-backed securities increased to 76.7% as of Jan. 29, 2010, up from 75.9% as of Dec. 31, 2009. Loan values are down from 81.3% compared to January 2009. "Loan prices rose in January due primarily to the downward shift of the treasury yield curve and a modest tightening of whole loan spreads," said DebtX chief executive Kingsley Greenland. "These improvements in the capital markets were partially offset by weak commercial real estate fundamentals." Boston-based DebtX priced 59,759 commercial real estate loans with an aggregate principal balance of $700.2 billion during January.

The 30-day delinquency rate on securitized multifamily mortgages hit 9.87% in February, up 16 basis points from January, according to Trepp LLC. The expected default on the Stuyvesant Town and Peter Cooper Village apartments in Manhattan could push the delinquency rate close to 13%, according to the New York firm, which tracks the performance of commercial mortgage-backed securities. The owners are still current on the $3 billion in mortgage debt. But they have nearly depleted the 11,000-unit complex's reserves in making the last payment, according to Trepp analysts. The Trepp report shows that the 30-day or more past due delinquency on all securitized multifamily and commercial mortgages hit 6.72% in February, up from 1.67% a year ago. The serious delinquency rate (60-days or more past) on CMBS is 5.97%, up from 1.3% a year ago. The Federal Deposit Insurance Corp. recently reported that 1.2% of multifamily mortgages held by banks and thrifts are 30-89 days past due. The delinquency rate on other commercial mortgages is 1.24% as of December 31.

The average rate for a 30-year fixed rate mortgage dipped back below 5% once again during the week ended March 4, according to Freddie Mac's Primary Mortgage Market Survey. Rates are now back at levels seen two weeks ago, according to Frank Nothaft, Freddie Mac vice president and chief economist. The average 30-year FRM rate in the latest week was 4.97%, down from 5.05% the week previous and 5.15% a year ago. The average weekly 15-year FRM rate was 4.33%, down from 4.40% the previous week and 4.72% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 4.11%, down from 4.16% the previous week and 5.08% a year ago. The average one-year Treasury ARM rate was 4.27%, up from 4.15% the previous week but down from 4.86% a year ago. Average points were 0.7 for the two fixed rate products and 0.6 for five-year Treasury hybrids and one-year Treasury ARMs.

There are flat quarter-over-quarter price changes against year-over-year home price gains of 5% said the latest Clear Capital Home Data Index Market Report. This is based on data through February 2010. According to the Truckee, Calif.-based data provider all four regions posted very consistent 1.4% quarterly price changes, which company analysts called encouraging. Despite the slowdown due to negative economic news and the threat of more real estate owned properties hitting the market "prices have remained positive through the first two months of the year," said Alex Villacorta, senior statistician at Clear Capital. Providence, R.I., rose to the top of the highest performing markets list with a 6.1% quarterly price change. In Los Angeles, prices gained 2.2% for the quarter, giving California five of the 15 highest performing markets. REO saturation edged up in 11 of 15 of these markets this month by an average of 1.3%. At the same time REO saturation is expected to increase this month, while traditional non-distressed sales wait to be listed in the spring and summer months, the report says. An increase in demand may precede the end of the April tax credit deadline when home prices may dip slightly into negative territory before getting an added boost back. The Boston area, one of the first to see prices drop at the beginning of the downturn, saw yearly home prices recover 6.9%.

Fannie Mae purchased $54.9 billion of mortgages from its seller/servicers during January, a 23% drop from December but a significant improvement over the same month last year. In December the GSE bought $71.8 billion in loans, while in January 2009 - with the credit markets still reeling - it purchased just $28.8 billion. Fannie's purchase volume is a reflection of origination activity in the primary market. Mortgage and housing economists anticipate that residential loan volume will total anywhere from $1.2 trillion to $1.7 trillion this year, depending on where interest rates and employment wind up. Meanwhile, in its most recent activity report, Fannie noted that the serious delinquency rate on its single-family loans rose only 9 basis points in December to 5.38%, after jumping 135 bps over the previous five months. (The GSE's delinquency figures lag by one month.) It is the smallest monthly increase since July 2008 when the percentage of Fannie loans 90 days or more past stood at 1.45%. The GSE expects its serious delinquency rate will remain high in 2010, but the growth of that rate will moderate. "We anticipate that the pace of loans transitioning out of serious delinquency status will increase as the number of foreclosures and problem loan workouts that we complete increases," Fannie said in a recent earnings statement. The monthly activity report also shows that delinquency rates on Fannie multifamily loans fell 3 bps in December to 0.63%. Fannie issued $47.6 billion in mortgage-backed securities in January, down from $55.4 billion in the previous month. In 2009, Fannie MBS issuance totaled $807.9 billion, compared to $542.8 billion in 2008.

Canada Mortgage and Housing Corp. estimates Canadian housing starts will increase in 2010 to somewhere between 152,000 and 189,300 units, up from 149,081 units last year. Bob Dugan, CMHC's chief economist, said Canada's existing home market has become a sellers' market, in contrast to the beginning of 2009 when it was a buyers' market. "The relative lack of new listings for existing homes has pushed some of the demand into the new home market, which helps explain the forecast for higher housing starts activity in 2010," CMHC said. CMHC estimates existing home sales in Canada this year will be on the order of 455,350 to 509,900 units. "With an improved balance between demand and supply, the average [multiple listing service] price is expected to remain close to the average in the last quarter of 2009, for most of 2010, and then rise modestly in 2011," according to the CMHC. The CMHC estimates housing starts in 2011 will total somewhere between 156,400 to 205,600 units.

One series of a Freddie Mac index based on purchase transactions shows conventional home prices ended 2009 with a much smaller small year-to-year decline than was seen in 2008. Freddie's purchase-only series of its conventional home price index inched down 0.4% from the fourth quarter of 2009 from the same period in 2008, compared to a 9.5% drop in home prices during 2008. Between the third and fourth quarter of 2009, the U.S. index registered a 1.4% decline on an unadjusted basis. "We normally see a seasonal effect in the fourth quarter price index that reduces its value. A year-over-year comparison largely controls for this," said Freddie Mac chief economist Frank Nothaft. During 2009, "four-of-nine regions posted price gains, with the Pacific region showing a third consecutive quarterly gain as well as an annual increase in prices," he said. Another series of Freddie's conventional home price index that also includes data from appraisals from refinance deals shows typical U.S. home values depreciated 2.3% during 2009. This "classic" series shows average home values falling 0.7% in the fourth quarter of last year. "Generally, because appraisals are backwards looking through the use of recent comparable property transactions, the classic series will typically lag changes in the purchase-only series," Freddie Mac said.

Refinancings drove a week-to-week increase in loan applications, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found. MBA's Market Composite Index for the week of Feb. 26, 2010, a measure of mortgage loan application volume, increased 14.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 15.5% compared with the previous week. The Refinance Index increased 17.2% from the previous week, as long-term rates fell back below the 5% line. However, commented Michael Fratantoni, MBA's vice president of research and economics, "Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months." The seasonally adjusted Purchase Index increased 9.0% from one week earlier. The market share of refi applications was 69.1% of total applications, up from 68.1% the previous week. The market share of applications for adjustable-rate mortgages increased to 4.8% from the previous week's 4.7%. The average contract interest rate for 30-year fixed-rate mortgages is 4.95%, down 8 basis points from the previous week's 5.03%, with points declining to 0.99 from 1.34 (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 also declined by 8 bps to 4.27%. The average contract interest rate for one-year ARMs declined by 3 bps to 6.77% from 6.80%.