Originations

The Metropolitan Transportation Commission, which covers the nine-county San Francisco Bay Area, is making a $10 million commitment to affordable housing through its Transportation for Livable Communities program. The money will be used to establish a revolving loan fund to finance land acquisition for affordable housing development near rail and bus lines in the Bay Area. MTC added it hopes to grow the fund to at least $40 million by attracting matching commitments from private foundations and other investors. The Bay Area Affordable Transit-Oriented Development Fund is modeled on similar funds in Denver, Los Angeles, Minneapolis, New Orleans and New York. Based on information provided by Bay Area cities and developers, MTC staff estimates a $40 million TOD fund could be used to help finance the acquisition of at least 20 to 30 acres around the region, which, depending on the density of build-out, would support development of anywhere from 1,100 to 3,800 units of affordable housing. "We think the slow housing market makes this an excellent time to make this investment," commented MTC executive director Steve Heminger. "At a time when lending, especially for affordable housing, is almost nonexistent, this fund can not only triple the impact of each TLC dollar but also play a critical role in preserving sites for affordable transit-oriented development while the credit markets and bond institutions recover to support affordable housing construction again."

Brookdale Senior Living Inc., Nashville, entered into a new $100 million revolving credit facility, with an option to increase the commitment to $120 million. The new facility replaces Brookdale's existing $75 million revolving credit agreement that was scheduled to expire in August 2010. The revolving line of credit may be used to finance acquisitions and fund working capital, capital expenditures and other general corporate purposes. GE Capital, Healthcare Financial Services, acts as administrative agent as well as a lender under the new line. The new facility matures on June 30, 2013 and is secured by a first priority security interest in certain of the company's properties. The commitment will be limited to $80 million pending finalization of documentation for the remaining $20 million, which is expected within the next week. The availability under the line may vary from time to time as it is based on borrowing base calculations related to the value and performance of collateral securing the facility. "The new facility provides us with increased flexibility and capacity which will be instrumental in Brookdale's future growth," said chief executive Bill Sheriff.

Sunstone Hotel Investors Inc., San Clemente, Calif., has terminated its $85 million senior secured credit facility. The company said the decision was made in view of its strong liquidity position and the restrictive terms of that facility. It had been secured by mortgages on five of the Sunstone's hotels, had no outstanding borrowings and backed $2.9 million in outstanding irrevocable letters of credit. The termination of the credit facility will eliminate approximately $600,000 in fees and associated costs, and removes restrictive covenants and encumbrances. The company's business plan does not contemplate the use of revolving credit during 2010. Sunstone added it expects to enter into a new, appropriately sized and structured credit facility in the future when its business plan contemplates the use of revolving credit.

The target date for the spin-off of First American Corp.'s financial services businesses from its information solutions businesses has been pushed back two months because of outstanding approvals. The new target, the company said in its yearend results release, is June 1, 2010. For the fourth quarter and full year 2009, First American had net earnings of $38 million and $200 million compared with net losses of $67 million and $26 million, respectively, one year prior. For the fourth quarter of 2009, First American had net total charges of $25 million, including nearly $9 million of restructuring charges related to the purchase of First Advantage stock, employee separation costs of $7 million, investment losses of nearly $9 million and $3 million of spin-off related costs, offset by a $3 million claim recovery. Revenue in the title insurance segment in the fourth quarter was $948 million, up 15% over the previous year, with pretax income of $45 million, compared with a loss of $97 million one year prior.

Thrift institutions funded just $34.4 billion of single-family loans in the fourth quarter, about one-third of what they originated in the first quarter, according to new figures compiled by the Office of Thrift Supervision. The weak performance stems, in part, from the declining number of S&Ls. In the fourth quarter, the number of institutions fell to 765, a decline of 45 firms. The chief reason for the drop: company failures. The remaining thrifts have $942 billion of assets, including $273 billion in one- to four-family loans and $141 billion of mortgage-backed securities. Nearly 5% of the single-family loans are seriously delinquent, compared to 3.7% a year ago, but down from 5.7% in the third quarter. For all of 2009, S&Ls originated $224 billion of home mortgages — a 35% decline from the year before. (Of course, in 2008 Countrywide Financial Corp., then the nation's largest home funder, was still in business. CFC had a thrift charter.) Thrifts posted a $55 million profit for the fourth quarter and a $29 million profit for the whole year. In 2008, the thrift industry suffered through $15.8 billion of losses. "Although we are encouraged that the industry performance has moved in a positive direction, unemployment is still running high and home prices are still down in many parts of the country," said OTS acting director John Bowman.

Commercial banks originated $146 billion of residential loans through their branches and other retail outlets in the fourth quarter, an 11% sequential decline, according to new figures compiled by the Federal Deposit Insurance Corp. However, compared to same period a year earlier, retail production rose 120%. The latest FDIC numbers show that 869 commercial banks and savings institutions are active in residential finance, up from 667 firms in the fourth quarter of 2008. (Currently, the profit margins on home lending remain strong thanks to a wide yield curve.) Banks are required to report origination data if they have assets of $1 billion or greater or originated $10 million or more of one-to-four family loans in the past two quarters. The FDIC figures also show banks had a strong year in terms of correspondent production: institutions purchased $248 billion of first-lien residential loans in the fourth quarter, compared to $148 billion in the same period a year earlier.

A 13-basis-point increase has pushed the average rate for the 30-year fixed-rate mortgage back above 5%, the latest Freddie Mac Primary Mortgage Market Survey found. For the week ended Feb. 25, the average for the 30-year FRM was 5.05%, compared with 4.93% the week prior. The results were comparable with the most recent Mortgage Bankers Association Weekly Application Survey, where the average rate for the 30-year FRM increased 9 bps to 5.03%. Freddie Mac chief economist Frank Nothaft commented mortgages followed long-term bond yields higher as the January producer price index increased above the market consensus. However, the consumer price index, he said, "remained subdued," and the Conference Board said consumer confidence is at its lowest point since April 2009. He also noted mixed news regarding the housing market, as the S&P/Case-Shiller index rose for the third consecutive quarter but the pace of new home sales slowed to their smallest level since 1963. The average rate for 15-year FRMs increased 7 bps from the previous week to 4.40%, the 5/1 adjustable-rate mortgage increased 4 bps to 4.16% and the one-year ARM decreased 7 bps to 4.23%. Average fees and points on the FRM products were 0.7% and on the ARM product they were 0.6%.

House prices fell 1.6% in December and wiped out price gains in November and October, according to the Federal Housing Finance Agency. On a seasonally adjusted basis, the FHFA house price index fell 0.1% in the fourth quarter and it is down 1.2% for 2009 after dropping 8.2% in 2008. The GSE regulator originally reported that house prices rose 0.7% in November and 0.4% in October. But the increases were revised downward to 0.4% in November and 0.2% in October. "The decline in prices in the fourth quarter was much more significant when measured without seasonal adjustment. The unadjusted national decline was 1.5%, a much larger drop than the 0.1% decline measured on a seasonally adjusted basis," FHFA said.

Freddie Mac could lose up to $700 million because of the failure of Taylor Bean & Whitaker — $200 million more than previously disclosed. The Florida-based nonbank sold mortgages to Freddie and as recently as 2008 accounted for 5% of its total purchase business. In a new filing with the Securities and Exchange Commission, the GSE says the bankrupt TBW owes it money for loan buybacks and on servicing-related charges. In November, Freddie said it might lose $500 million on TBW but has since updated that estimate. The government-controlled mortgage giant said its seller/servicers are not honoring buyback requests in a timely manner with $4 billion of loan repurchase requests unfulfilled at yearend. TBW failed in August of last year.

SecondMarket, a New York-based secondary market for illiquid assets such as private-label residential and commercial mortgage-backed securities, has raised $15 million from Asian investors. The investors include Li Ka Shing Foundation, a charitable foundation founded by the Asian entrepreneur that is its namesake. The other investor is Dunearn Investments (Mauritius) Pte. Ltd., a subsidiary of Singapore investment company Temasek Holdings (Pte) Ltd. Each of the investors put $7.5 million into the New York company. Proceeds from the investment are slated for use in further scaling the SecondMarket's platform and infrastructure in preparation for its upcoming expansion into the Asian markets.

The pace of existing home sales decreased year-to-year in January in California, but the inventory of unsold units sitting on the market waiting for buyers dropped as well, according to the California Association of Realtors. Sales were off 10.6% from the same month a year ago, CAR said. Nevertheless, the pace of sales remained above the half-a-million-units-a-year threshold for the 17th consecutive month. In that regard, the sales pace is "holding steady at prepeak levels from early in the last decade," said CAR president Steve Goddard. At a seasonally adjusted rate, sales were running at a 539,040-unit-a-year pace in January, according to data collected from more than 90 local Realtor associations statewide. The median price of an existing, single-family detached house in January was $287,440, a 15% jump from the revised median for January 2009 of $259,960. But the January median was down 6.3% compared with $306,820 in December 2009. The year-over-year gain was the largest since December 2005, said CAR's chief economist, Leslie Appleton-Young. And though the month-to-month decline was large, it was not as great as the dropoffs in the same time period in both 2008 and 2009, when the median fell by more than 11%. Better yet, according to the economist, "the median price still is 17.2% ahead of the trough in this cycle."

MGIC Investment Corp., the nation's largest mortgage insurer, is cutting premiums to better compete with the Federal Housing Administration. In a new filing with the Securities and Exchange Commission, the Milwaukee insurer said that beginning May 1 it will offer lower rates for borrowers with credit scores of 720 or greater, and higher rates for borrowers with credit scores between 620 and 679. There will be no change in rates for borrowers with scores between 680 and 719, MGIC said. Previously, MGIC did not include a borrower's credit score in its pricing model. Lenders that find the transition difficult have the option of continuing to use the insurer's old rate structure, MGIC said. Since the housing bubble burst, the FHA has become a more formidable contender in the mortgage insurance business, gaining market share in the coverage of loans with small downpayments as private insurers tightened their underwriting standards. In fact, MGIC said in the filing that it did not consider the FHA a significant competitor until 2008. Over the past few months — in an effort to improve the quality of its loans and protect its reserve fund — FHA has hiked downpayments for borrowers with lower credit scores and raised its upfront mortgage insurance premium.

The Federal Housing Administration is advising mortgage brokers to hold off on getting their annual financial audits until they see a final rule that will change the net worth requirements for lenders and brokers. "I would strongly encourage you to wait until you see the rule," FHA commissioner David Stevens told a National Association of Mortgage Brokers conference in Washington. On Monday, comments made by a top FHA official were incorrectly interpreted as a signal that brokers should file their audits by March 31. Mr. Stevens told National Mortgage News Online that the final rule is coming out very soon and an audit can cost a small broker $8,000 to $10,000. "Before they spend that money," he said, "they should wait until the rule comes out just to make sure they actually need one." The FHA commissioner told the NAMB meeting he cannot discuss the contents of the final rule. But he was able to get the FHA general counsel to grant permission for him to advise brokers on filing financial audits. The original proposed rule eliminates the need for brokers to meet FHA audit and net worth requirements. Going forward, FHA-approved direct endorsement lenders will be responsible for the brokers they work with and policing the quality of their loans.

Former Federal Reserve chairman Alan Greenspan was cautiously optimistic about an economic recovery while speaking to CUNA's Government Affairs Conference this week, in stark contrast to his last appearance at the GAC when his suggestion that homeowners try adjustable-rate and other nontraditional mortgages helped spark a flurry of exotic residential loans. Mr. Greenspan said that high-income individuals with growing investment portfolios and companies with rising stock prices are driving the recovery, which he described as "extremely unbalanced." He noted that the nation is recovering economically but the "really forceful" areas of recovery "are reasonably dead" — namely the housing market and autos where sales are subdued. "Small businesses also continue to face challenges, and while things aren't getting worse for them, the environment is showing very few signs of getting better," said Mr. Greenspan. His appearance before the group came roughly six years after he last spoke at the GAC when his much-watched remarks sparked a flurry of ARM and nontraditional mortgage purchases by borrowers hoping to buy homes in the booming real estate markets around the nation. "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Mr. Greenspan said then. "To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

Weak housing demand is contributing to a decline in new mortgage applications, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found. MBA's Market Composite Index for the week of Feb. 19, a measure of mortgage loan application volume, decreased 8.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 7.3% compared with the previous week. The seasonally adjusted Purchase Index decreased 7.3% from one week earlier, putting the index at its lowest level since May 1997. "As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak," said Michael Fratantoni, MBA's vice president of research and economics. "With home prices continuing to drift amid an abundant inventory of homes on the market, potential homebuyers do not see any urgency to lock in purchases." Meanwhile, the Refinance Index decreased 8.9% from the previous week. The market share of refi applications was 68.1% of total applications, down from 69.3% the previous week. The market share of applications for adjustable-rate mortgages increased to 4.7%. The average contract interest rate for 30-year fixed-rate mortgages has zoomed back above the 5% line to 5.03% from the previous week's 4.94%, with points rising to 1.34 from 1.09 (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 two basis points to 4.35%. The average contract interest rate for one-year ARMs increased 13 basis points to 6.80% from 6.67%. The MBA can be found online at http://www.mortgagebankers.org.

New home sales plunged 11.2% in January from the previous month ending a streak of encouraging news on a possible housing recovery. Despite the extension of the homebuyer tax credit in November, sales of newly constructed homes fell to a seasonally adjusted annual rate of 309,000 in January from a 348,000 rate in December. The latest reading on new home sales is below the 329,000 rate in January 2009 and there is no way to sugarcoat these numbers, according to Weiss Research real estate analyst Mike Larson. "They stink," he said. "Fewer new homes were sold in this country than at any time since the Kennedy administration. The inventory of homes for sale increased, and the median price of a new home fell to its lowest level in more than six years," Mr. Larson said.

Mortgage industry groups are urging the Treasury Department to act quickly and extend the Home Affordable Refinance Program so that borrowers with high LTV or underwater mortgages still have an avenue to refinance and lower their payments. HARP is due to expire June 10. But the trade groups are concerned there could be disruptions if the program is not extended soon. "By April 1, lenders will no longer be able to extend even 60-day rate locks," according to a joint letter by five trade groups. Launched last April, HARP has facilitated the refinancing of nearly 190,000 Fannie Mae and Freddie Mac mortgages with loan-to-value ratios of 81% up to 125%. "HARP makes it easier for families to stay in their homes," the Feb. 18 letter says. "HARP also appropriately rewards borrowers who have worked hard to stay current on the mortgage loans" and "prevents unnecessary foreclosures." The American Bankers Association, American Financial Services Association, Consumer Mortgage Coalition, Housing Policy Council and Mortgage Bankers Association signed the letter.

Freddie Mac, which continues to mark down the value of its mortgage assets, lost $6.5 billion in the fourth quarter but will not need fresh capital from the U.S. Treasury. At yearend its loss reserves increased to $33.9 billion, more than double what it had set aside 12 months earlier. In releasing its quarterly and full-year results, the GSE also revealed that it found two errors in how it calculates loss severity rates that would have made its results look better. It said that by fixing its calculations these changes would have been "material" to its earnings. The national mortgage delinquency crisis continued to hammer its bottom line in the 4Q with the GSE reporting total credit losses of $7 billion, a modest improvement over 4Q08 when it had CLs of $8 billion. However, when it comes to operating results that come from management and guarantee fees, Freddie earned $743 million in the fourth quarter, an 8% decline from the third quarter. The government-controlled company also revealed that the delinquency rate on its structured bonds increased to 3.87% at yearend from 3.33% three months earlier. Despite all its problems, the company still has a positive net worth of $4.4 billion, but to date Freddie has received $51 billion in aid from the Treasury. The company lost $21.6 billion for all of 2009, excluding dividends paid to the government. In 2008 it lost $50.1 billion. Fannie Mae is scheduled to report its results on Friday. Late last year, the White House said it would cover unlimited losses on the GSEs over the next three years, removing a previous ceiling of $400 billion.

Mortgage rates will rise no more than 50 basis points after the Federal Reserve stops purchasing agency MBS in March, according to a new survey of business economists. "Three-quarters of the panelists believe mortgage interest rates will increase 50 basis points or less," a summary of the survey results says. The 48 professional forecasters surveyed by the National Association of Business Economics generally say economic expansion is on a "firm track" and the rebound in the housing market is "ongoing and sustainable." The economists expect housing starts will hit 730,000 this year, up from 550,000 in 2009. And starts will jump to 1 million units in 2011. House prices will rise 1.6% this year and 2.6% in 2011, based on the Federal Housing Finance Agency housing price index. "Such increases would barely keep up with inflation," the survey says. The February survey does not include a forecast for mortgage rates. However, the economists see the 10-year Treasury rate drifting upward to 4.25% by yearend and 4.5% by the second quarter of 2011.

Although mortgage insurer Radian Group continued its money losing ways in the fourth quarter, management is looking ahead to what it believes will be a brighter future — with improving liquidity and a stronger capital position. In 4Q, Radian lost $92 million, a marked improvement over the same period last year when it lost $250 million. For all of 2009, Radian lost $148 million vs. $411 million in 2008. S.A. Ibrahim, chief executive, said not only has the MI taken care of any near-term liquidity issues, it anticipates it will have excess liquidity through 2012. Unlike some of its peers, the company's risk-to-capital ratio is trending downward: 15.4-to-1 at the end of 2009 compared to 16.4-to-1 at the end of 2008. Still, in case of the "unexpected event we need it in the first place," Radian has prepared an affiliate, Amerin Guaranty, to write business in states where Radian Guaranty might run afoul of the 25-to-1 standard. The company is prepared to write mortgage insurance business in "an uninterrupted fashion" Mr. Ibrahim said. New insurance written for the fourth quarter 2009 was $2.4 billion, with $17 billion written for the whole year. Radian is looking to grow, having moved into new markets, but this growth will not occur at the expense of loan quality, he noted.