Originations

National home prices, including distressed sales, declined by 3.7% in December 2009 when compared with December 2008, according to First American CoreLogic and its LoanPerformance Home Price Index. This was a significant improvement over November's year-over-year price decline of 5.3%. Excluding distressed sales, year-over-year prices declined in December by 3.3%; and in November the non-distressed HPI fell by 5.0% year-over-year. This improvement is taking place as the real estate market is getting further from the period of peak distress in home prices, according to First American CoreLogic. On a month-over-month basis the national average of home prices declined moderately, falling by 1.0% in Dec. 2009 compared to November 2009, indicating seasonal slowing in a fledging housing recovery. The national HPI is projected to fall an average of 4.4% through April 2010, as high levels of unemployment, housing inventories and foreclosures continue to exert downward pressure on prices. The forecast indicates that the future path of house prices after April will be significantly impacted by whether the tax credit is allowed to expire or is once again extended. Nationally, the HPI 12-month forecast is expected to rise 3.5% excluding distressed sales; and up 2.7% including distressed sales by December 2010. When distressed sales were included, Nevada (-20.8%) remained the top-ranked state for annual price depreciation in December, followed by Arizona (-12.6%), Idaho (-11.4%), Florida (-11.3%) and Michigan (-10.8%). Of these five states, all but Michigan showed month-over-month decreases in their HPI between November and December 2009. Excluding distressed sales, the worst five states for year-over-year price declines changed slightly. Nevada (-18.8%) still holds the top spot, followed by Arizona (-11.8%), Florida (-10.3%), Michigan (-10.0%) and Maine (-9.1%).

As the Federal Reserve ends its purchases of mortgage-backed securities, Fannie Mae and Freddie Mac could become buyers if private investors don't return to the market, a Freddie executive said. "There is room for Fannie and Freddie to buy some of these securities and hold them in their portfolios for the near term," said Freddie economist Amy Crews Cutts. The Fed is currently tapering off its MBS purchases so the market can adjust as it exits at the end of the quarter. "The idea is to attract private capital back into the market place," Ms. Cutts told a HomeFree-USA homeownership conference. Freddie Mac economists expect the Fed's exit will have modest impact on mortgage rates. The Freddie deputy chief economist said she would not be concerned if mortgage rates rise to 5.5% or 6% — as long as it happens in an orderly fashion. "A little bit each week," she said. Ms. Cutts also noted that lenders might relax their underwriting standards to compensate for the rise in rates. But she would be worried if rates rise "violently and sharply." In that case, she expects the Fed will move back into the market and start buying MBS again. Minutes from the Fed's last Federal Open Market Committee meeting reinforce this view. "The committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets," according to the minutes of the Jan. 27 FOMC meeting. The minutes also indicate the FOMC members considered, but rejected, changing that language to reflect "the possibility that the committee might decide either to sell securities or to purchase additional securities" in the future.

United Kingdom nonconforming residential mortgage-backed securities continued to show short-term stability for the most part in the latest month, according to Moody's Investors Service. Weighted average delinquencies were 19.7% in both December and November of 2009. This was up slightly from 19.4% six months prior and a marked increase from 13.7% in December 2008. Foreclosures, at 1.7%, were down from 2.0% in November and from 3.5% in December 2008. However, "sales of repossessed properties led to a further increase in losses," according to Moody's. Cumulative losses in December 2009 were 1.5%, up from 1.3% in November and 0.6% in December 2008.

Some default rates for U.S. subprime residential mortgage-backed securities show signs of slowing but only marginally in some cases, and overall prices are continuing to fall, according to Fitch Solutions. U.S. subprime residential mortgage-backed securities prices overall dropped nearly 6% month-to-month to 7.17% in the latest period, down from 7.62% a month ago, according to Fitch Solutions' indices. The 2007 vintage dropped by 17.7% and its historical 90-day delinquencies jumped to 14.2% from 13.7%, according to the credit default swaps of RMBS-based indices. "The rise in delinquencies is signaling a potential increase in 2007 loan defaults," said Fitch managing director Thomas Aubrey. Six-month constant default rates declined but only marginally in 2007 and 2005 vintages. The six-month CDR for the 2007 vintage inched down to 29.3% from 29.5% and the six-month CDR for the 2005 vintage slid slightly to 23.68% from 23.71%. "This is in stark contrast to much larger declines among the 2004 and 2006 vintages," Fitch said.

Real estate firm Simon Property Group, Indianapolis, has made a $10 billion written offer to buy the bankrupt General Growth Properties Inc. Simon said it would provide a 100% cash recovery of par value plus accrued interest to all General Growth's unsecured creditors, including the lenders under its credit facility. The Indianapolis-based company said that, among other things, the transaction is subject to "negotiation of a definitive transaction agreement between Simon and General Growth which would provide for reasonable certainty of closing."

Altisource Portfolio Solutions, which was spun off by Ocwen Financial Corp. last year, has acquired the management arm of the Lenders One cooperative for an undisclosed sum. Scott Stern, CEO of Lenders One, said Altisource will maintain the existing executive team and employee base of the management company which is called The Mortgage Partnership of America. LO's 155 member mortgage bankers originated $75 billion in product last year, which would make it the nation's fourth largest lender if counted as one. Mr. Stern stressed that the cooperative will "continue to exist" and that Altisource is not buying Lenders One. The Mortgage Partnership handles an array of chores for the cooperative, including program development, marketing, advertising and even legislative advocacy. Mr. Stern himself owned part of TMPA but would not say how much. The publicly traded Altisource provides mortgage-related vendor services to the residential finance industry.

In his first major initiative since taking the helm at PHH Corp., Jerome Selitto laid out his strategy for transforming the nation's largest private label lender/servicer into a leaner, more profitable company — including a major cut in expenses. On a conference call Tuesday, Mr. Selitto, who became chief executive in October, said he plans to slash expenses by $100 million to $120 million annually. The effort will include combining back offices and upgrading technology. Selitto came to PHH "with a mandate from the board to turn this underperforming company into a high performer," said Steve DeLaney, a managing director and mortgage finance research analyst at JMP Securities. "He's sending the message that he's cleaning up and that he's going to do whatever it takes to make the company profitable." According to figures compiled by National Mortgage News and the Quarterly Data Report, PHH Mortgage ranks eighth among lenders nationwide, and ninth among servicers.

Existing home sales dipped 12.3% in the Houston area in January, but activity was much stronger at the top end of the market than at the bottom, according to the latest figures from the Houston Association of Realtors. Overall, 2,514 units changed hands in January, the second straight month sales have declined. But sales in the $250,000-$500,000 bracket jumped 21.6% while those priced at $500,000 and above surged by 40%. In contrast, sales of homes in the below-$80,000 segment fell 28.9% and those priced between $80,000-$150,000 slid 19.3%. As a result of the heightened activity in high-end houses, the median price in the Houston market rose 11.9% in January to $144,500, the highest median ever for a January in the region. At $144,500, the median sales price for single-family homes rose for the ninth consecutive month, up 11.9 percent from January 2009. That's also the highest median ever for a January in the region. Houston now has a 6.1-month's supply of single-family houses available for purchase, which compares favorably to the national average of 7.2-month's as posted by the National Association of Realtors. And in one more bit of good news, foreclosure sales reported in the MLS fell by 30.1% in January compared to a year ago.

California's homebuilding business ended 2009 in rather lackluster fashion, according to the latest sales data from the California Building Industry Association and Hanley Wood Market Intelligence. Sales in projects of 10 or more units in December were 15% below what they were a year earlier. Still, that's an improvement over most months in 2009, which recorded substantially larger year-to-year declines. In December, just 1,372 new houses and apartments were sold in the statewide subdivisions tracked by the Costa Mesa-based HWMI. December 2008 wasn't a particular good month either, when just 1,607 units were sold throughout the entire state. "December's figures represent a bit of a step back," said Jonathan Dienhart, director of published research at HWMI, who laid part of the blame on the extended federal tax credit removing a sense of urgency for consumers considering a home purchase. Mr. Dienhart also said the Golden State's "faces a long uphill climb" to return even to normal.

Single-family housing starts rose 1.5% in January after a 3% decline in December as construction activity continues to show signs of stability at higher levels than a year ago. The U.S. Census Bureau reported that single-family housing starts rose to a seasonally-adjusted annual rate of 484,000 in January, up from a 477,000 rate in December. The January rate rose 35% compared to a year ago. Multifamily starts jumped 18% in January to 100,000 units but compared to the same month a year ago were down nearly 18%. The National Association of Homebuilders reported that builder confidence is improving due to favorable homebuying conditions, the homebuyer tax credit, and signs the job market is getting better. "As a result, builders are slightly more optimistic that the housing recovery is finally beginning to take root," said NAHB chairman Bob Jones. Weiss Research real estate analyst Mike Larson noted that the supply of newly constructed homes is at the lowest level since the early 1970s. But don't expect a "vigorous upturn" in construction while the supply of "used" and foreclosure houses remains elevated. "Until that supply is exhausted, construction activity will remain muted," Mr. Larson said.

For the second consecutive week, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found that although long-term mortgage rates on average were below the 5% mark, overall application volume declined. MBA's Market Composite Index for the week of Feb. 12, a measure of mortgage loan application volume, decreased 2.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 0.5% compared with the previous week. The Refinance Index decreased 1.2% from the previous week and the seasonally adjusted Purchase Index decreased 4.0% from one week earlier. The market share of refi applications was 69.3% of total applications, down from 69.7% the previous week. The market share of applications for adjustable rate mortgages fell one basis point from the previous week, to 4.4%. The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 4.94%, with points rising to 1.09 from 1.06 (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 was 4.33% for the third consecutive week. The average contract interest rate for one-year ARMs decreased to 6.67% from 6.68%.

While second liens are stumbling blocks in many modifications, when the interests of the first and second mortgages are aligned it often results in a principal reduction, according to Laura Goodman, senior managing director at Amherst Securities Group. "When a bank owns and services the first and second, 37% of those modifications have gotten some kind of principal reduction," she told an American Securitization Forum conference in Washington recently. In an interview she noted these principal reductions occurred on loans on the balance sheets of banks, not securities. Ms. Goodman noted that negative equity is a major problem and it is particularly true for borrowers with second liens. "You can't solve the negative equity problem without writing down the seconds before the firsts," she said. In the nonagency universe, 51% of option ARM borrowers have second liens and 56% of alt-A borrowers have seconds, Ms. Goodman told the ASF conference. Amherst Securities does not have data on Fannie Mae and Freddie Mac guaranteed mortgages with seconds.

Sen. Bob Corker, R-Tenn., has clarified that he is dead set against the creation of a Consumer Financial Protection Agency as a stand-alone agency and will not support financial regulatory reforms that include a CFPA. Late last week Sen. Corker volunteered to work with Senate Banking Committee chairman Christopher Dodd, D-Conn., in crafting a bipartisan reform bill. However, the Republican committee member is more interested in finding a consensus on ways to resolve failures of large financial institutions and deal with systemic risks. "Like most Republicans, I believe a stand-alone agency for consumer protection or separating those protections from safety and soundness are nonstarters. I will work to see if we can find a way to enhance consumer protection without negatively impacting the safety and soundness of our financial system, and if we cannot, this will not be a bill I can support," Sen. Corker said.

Home-Free USA, a Maryland-based, HUD-approved nonprofit counseling organization, will team with Chase Home Mortgage February 18-19 in a face-to-face modification event for borrowers struggling to make their house payment. Home-Free counselors will discuss each individual borrower's financial and employment situation, obtain a credit report for them, establish a budget that includes a potentially modified mortgage payment, and help them prepare a mortgage-modification application. The owners will then meet with Chase counselors, who will review their applications to ensure they have all the information needed for a loan modification review under the government's Home Affordable Modification Program or Chase's own loan-mod program. The applications will be sent for an accelerated review that averages just 30 to 45 days. Chase already has reached out by phone and mail to borrowers who may be eligible for either program. The sessions, scheduled for 10 hours each day, will be held at Home-Free's headquarters in Hyattsville, a D.C. suburb. "Together with Chase," said the agency's president, Marcia Griffin, "we are putting homeowners on the road to preventing foreclosure."

More than a third of the existing homes sold last year in the seven-county Chicago area were distressed properties, according to the RE/MAX Northern Illinois network. Nearly 38% of last year's sales in the Chicago suburbs were made under duress, as were 31% of the sales in the city itself. The RE/MAX report is based on transactions tracked by Midwest Real Estate Data, the region's multiple listing service, for the counties of Cook, DuPage, Kane, Kendall, Lake, McHenry and Will. "In the last two to three years, distressed properties have gone from being a small portion of the residential marketplace to a significant one," said Jim Merrion, regional director of the RE/MAX brokerages in Northern Illinois. Of the 248 suburban Chicago submarkets, distressed properties accounted for 50% or more of all 2009 sales in 66 areas, with 44 of those areas in Cook County alone. In the city, distressed sales accounted for half or more of all transactions in 37 of the city's 77 neighborhoods. In Winnetka, Kenilworth and the city's Lincoln Park, however, distressed sales accounted for less than 5% of total sales in '09. Foreclosures accounted for 70% of distressed deals, while 28% were short sales, according to RE/MAX. "We continue to see problems with securing lender approval and processing of short sales, even though these transactions typically bring more money for a property than can be obtained after foreclosure," Mr. Merrion also reported.

The mortgage insurance division of The PMI Group saw its risk-to-capital ratio fall to 22:1 at yearend, perilously close to the 25:1 ratio that could halt it from writing new business in several states. However, insurance regulators in Arizona, where PMI Mortgage Insurance Co. is domiciled, have granted the MI unit a waiver from having to meet that state's minimum policyholder position requirement. "Based on information obtained from the examination, the Department concluded that PMI currently has sufficient capital and resources to fulfill its current and projected policyholder obligations," according to a letter sent by insurance regulators. Furthermore, Fannie Mae has given conditional approval for another PMI Group subsidiary, PMI Mortgage Assurance Co. (currently called Commercial Loan Insurance Corp.) to issue new policies in states where PMI Mortgage Insurance Co. can no longer write new business. PMAC, following certain internal restructuring and capital initiatives, including a $10 million investment from PMI Mortgage Insurance Co., will hold approximately $28 million of capital. PMAC is also in negotiations with Freddie Mac about becoming an eligible insurer. Both announcements came out a day before PMI Group said it lost $228 million in the fourth quarter, compared with a loss of $179 million one year prior. Its U.S. MI business had a net loss of $242 million in the fourth quarter of 2009 vs. a net loss of $174 million in the fourth quarter of 2008. For the full year 2009, the parent company lost $659 million, an improvement on a net loss of $887 million in 2008.

Almost two months after National Mortgage News first reported that Lend America of Long Island was refinancing consumers but then not paying off their prior first liens, federal officials are investigating those allegations. Existence of the probe was first reported by Newsday. Lend America's top executive, Michael Ashley, could not be reached for comment. The Federal Housing Administration banned the Melville-based Lend America, a privately held nondepository, from its insurance program in November, citing numerous underwriting violations. FHA loans accounted for most of its production. In early December the company stopped originating new loans and laid off most of its workforce. NMN quoted consumers who had loans with the company as well as an attorney who represented vendors that did business with the nonbank.

Freddie Mac has dropped its origination forecast for 2010 by nearly 9% to $1.6 trillion as a result of lower expectations for refinancings. In January, Freddie economists estimated that one- to four-family originations would total $1.75 trillion in 2010 with 30-year fixed rate loans averaging 5.6% over the four quarters of this year. In its latest forecast, the GSE's economists expect 30 year FRMs will average 5.4%, while hovering around 5% during the first-half of this year. With the Federal Reserve slated to stop its purchase of agency mortgage-backed securities by March 31, Freddie's forecasters see little immediate impact on rates. "We expect any impact on mortgage rates to be modest and not derail the housing recovery," said Freddie's chief economist Frank Nothaft. However, a huge jump in refinancings late in the fourth quarter prompted its economists to shift production to Q4 from the early quarters of 2010. Freddie now believes refis will total $800 billion in 2010 compared to $963 billion in the earlier forecast.

Fannie Mae is still working on a warehouse lending pilot but is offering little guidance on its progress, according to industry observers. Scott Stern, who runs the Lender's One cooperative, said he has not heard anything new about the pilot of late but, noted that the 157 lenders he represents "would welcome Fannie's foray into warehouse lending." Freddie Mac, with NattyMac, St. Petersburg, Fla., as its partner, launched a small warehouse pilot late last year. At press time, Fannie Mae officials had not responded to telephone calls and emails about the pilot.

The slumping new home business is a large factor in California's monetary woes, according to a preliminary report that shows the downturn has resulted in the loss of hundreds or thousands of jobs and tens of billions of dollars in economic output to the state's economy. The study found that new housing construction contributed just $14.3 billion to California's economy in 2009 and generated 80,000 jobs. That's only a fraction of the $67.7 billion and 487,000 jobs the industry added in 2005. The report also found that every dollar spent on new housing construction in the state generates additional 80 cents in total economic activity and that each job created through residential construction supports an additional 1.2 jobs. The "Economic Benefits of Housing" report details the role the housing industry plays in the economic health of California and was conducted as the fourth update to a report first commissioned in 2003. The Center for Strategic Research analyzed construction and market data from around the state and quantified the impact of California's construction sector to the state's economy. "It has never been more evident that we must revive the housing industry in order to revive California's economy," said Liz Snow, president of the California Building Industry Association.