Originations

Pulte Homes, Inc., reported a $36.3 million pre-tax loss on its mortgage operations in the fourth quarter, blaming the performance on loan repurchase charges. In the same quarter a year earlier, the home builder's mortgage division lost $7.9 million. Pulte Home Mortgage saw total fundings fall by 33% to $2.28 billon in 2009 despite its August acquisition of Centex Corp, and its mortgage subsidiary. However, fourth quarter originations got a boost from the merger. PHM funded $906 million in loans, compared to $848 million in Q4 2008. Roughly 40% of its production was FHA-based. (Pulte sells most of its loans to investors in the secondary market.) The Bloomfield Hills, Mich., based builder says its loss exposure on mortgage loans "increased significantly" since its takeover of Centex's mortgage operations. The company also noted "increasing aggressiveness" on the part of investors presenting claims on defaulted loans in its third quarter securities filing. Pulte recorded losses related to contingent repurchase obligation charges of $37 million in the fourth quarter, compared to $23.6 million for the previous three quarters. Overall, Pulte Home posted a $1.2 billion loss for 2009 after receiving $800 million of income tax benefits that Congress passed in November. The bill extended the homebuyer tax credit program until April 30 and extended the carry-back period for operating losses (for home builders and others) to five years from two.

The Department of Housing and Urban Development has created an office of sustainable housing that will work on improving energy-efficient homes and financing for such projects. The new Office of Sustainable Housing and Communities will also work with city, county and rural governments to locate housing near jobs, schools and transportation. To promote sustainability, OSHC will use a $50 million fund to invest in energy-efficient homes and buildings in order to "lay the groundwork for the clean energy economy," HUD said. As part of that effort, the office wants to improve on HUD's energy efficient mortgage products and other energy retro financing options. Shelly Poticha is the director of OSHC.

Mortgage bankers funded roughly $475 billion of one- to four-family loans in the fourth quarter, a 75% spike in originations compared to the same period a year earlier, according to preliminary survey results compiled by National Mortgage News. The period ending December 31 was a decent quarter for most lenders thanks to continued low interest rates and an extension of the federal first-time home buyer tax credit. However, fear of the tax credit ending likely pushed some consumers into buying homes earlier, causing an untold number of closings to occur in the third quarter instead of the fourth. In the third quarter of 2009 mortgage bankers originated $442 billion of loans. It should be pointed out that the fourth quarter of 2008 — the height of the credit crisis — was one of the worst production periods of the decade with just $277 billion in loans closing.

Berkadia Commercial Mortgage, Chicago, has originated $9.55 million in permanent, fixed-rate debt through its FHA program to finance the construction of Victory Centre of Galewood, a seniors' housing community in Chicago. The fully amortizing loan has a 40-year term and an interest rate of 4.47%. Additional sources of funding for the project include 9% Low Income Housing Tax Credits, a city of Chicago Department of Housing HOME loan, an AHP grant from the Federal Home Loan Bank and an Illinois affordable housing tax credit donation credit. Collectively, all sources of funding provided more than $21 million for the development of the project. Len Deering, Tom Sigrist and Paul Matusiak of Berkadia's Chicago office originated the loan. The borrower was Galewood SLF Associates LP.

Service 1st Valuation and Settlement Services Inc. has joined the Ellie Mae Network. Connectivity to the network is integrated in Ellie Mae's Encompass360 mortgage management software, which is used by mortgage bankers, mortgage brokers, community banks, credit unions and national and regional lenders across the United States. As a result of the Service 1st integration, Service 1st will be available as an independent appraiser on the Ellie Mae Network and available to all users of Encompass360.

Wells Fargo Funding has authorized the use of Docu Prep's EESS product for digital signing documents. The Entire Electronic Signature Solution is Docu Prep's newest signing technology. The company's EESS product gives customers the ability to customize their document sets, and provides them with electronic signatures and delivery, as well as integrated management with reporting capabilities. Docu Prep is the 15th approved vendor by Wells for e-signing.

The seasonally adjusted annual rate of Canadian housing starts jumped to 186,300, suggesting an upward trend. Both single-family and multifamily starts during the month saw increases similar to December's, according to Bob Dugan, chief economist at Canada Mortgage and Housing Corp. Final actual starts figures that came in for 2009 also suggested a trend toward recovery, according to the CMHC.

Lenders originated $86.1 billion in FHA-insured single-family loans in the fourth quarter, up 21% from same quarter in 2008. The Federal Housing Administration reported that 60% or $51.8 billion of the endorsements involved home purchase loans during the final quarter of calendar year 2009. Meanwhile, FHA insurance-in-force grew by 24% during in the calendar year to $752.6 billion as of Dec. 31. But the percentage of singe-family loans 90 days or more past due grew by 34%. FHA ended the year with a 9.12% default rate, up from 6.82% at yearend 2008. Housing officials are raising the FHA upfront mortgage insurance premium 50 basis points to 2.25% this April to cover rising claims and losses. Foreclosures involving FHA-insured loans totaled 20,650 in the fourth quarter, up 41% from the same quarter in 2008. The use of short sales to avoid foreclosure shot up 140% from a year ago to 2,925 in the fourth quarter of 2009.

Refinances in 2010 will be down 52% and purchase mortgage volume will be down 5% from 2009, according to the latest projections from iEmergent, a Des Moines, Iowa-based market research firm. It predicts total volume of between $1.09 trillion and $1.2 trillion for this year, as more than one-third of U.S. households are no longer in the homebuyer pool, which is now at levels lower that those experienced in the early 1990s. If the high end of its estimate is reached, iEmergent predicts a 49% refi/51% purchase market share split for this year, with purchase volume of $557 billion and refi volume of between $531 billion and $643 billion. Dennis Hedlund, president of iEmergent said current elevated loan volumes are unsustainable as consumers are savings more and are worried about their jobs. Lenders who relied heavily on refis last year will face considerable risk for their business year and next. "Competing for home buyers and loan originations in flat or declining markets is essentially a local, zero-sum game, where loan acquisition efficiency is crucial," said Mr. Hedlund. "The ability of lenders to turn quantitative market analytics and forecasts into new and more effective lending strategies that are matched to their local markets is fundamental to survival over the next two years."

Of the $87 billion in first mortgage loans Bank of America originated in the fourth quarter 2009, $23 billion were given to 151,000 low- and moderate- income customers, according to its Lending & Investing Initiative Report. For the full year of 2009, the Charlotte, N.C., based banking giant originated nearly $87 billion in mortgages to more than 561,000 low- and moderate- income borrowers. The bank also originated nearly $3 billion in home equity and reverse mortgage loans in the fourth quarter and $13 billion for the full year. On the loss mitigation side, BoA provided rate relief or agreed to modify terms for approximately 460,000 mortgage customers, compared to 230,000 in all of 2008 for itself and Countrywide (acquired during 2008) combined. The full year 2009 activities include performing 260,000 loan modifications with total unpaid principal balances of approximately $55 billion. Approximately 200,000 customers are in trial-period modifications under the government's Making Home Affordable Program at Dec. 31, 2009.

A Chicago entrepreneur is suing the Federal Deposit Insurance Corp. to win back capital he invested in a bank in the months before it failed. Pethinaidu Veluchamy, the chief executive of a direct marketing conglomerate, filed a complaint last week against the FDIC in federal court in Chicago, claiming that the regulator acted in a way that was "arbitrary, capricious [and] an abuse of discretion" in declining to approve a capital restructuring that would have benefited Mutual Bank in Harvey, Ill., before it was taken over last July. Bank experts said the allegations echo criticism by ailing banks — highlighted in a congressional hearing two weeks ago — that regulators' overly rigid rule interpretations unnecessarily led to the demise of some community banks. "There is no question that bank regulators in this market cycle have moved the goal posts for community banks in capital distress, giving banks significantly less time to work out problem loans and raise capital, while simultaneously increasing the minimum capital adequacy ratios for these same banks," said Justin A. Barr, the managing principal of Loan Workout Advisers, a consulting firm. "This [was done] at a time when community bank capital-raising has never been more difficult," Mr. Barr added. "It's all beginning to read like an Ayn Rand novel."

The Federal Trade Commission is proposing a ban on companies charging consumers upfront fees for loan modification services. In its notice of proposed rulemaking, the agency said it has already brought 28 cases against companies fraudulently offering loan modification services that charge consumers a fee and don't deliver and that state and federal law enforcement agencies have brought hundreds more. The rule would not allow a loan modification company to be compensated until it had a documented offer from a mortgage lender or servicer. It also bars providers from advising consumers to stop communicating with their lender or servicer. Furthermore, the rule would stop modification providers from misleading consumers about the likelihood of getting the results they want and how long it will take; their affiliation with public or private entities, payment and other existing mortgage obligations; and refund and cancellation policies. It also requires consumers to be told the loan modification firm is a 'for-profit' business that provides its services in exchange for a fee, what that fee is, and that there is no guarantee of success. There is a 45-day comment period for the rule, which ends on March 29, 2010. Some states, most notably California, already ban upfront fees for loan modification services.

GMAC Inc.'s chief executive Michael Carpenter sought to reassure investors — as his predecessor Alvaro de Molina did before him — that the bleeding at its Residential Capital LLC unit has stopped. On a conference call, Mr. Carpenter said GMAC expects to "fully resolve the challenges related to ResCap and the legacy mortgage business to minimize its impact on the company." Additionally, a spokeswoman for GMAC said despite media reports to the contrary, that ResCap, as a company, is not necessarily for sale. In an email, the spokeswoman said GMAC is "exploring strategic alternatives" for ResCap including asset sales. As reported, ResCap lost $4 billion in the fourth quarter, and $9.2 billion over the previous eight quarters. Mr. Carpenter told investors that, "You will see steady progress month by month, quarter by quarter." Part of the reason for such optimism is that in December, GMAC marked down certain loans to 40 cents on the dollar, from 70 cents, and transferred the assets from the Ally Bank unit to ResCap, resulting in a $2.6 billion loss in the quarter. "We expect the majority of the losses related to legacy assets are behind us," said Robert Hull, GMAC's chief financial officer.

A wave of GSE buyouts of delinquent loans widely expected to affect higher-coupon agency mortgage-backed securities this year failed to materialize in 2010's first month of prepayment data, according to Wall Street research reports. Prepayments also slowed despite record low rates during the period, but analysts had widely expected that would occur due to tight underwriting and the fact that many loans had already refinanced. More surprising to some analysts was the lack of buyouts. Credit Suisse researchers said the buyouts may have failed to materialize due to operational challenges involved in implementing the accounting changes expected to spur them. "We believe the economic incentive for the GSEs to buy out delinquent loans is still there and hence buyout risk remains in place in the short term," the analysts said. "However, we would start fading out buyout risk should it not materialize in February." Barclays Capital researchers said some MBS investors have been concerned about massive GSE buyouts, but they have been reassuring them that it may not happen due to portfolio caps and other factors. Overall, 30-year fixed rate prepayments declined by 16%, according to Credit Suisse. Both firms said prepayments were slower than they had expected.

The mortgage industry shed 1,000 full-time workers in December after a 2,800 increase in November, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 253,400 in December from 255,400 the previous month. Employment in residential finance industry last year averaged 262,900 positions, compared to 308,300 in 2008. Meanwhile, Friday's job report shows the nation's unemployment rate fell three tenths of a percent to 9.7% in January as 20,000 workers were laid off. The bureau revised the December number from a loss of 85,000 full time jobs to a loss of 150,000. [There is one-month lag in BLS reporting of mortgage industry employment data.] The November jobs number was revised upward from a loss of 4,000 jobs to a gain of 64,000. That's the good news. The bad news is that companies have slashed 8.4 millions workers from their payrolls since the recession started in December 2007 — up 1 million from previous estimates. This helps to explain the strain on servicers as well as the high level of defaults and foreclosures. Despite the discouraging numbers, many economists expect to see a pickup in hiring very soon.

The Federal Reserve is prepared to act as a backstop for the mortgage market after it officially ends its MBS purchase program on March 31, according to New York Fed Bank President William Dudley. The Fed is on track to complete its planned purchases of $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae MBS at the end of this quarter. But Mr. Dudley told the Associated Press that the Fed is not on "automated pilot" and will restart MBS purchases if mortgage rates spike. "If there is a sharp turn in the road," Mr. Dudley said, the Fed will intervene. Wall Street mortgage experts seem divided on how the market will react when the Fed stops its MBS purchase program. The Fed bank president expects it will be orderly since the central bank has telegraphed its intentions well in advance of the March 31 cut off.

The Federal Housing Administration had $32.6 billion in liquid assets on hand at Dec. 31 — a slight increase from three months earlier — to cover potential losses on its $700 billion-plus book of business, according to new figures provided by the agency. Compared to the same period a year earlier, the FHA 'Reserve Fund' saw its cash and "investment" balances improve by 13%. However, FHA would not provide a capital ratio for the December 31 period, noting that the figure is "only calculated once a year, at the end of each fiscal year." In the fall, the reserve fund had a capital ratio of just 0.56%, well below the 2% minimum FHA prefers. Analysts fear that unless the insurance fund can quickly raise premiums, FHA might be overwhelmed by claim payments with the reserve fund going into the red. (For the full analysis see the Monday edition of National Mortgage News.)

A probe by the HUD Inspector General of 15 FHA lenders is causing warehouse providers to have second thoughts on extending credit to some of these firms, according to attorneys, consultants, and mortgage executives close to the situation. These officials, who spoke on the condition they not be identified, said entire warehouse lines have been pulled or are in jeopardy. "When a government agency humiliates companies in public, there can be consequences with their relationships with third parties," one attorney said. In early January, Housing and Urban Department IG Kenneth Donohue subpoenaed documents from 15 FHA direct-endorsement lenders, citing their high default and claim rates. Recently, the IG counsel issued a letter to 10 of the companies, clarifying the nature of the probe and its review of loan documents. "Be advised the selection of 20 loans from these lenders was not based upon any evidence of wrongdoing — a point we made in the press release," the OIG counsel says in the letter. He adds, "Further, HUD IG's review of these lenders does not presently affect their ability to participate fully in the department's FHA insurance program." It appears the letter could be used to reassure warehouse lenders that the targeted companies were not accused of wrongdoing. The letter was requested by K&L Gates attorney Phillip Schulman who declined to comment on the matter.

Thanks to a steep yield curve, Annaly Capital Management, New York, a mortgage investment REIT, earned $729 million in the fourth quarter, a 155% improvement in profits from the prior period. In the same quarter a year earlier Annaly lost $506 million. The publicly traded company, which holds $64.8 billion in MBS, told stock analysts that it believes the yield curve will remain steep. According to a research note from Sandler O'Neill, management at Annaly is not "convinced that a sharp decline in MBS prices is on the horizon, although they would welcome a pullback in prices since it would enable Annaly to purchase new MBS at wider spreads."

Fitch Ratings, New York, has also downgraded ratings of Pacific LifeCorp, Newport Beach, Calif., and its subsidiaries, in large part because of fears of continued deterioration of the commercial real estate market could result in higher-than-expected losses for the parent company. PLC has an above-average investment exposure to commercial real estate related assets, including commercial mortgage-backed securities, direct loans and real estate. At the end of the third quarter 2009, these assets represented over 16% of PLC's total invested assets. Fitch is also worried about PLC's exposure to prime and alt-A residential MBS. The rating agency said PLC's gross unrealized loss position relating to these asset classes was $1.2 billion as of Sept. 30, 2009. However, Fitch said it believes PLC's exposure to future investment losses is manageable in the context of its statutory capital and projected operating earnings. PLC's long-term issuer default rating was dropped from "A" to "A-", while Pacific Life Insurance Co., had its insurer financial strength rating cut from "AA-" to "A+".