Originations

Fitch Ratings, New York, has downgraded two Farmer Mac Guaranteed Notes Trust transactions as a result of its downgrade earlier this week of the insurer financial strength rating of Metropolitan Life Insurance Co., New York. Fitch said the ratings of the two transactions, Series 2006-2 and Series 2007-1, are based on MetLife's ability to fulfill its obligations under its guaranty. The ratings on both transactions are solely linked to MetLife's IFS rating, which was cut one notch from "A+" down to "A". Both Farmer Mac transactions were downgraded from "AA" to "AA-". A pool of agricultural mortgages secures them, but the notes are general obligations of MetLife. "If MetLife is no longer able to support the transaction, support would then fall to Farmer Mac. If Farmer Mac should then fail to make payments on the notes, the noteholders have ultimate recourse to the collateral," Fitch said.

The average rate for a 30-year fixed-rate mortgage inched very slightly above 5% during the week ended Feb. 4, according to the Freddie Mac Primary Mortgage Market Survey. At 5.01%, this was up from 4.98% the previous week but down from 5.25% a year ago. "Mortgage rates remained relatively stable for a second week amid news of a strengthening housing market," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 15-year FRM rate in the latest survey was 4.40%, up from 4.39% the previous week but down from 4.92% a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.27%, up from 4.25% the previous week but down from 5.26% a year ago. The average one-year Treasury ARM rate was 4.22%, down from 4.29% the previous week and from 4.92% a year ago. Average points were 0.7 for 15- and 30-year product, 0.6 for five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.

Fidelity National Financial Inc., Jacksonville, Fla., has reported a net profit of $69 million for the fourth quarter 2009 and a net profit of $222 million for the full year. This is a turnaround from losses of $15 million and $179 million for the same periods in 2008 respectively. Direct orders opened in the fourth quarter 2009 were 550,600 (up from 428,000 one year prior) and 2.6 million for the full year 2009, up from 1.86 million for 2008. However, actual title claims paid in the fourth quarter 2009 were $149 million, vs. $50 million for the fourth quarter 2008. There were $388 million in actual title claims paid for all of 2009, compared with $278 million in 2008. Among the highlights of 2009, said FNF chairman William P. Foley II, was the return to profitability of the former LandAmerica units, Lawyers Title and Commonwealth Title, and the completion of their integration into the company during the second quarter, with a cost reduction of $265 million. Also in 2009, FNF reduced its outstanding debt by $490 million, while raising $460 million in equity.

Residential Capital Corp. — which is on the auction block — posted a $4 billion loss in the fourth quarter after reclassifying some of its troubled mortgages and being forced to repurchase loans from Fannie Mae and Freddie Mac. A year ago, the GMAC-owned ResCap lost $790 million. GMAC is trying to unload several billion dollars in troubled loans held by ResCap and said in a statement Thursday that it continues to "explore strategic opportunities" for the unit. Loan repurchases by ResCap cost the company $573 million in the fourth quarter 2009. It also marked down the value of its mortgage servicing rights by $122 million. (According to the Quarterly Data Report, ResCap ranks fifth nationwide in terms of housing receivables with $380 billion.) There was some good news, though. The mortgage lender originated $18.1 billion in the quarter, more than double its fundings in the same period a year earlier. GMAC Financial Services is majority owned by the U.S. government, which has spent more than $15 billion to keep the company in operation through the credit crisis and recession. The parent company lost $5 billion in the fourth quarter ($4 billion of that amount tied to ResCap.)

Bankrupt commercial real estate investment trust General Growth Properties Inc., Chicago, said a Brazilian shopping center venture it owns a stake in has completed an initial public offering in that country. GGP said it did not sell any of its Aliansce shares in the IPO and now has about a 31.4% interest in the company, Aliansce Shopping Centers S.A. The Brazilian company sold 50 million of the 65 million shares involved in the IPO at a price equivalent to $4.86 per share.

Witmer Partners LLC, a Horsham, Pa.-based venture capital and advisory firm that also has servicing operations, plans to buy a "significant" stake in a multifamily lender that specializes in government product. Witmer did not disclose the exact amount of the stake it wants to buy in Tavernier Capital Funding, subject to Department of Housing and Urban Development approval. Tavernier Capital Funding is a subsidiary of the Tampa, Fla.-based commercial mortgage banker Tavernier Capital Partners. Former GMACCM chairman David Creamer is a founding partner at Witmer. Tavernier Capital Funding principal Allen Moczul previously was an executive at GMACCM who oversaw state markets, first in Michigan and later in Florida. Witmer specializes in both commercial and residential mortgages and its businesses included commercial special servicer Helios AMC LLC as well as distressed residential servicer Selene Finance LP.

MetLife Bank posted strong operating earnings in the fourth quarter and full year, citing stellar results in its residential lending and servicing division. The bank, the nation's 11th largest funder of residential mortgages, had operating earnings of $65 million in the fourth quarter, a 400% increase from the same period a year earlier. For the full year, the Bridgewater, N.J.-based depository earned (on an operating basis) $298 million. In 2008 the unit had profits of $44 million. As reported by National Mortgage News recently, MetLife's mortgage division is exploring entering the warehouse and correspondent sectors.

The Mortgage Bankers Association said it will oppose a White House budgetary proposal to reduce itemized deductions, a measure that includes caps on write-offs for mortgage interest paid by high wage earners. In a new statement, the trade group said such a measure "would have a negative impact on the housing market, particularly in high cost states like California and New York." The White House is proposing a cap on mortgage interest deductions for taxpayers reporting income above $250,000 (joint) and $200,000 (single). In years past other administrations — usually Republicans — have tried to scale back the mortgage interest deduction but with little luck. "Reducing the federal deficit is vital to the long-term health of the U.S. economy and our industry," said MBA chairman Robert Story. "However, we believe it can and should be done without negatively impacting the already-fragile housing market. Limiting the mortgage interest deduction and imposing additional taxes on lenders will only make economic recovery more difficult." The trade group also opposes a proposal to tax "carried interest" at ordinary tax rates (as opposed to the capital gains rate, as it is taxed now), because it thinks the measure would discourage capital formation for lending.

The week after a decline in refinancings caused new application volume to drop, the Mortgage Bankers Association's Weekly Mortgage Applications Survey showed an improvement, but an economist for the organization said refi volume is unlikely to bounce very high. MBA's Market Composite Index for the week of Jan. 29, a measure of mortgage loan application volume, increased 21.0% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 23.5% compared with the previous week. The Refinance Index increased 26.3% from the previous week and the seasonally adjusted Purchase Index increased 10.3% from one week earlier. Michael Fratantoni, MBA's vice president of research and economics, noted that the both indices are at mid-December levels. "Rates continue to hover around 5%, quite low by historical standards, but are well above the record lows seen in 2009, and hence are not generating substantial refi volume. We expect that rates will rise over the next few months as the Federal Reserve winds down its MBS purchase program, and this will likely lead to a decline in refinance volume," he said. The market share of refi applications is 69.2%, an increase over the previous week's 67.6%. The market share of adjustable rate mortgage loan applications fell to 4.5%, down from 4.7% for the previous week. The average contract interest rate for 30-year fixed-rate mortgages fell one basis point to 5.01% from 5.02%, with points rising to 1.04 from 1 (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 fell by one basis point to 4.33%. Rates for ARM loans have been much more volatile in recent weeks. In the current survey the average contract interest rate decreased by 14 basis points to 6.70%. The three previous weeks found this rate up 41 BPs, down 11 BPs, then up 12 BPs.

The U.S. homeownership rate fell to 67.2% in the fourth quarter from 67.5% a year ago with foreclosures and a low level of home sales whittling down the percentage of homeowners to roughly a 10-year low, according to new figures from the Census Bureau. The last time the homeownership rate fell below 67.2% was in the first quarter of 2000. The high water mark for ownership came in the fourth quarter of 2004 when the rate was 69.2%. A percentage point decline in the rate represents 1.1 million owner-occupants losing their homes. The rate for blacks ended the year at 46%, down from 46.8% in the fourth quarter of 2008. Hispanics ended the year with a 48.4% homeownership rate, down from 49.6% a year ago. The Census Bureau also reported that the number of vacant homes for sale rose to 2.09 million in the fourth quarter from 1.99 million in the third quarter. Meanwhile, the number of vacant homes for rent fell to 4.47 million in the fourth quarter, from 4.59 million in the third quarter.

Fannie Mae and Freddie Mac have $2 billion at stake in the Stuyvesant Town and Peter Cooper Village debacle in Manhattan — but their former regulator believes they won't be big losers. "They have the most senior piece and they are well positioned," said former Federal Housing Finance Agency director James Lockhart, speaking at the American Securitization Forum conference in Washington. The GSEs are investors in commercial mortgage-backed securities that were issued in 2006 when Tishman Speyer Properties and BlackRock Realty acquired the 11,000-unit apartment complex for $5.4 billion. (At the time of purchase, Mr. Lockhart was the FHFA chief and the GSEs were not wards of the government.) On Jan. 25, Tishman and BlackRock defaulted on $4.4 billion in loans, including $3 billion in senior mortgages. The properties are now valued at $2 billion. "Obviously, that was a bubble transaction. It will have to be unscrambled and it is going to be very messy," said Mr. Lockhart, who is now vice-chairman of WL Ross & Co., a New York vulture fund that specializes in distressed mortgage-related investments.

Eliminating or downsizing Fannie Mae and Freddie Mac would cripple the TBA (to-be-announced) market, which provides a quick and cost-efficient mechanism for issuing mortgage-backed securities, according to an executive at JPMorgan Chase. Speaking at the American Securitization Forum meeting in Washington, JPM senior vice president Garry Cipponeri told attendees that without TBA, "We would be in big trouble." Mr. Cipponeri, during a panel discussion on the future of the GSEs, said mortgage rates would be 150 basis points higher without Fannie/Freddie and the TBA market. Also speaking on the panel was former GSE regulator James Lockhart who noted that MBS issued by Fannie and Freddie today will be backed by the government forever. "We are going to have to create a new security going forward that does reproduce the TBA," said Mr. Lockhart. "That is going to take time and it is going to take capital." Meanwhile, Wellington Denahan-Norris, a top executive for Annaly Capital Management told the ASF audience that the private label MBS market "will not come back for a long time." MetLife managing director Nancy Mueller Handal said servicing issues and the rights of first and second lien holders need to be resolved for the private label MBS market to recover. "Without a clear solution to lien holder rights, it is going to be difficult to invest," said the MetLife executive.

Fannie Mae and Freddie Mac will not become large buyers of mortgage-backed securities this year and will maintain plans to reduce their total asset size, according to a new letter from their regulator. Federal Housing Finance Agency director Ed DeMarco told banking committee leaders on Capitol Hill that the Obama administration wants Fannie and Freddie to concentrate on conserving assets while minimizing credit losses and stressing foreclosure prevention. "This is and will remain the central goal of FHFA and the enterprises," the government-sponsored enterprise regulator says in the letter. FHFA acting director DeMarco also notes in the letter that the GSEs have the flexibility to expand the size of their investment portfolios but notes that such moves will center around purchases of delinquent mortgages out of guaranteed MBS for modification and loss mitigation. The Federal Reserve is expected to end its purchases of GSE MBS at the end of this quarter. Many market observers assumed Fannie and Freddie would step in to fill the void — if necessary — to keep mortgage rates stable. "I expect that other private parties will begin to invest in Enterprise MBS as the Federal Reserve gradually withdraws its purchase activity," Mr. DeMarco says.

The potential for higher-than-expected commercial real estate investment losses is one of the reasons Fitch Ratings, Chicago, has downgraded the issuer default rating for MetLife Inc., New York, from "A+" down to "A". MetLife has an above-average investment exposure to CRE. These investments make up 16% of the company's total invested assets as of Sept. 30, 2009, and consist of commercial mortgage loans, commercial mortgage-backed securities and real estate. Fitch added that a mitigating factor to the downgrade is MetLife's commercial mortgage reserve of $542 million as of Sept. 30, 2009. The rating agency said it is also concerned about MetLife's potential for future investment losses from prime and alt-A residential mortgage-backed securities and hybrid securities. Fitch projects MetLife has a potential for further investment gross losses of between $2.2 billion and $2.6 billion for the period covering the fourth quarter of 2009 and all of 2010. On the positive side, MetLife has a below average exposure to subprime mortgage investments, as the company was very proactive in identifying issues and took steps to reduce its exposure, the rating agency said.

The Department of Housing and Urban Development is projecting that new, higher fees charged by the Federal Housing Administration along with earnings from the Government National Mortgage Association program will double the agency's mortgage-related "receipts" in the new fiscal year to $6.9 billion. HUD secretary Shaun Donovan said he plans to use some of the additional $3.4 billion in FHA/GNMA revenue to expand such social programs as Section 8 rental vouchers. During a press conference with reporters Mr. Donovan provided little detail on replenishing the depleted FHA insurance fund, but seemed confident that it would stay in the black thanks to new premium hikes charged to borrowers. HUD has set its overall FY 2011 budget at $48.5 billion, a 5% reduction from last year. The Section 8 plan and HUD budget, if approved by Congress, will create 35,000 additional renters by giving them federal housing vouchers. In terms of dollars for vouchers, the increase is 8% to $19.6 billion. Secretary Donovan, in response to a question, said government money will not be used to bail out apartment projects such as the $5.6 billion Stuyvesant Town leveraged buyout which occurred in 2006. The housing secretary noted that "private investors are rightly" suffering what he called "private losses."

Wells Fargo & Co. saw a $28.2 billion reduction in unpaid principal balances on legacy 'Pick-a-Pay' mortgages last year, according to an investor conference presentation by the company's chief financial officer. However, there was little detail on how the company achieved its results. At press time, a Wells spokesman had not returned a telephone call about the matter. A recent Wall Street Journal report indicates that Wells has been lowering payments for some underwater borrowers who originally took out Pick-a-Pay loans by offering them extended-term mortgages with interest-only payments. The company also reduced its legacy credit-impaired commercial real estate portfolio by $5.6 billion year-to-year, said CFO Howard Atkins in a web cast presentation from New York. Wells inherited both the CRE portfolio and the negative amortization 'Pick-a-Pay' ARMs when it bought Wachovia in the fall of 2008. Mr. Atkins said that despite these negatives, the Wachovia purchase was beneficial. Wells improved its distribution network and diversified its financial offerings. The deal also allowed it to bolster its origination and servicing volumes. Addressing questions about the company's home equity exposure, Mr. Atkins said performance in that area is relatively good given that it includes some first-lien product and has strong underwriting outside of the third-party sector it exited a couple of years ago. When asked about HAMP modifications' effect on second lien home-equity product, he said he would not take a position other than to note the company is exploring its options. Wells has completed more than 118,000 modifications through the government's Home Affordable Modification Program.

Vulture fund PennyMac Mortgage Investment Trust lost $1.15 million in the fourth quarter, its second consecutive loss since going public last year. The company continues to evaluate loan portfolios and MBS for possible purchase, but also is moving full steam ahead with plans to launch a conduit that will allow it to purchase newly originated loans from small mortgage bankers. Once it accumulates enough product it will issue MBS. Company founder and CEO Stanford Kurland said "at this early stage" losses at the company are not surprising. "Over the past several months, our manager has focused significant attention on its ability to adapt and react to changing dynamics in the mortgage marketplace, including a low volume of available performing mortgage transactions, which offer greater opportunity for value enhancement, and less attractive trading levels for the pools that have been marketed." At yearend, PennyMac reported assets of $324 million and total revenues of just $1.5 million. It took in $1.6 million of interest income on its investments, but had to mark down the value of its holdings by $115,000.

Flagstar Bancorp, one of the nation's top ranked wholesaler funders, reported a fourth quarter loss of $71.6 million, an improved showing over the prior quarter and the same period last year. Meanwhile, the Michigan-based lender originated $6.9 billion of home mortgages in the fourth quarter, a 28% increase in fundings from Q4 2008. For the full year, originations rose 15% to $32.4 billion. Even though its quarterly earnings improved, it lost $514 million for the full year, compared to a $275 million loss the prior year. At yearend Flagstar serviced $56.5 billion in loans. (It is currently shopping around a $10 billion package of receivables.) At year end it held $659 million of non-performing residential mortgage loans, a 51% increase from 2008. It also owns $338 in nonperforming commercial mortgages, a 67% spike from 2008.

The Comptroller of the Currency believes that in light of newly proposed accounting rules regarding "sale treatment," the congressional push to impose risk retention or "skin in the game" requirements on MBS issuers will only hamper a recovery in the private label market. Speaking at a American Securities Forum conference, OCC chief John Dugan called risk retention an "imprecise and indirect" way to improve the underwriting quality of residential mortgages. As an alternative, he thinks federal regulators should set minimum mortgage underwriting standards including requirements for verification of income, and minimum downpayments. These minimum standards would insure that newly funded mortgages are financially sound, likely to be repaid, allaying fears that an asset bubble is being created. Mr. Dugan thinks these attributes will attract investors to the securitization process. He supports risk retention but new accounting proposals prevent securitizers from achieving sale treatment on mortgage backed securities if they retain 5% of that risk. The language is part of a House-passed bill and appears in a recent proposal issued by the Federal Deposit Insurance Corp. "I do think...that minimum underwriting should be strongly considered as an alternative to rigid 'skin in the game' requirements," Mr. Dugan told conference attendees.

CitiMortgage, which early last year trimmed its wholesale unit to the bone, is now contacting certain loan brokers it used in hopes of drumming up new business. It's unclear how extensive the lender's broker outreach effort is at this point. A company spokesman noted that CitiMortgage has no "formal" plans but said, "We touch base with some former customers from time to time to consider the potential benefits of future relationships." Brian Benjamin, who runs Two River Mortgage in Red Bank, N.J., said he was contacted by a CitiMortgage account executive from Texas and asked to re-register with the lender. Mr. Benjamin said he sent in his application but has not heard from Citi. A Denver broker, requesting his name not be used, said he too was contacted but is leaning toward not re-applying. (For the full story see the paper edition of National Mortgage News.)