Originations

Old Republic International Corp., Chicago, has restated its results for the third quarter 2009 that reduces the net loss it reported, and company executives are none too happy about it. The issue involves $82.5 million received by Republic Mortgage Insurance Co. from captive reinsurance arrangements with mortgage lenders that was to cover future losses. The company's accountants had argued that generally accepted accounting principles require the money be recognized immediately as income, because it is treated as the termination of the reinsurance agreements, not as transactions where ORI/RMIC takes on new risk. Since revealing the potential for the restatement back in November 2009, ORI has been in discussions with the Securities and Exchange Commission's Office of the Chief Accountant and its auditors, PricewaterhouseCoopers LLP. As a result of the restatement, the third quarter sees an increase of its premium income of $82.5 million and a decrease of the post-tax loss by $53.6 million. Therefore, its net operating loss for the third quarter 2009, instead of $66.1 million, is now $12.4 million. The nine-month net operating loss went from $169.6 million down to $166.0 million. A.C. Zucaro, ORI's chairman and chief executive, said the resolution of the timing issues "reinforces our belief that GAAP accounting for mortgage guaranty insurers must change. The necessity for change is to at once effect a more pragmatic and realistic matching of premium revenues and normally recurring claim costs, and ensure that the accounting better reflects the inherent long-term economic catastrophe indemnity provided by the coverage." ORI's year-end results will be released on Jan. 28.

The outlook for the performance of residential mortgage-backed securities and asset-backed securities in Europe, the Middle East and Africa is negative for 2010, according to a recent Moody's Investors Service report. "Rating migrations are still expected, especially on the 492 tranches currently on review for downgrade and which include significant exposures to Spanish and U.K. nonconforming RMBS," said Mehdi Ababou, a Moody's vice president-senior analyst. The report, which reviews the past year as well as a forecast for the current one, notes that in 2009 the number of RMBS and ABS downgrades jumped to 741 compared to 408 in 2008. In 2009, "over two-thirds of the downgrades for RMBS were in Spain and the U.K. nonconforming sectors," said Mr. Ababou.

The National Association of Home Builders has approved a new policy stating its position for improving the nation's housing finance system, a stance that calls for continued government backing of a secondary mortgage market. At its annual convention in Las Vegas, the politically potent group adopted a posture that it believes will ensure a reliable flow of credit at the lowest possible cost "in all geographic areas and under all circumstances." The 175,000-member organization outlined a framework that fails to specifically mention Fannie Mae and Freddie Mac, suggesting instead that "a number of entities" should be encouraged to compete in a secondary market "in a manner that creates greater innovation and efficiency." But it still wants Uncle Sam to be involved, saying the federal government should establish a fund to guarantee the timely payment of principal and interest to investors in mortgage-backed securities. In addition, it backs a requirement that secondary marketing entities benefiting from federal guarantees should pay a fee to capitalize the fund. The federal government would incur exposure only for "catastrophic risk" beyond that covered by the fund, the statement says. "We can't have the federal government on the hook every time some missteps occur," David Ledford, the NAHB's senior vice president for housing economics and land development, said during the NAHB's internal debate. The new statement went through a four-day vetting process that required clearance by five different committees before it was approved unanimously by the NAHB's board of directors. During the discussion in the housing finance and federal government affairs committees, members slaved over words and phrases to write a carefully crafted document. "We're trying to decide how to carry a dozen eggs without a carton," said Kerville, Texas-based affordable housing developer Granger MacDonald, the group's outgoing finance committee chair.

The median price of existing single-family, detached houses sold in California in December recorded its largest year-over-year gain in three years, the state's Realtors reported. The median price hit $306,820 for the month, an 8.4% increase from the revised $283,060 median for December 2008, the group said. But the December figure was up only a modest 0.8% compared with November's $304,520 median price. "Home sales were unusually strong in December and were more consistent with peak season trends," said Leslie Appleton-Young, chief economist at the California Association of Realtors. "Historically, the median price declines November through February and then rises in March. However, lean inventory, historically low interest rates, and incentives for homebuyers have resulted in California's housing market experiencing non-seasonal variations." For the month, existing home sales were up 4%, reaching a seasonally adjusted annual rate of 558,320 units. In addition, the state's unsold inventory fell to 3.8 months compared to 5.6 months in December '08.

Sales of existing single-family homes fell 17% in December to an annualized rate of 5.45 million units with distressed purchases accounting for almost one-third of the activity, according to new figures released by the National Association of Realtors. Compared to December 2008, existing home sales actually rose 15%. However, NAR noted that the inventory of unsold homes rose 11% to a 7.2 month supply rate in December. Even though the supply rate rose, inventory fell to 3.29 million existing homes. (The monthly supply figure is calculated by the sales rate.) Sales fell the most in the Midwest (-26%) and the least in the West (-5%). NAR is warning that with inventory trending downward, buyers might need to "move quickly" if the spring home buying season heats up. NAR chief economist Lawrence Yun said the housing market is "going through a period of swings driven by the tax credit." (The $8,000 first-time homebuyer tax credit was extended from November 30 to April 30.) In December the median price of a home was $177,500, 1.4% higher than a year ago.

Fannie Mae and Freddie Mac could be history after the House Financial Services Committee completes its review of the housing finance system, and makes its recommendations, according to committee chairman Barney Frank, D-Mass., once a huge supporter of the two. "I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their present form," Rep. Frank said during a committee hearing. Earlier this month, Chairman Frank said he plans to hold hearings on restructuring the U.S. housing finance system and he has no desire to see Fannie and Freddie return to their former "hybrid" status as private companies with a public mission. The White House is expected to lay out its blueprint for the two in the next month or so but has offered little guidance on the issue. Rep. Frank's remarks sent the share price of the two tumbling Friday afternoon. The government-sponsored enterprises have been wards of the government for 17 months. Since their takeover, Treasury has pumped $110.6 billion into them to keep their net worth positions above zero, allaying investor fears about their debt and MBS. Presently, the two provide liquidity for roughly 70% of all originations in the U.S. mortgage market with FHA accounting for most of the balance.

Consumers now have access to the National Mortgage Licensing System and Registry to check the credentials and background of state-licensed mortgage lenders or brokers. The online NMLS system allows consumers to see the 10-year employment history of the loan officer or broker, the name of their current employer and the states they are licensed in. Starting in 2011, any adjudicated enforcement actions taken against a loan officer or broker will be listed on the system and accessible by consumers. State regulators initiated the mortgage licensing system to enhance the supervision of the residential mortgage industry, according to Neil Milner, president and CEO of the Conference of State Bank Supervisors. "NMLS Consumer Access is one more initiative undertaken by the states to empower consumers with information while they take on what is usually the most significant purchase of their lifetime: their home," he said. To date, 45 states and territories are participating in the NMLS system. All states and U.S. territories are expected to be on the system by the end of this year. Loan officers employed by federally insured banks and thrifts will start registering on the NMLS system during the second half of 2010.

BlackBox Logic LLC, founded in 2007, said that after years of designing and testing work, it is now offering to the broader market a comprehensive database of loan-level collateral underlying nonagency residential MBS. The company, which is majority owned by a private equity affiliate of the Denver-based Braddock Financial Corp., said it has available a trademarked loan-level data aggregation service called BBxData that covers jumbo-A, subprime and alternative-A credit mortgage markets. This includes more than 7,200 RMBS, 21 million loans and almost 600 million remittance records dating back to 1999. The company is aiming to provide monthly full-set data faster than other providers and to also differentiate itself by allowing users to purchase only the data they need rather than the full 21-million loan dataset. The company's top brass includes three former Fannie Mae executives. Chief executive Larry Barnett was once Fannie's vice president for secondary mortgage trading operations, chief technology officer William Pugh was at one time responsible for all technology development and loan processing systems at Fannie, and lead data modeler Marty Schwartz once managed mortgage loan processing systems for Fannie, including its liquidation and recourse system.

Online home auction company RealtyBid.com, Rainbow City, Ala., is offering close to 1,000 real estate owned properties to investors and homebuyers around the country during January. Hundreds of properties have been added to the home auction website, many from the states of Missouri, Ohio, Utah and Wisconsin. RealtyBid.com chief executive and president Tony Isbell said despite government moratoriums on foreclosures in 2009 that kept the number of REO properties available to buyers flat during the second half of the year, RealtyBid.com continued to break sales records last year. "In 2010, we have already seen increased activity, and we are expecting that trend to continue. We do not expect a tidal wave of properties but a continued increase in inventory as loan modification programs fall well short of expectations." Mr. Isbell said he expects lenders will free up more of their post-foreclosure inventory through the online bidding system.

Fitch Ratings has downgraded 25 preferred securities ratings among its rated U.S. real estate investment trusts following revisions to its global rating criteria for hybrid securities. The downgrades are one notch from current levels for the affected REITs. The issuer default ratings and senior debt ratings for each of these REITs are unaffected. The new criteria apply to hybrid instruments issued by companies in all sectors including banks, insurers, nonbank financial institutions and all nonfinancial corporate entities. The new criteria also provide guidance on how Fitch will rate and notch hybrid securities at different stages in the "life cycle" of an instrument.

As the number of distressed hotel assets continues to rise — many with foreclosure eminent — an increasing number of hotel lenders will be transitioning to a more active ownership role, according to one management firm. Capital Hotel Management in Beverly, Mass., said it expects to see an exponential leap in demand for hotel asset management services from lenders as they look for qualified hotel receivers. "The lending community has reached the stage where they no longer can delay foreclosure issues," said Chad Crandell, president of CHM. "We certainly will see more foreclosures in 2010 than any year since the RTC days of the early '90s." The current lack of available financing, coupled with a continued decline in performance projected for at least the first half of 2010, could likely push the transaction window well into 2011 or 2012, according to the company. The company said the pressing decision for lenders will be to sell short or commit to a potentially longer hold period. In either case, special servicers and lending groups will need hotel-specific experts, the firm believes.

Cogent Road, San Diego, has launched a new tool designed to facilitate electronic communication between lenders and borrowers. Cogent said its new application, Roohmz Mortgage Enterprise, is an Internet-based workflow management system that manages the progression of loan applications from origination to closing, enforces compliance and provides a communication platform for all parties involved in the lending process. Through RME each loan file is digitized and rules are applied to its path to closing in order to guarantee that each compliance prerequisite is met before the program moves the loan to the next status. Once the status is attained, RME delivers the loan file to the next employee in the workflow, the company said.

Kuwaiti investors are backing a new public commercial real estate investment company in New York called Eastbridge Al Mal Holdings Ltd. The new company, which will have offices in Dubai and Kuwait as well as New York, will seek to invest in what it describes as high-quality income-producing properties in major U.S. cities. It plans to invest through local operating partners who requirement additional equity capital for direct real estate investments, debt and securities. Rick H. Singer is the company's chief executive officer in charge of all real estate entities and a founding partner. Mr. Singer was at one point the head of global real estate at Wall Street firm Salomon Brothers for 10 years and held senior leadership positions at several other investment firms. The company will initially be focused on the energy sector.

BB&T Corp., a growing player in residential financing, earned $142 million in mortgage-related revenue in the fourth quarter of 2009, an increase of nearly 87% over the same period in 2008. The Winston-Salem-based company said it is seeing strong production revenue from its residential mortgage banking business and an increase in mortgage servicing income due to the growth in its servicing rights portfolio. For the full year 2009, BB&T had record mortgage production of $28.2 billion, with $5.3 billion of that coming in the fourth quarter. During 2009, the company's mortgage servicing portfolio grew by nearly $13 billion to $73.6 billion. Nonperforming mortgage loans increased from $375 million at the end of 2008 to $767 million one year later. In the same timeframe, foreclosed real estate went from $538 million to almost $1.5 billion. For the fourth quarter, the company posted net income of $194 million, a decline from $307 million in the same period one-year prior. During 2009 BB&T acquired Colonial Bank in a Federal Deposit Insurance Corp. transaction.

The Department of Housing and Urban Development wants Mortgage Counseling Services of Georgia to indemnify it against potential losses on FHA loans it originated, citing the lender for quality control violations. In a newly released audit, HUD's Office of Inspector General said MCS "did not follow HUD requirements when underwriting eight of 16 FHA loans. HUD insured the eight loans that unnecessarily placed the FHA insurance fund at risk for more than $433,000." HUD said it is recommending that FHA take "appropriate action" against the company "for its noncompliance in closing two loans." A woman working at MCS said she could not comment and referred calls to company CEO Mary Ann White. Ms. White had not returned a telephone call as National Mortgage News went to press. HUD presented the lender with its final audit results in late November, noting that company officials generally disagreed with its findings.

Appraisers and lenders were denounced for hampering acceptance of environmentally friendly building products at the National Association of Home Builders' annual convention this past week. "Appraisers are out to lunch on this," said William Nolan, a housing industry consultant based in Orlando. Until lenders and appraisers learn to recognize the value of green innovation and the money it can save buyers of new homes, there is not enough incentive for widespread adoption, Mr. Nolan said. "We're having a huge fight on this. We can't get lenders to appreciate the value of the net costs, and if we can't get the values recognized, [manufacturers] can't justify moving these products forward." Ed Linder, a division director at the appliance maker Whirlpool Corp., said the appraisal issue is one reason Europe is far more advanced than the United States when it comes to green products. "Appraisers don't understand the value of sustainability," he said.

BB&T Corp., Winston-Salem, N.C., ranked first among all warehouse providers in terms of commitments for the period ending Sept. 30, thanks mostly to its acquisition of Colonial BancGroup of Alabama. BB&T had roughly $3 billion of commitments at the end of the period, but the figure is an estimate based on Colonial's lines at the time of its failure in August. The survey was conducted by National Mortgage News. Several firms, including JPMorgan Chase and Bank of America, declined to provide a commitment number. BB&T officials would not comment on its warehouse business or discuss the dollar volume of its lines. Executives familiar with BB&T's efforts in the space, say it is committed to providing credit to nonbank originators but is only making lines to lenders that operate in its bank footprint. The bank has 1,500 offices nationwide. Prior to buying Colonial, BB&T already had a small warehouse lending division. The Mortgage Bankers Association recently said the warehouse market is showing signs of improvement with many banks expanding credit to their mortgage banking customers. (On Monday the paper edition of NMN will publish its final ranking of warehouse lenders.)

Federal regulators have finalized a transition rule to cushion banks from the capital impact of consolidating mortgage securitizations on their balance sheets. The final rule provides a one-year transition period for the adoption of Financial Accounting Standards 166 and 167 which went into effect Jan. 1. "It provides an optional phase-in for four quarters," federal banking regulators said. Banks can exclude consolidated assets from risk-based capital calculations during the first two quarters of 2010. Over the third and fourth quarters, banks only have to count 50% of the consolidated assets for RBC purposes. Institutions that participated in the issuance of private-label residential and commercial mortgage-backed securities will be most affected by the FAS 166 and 167. On Jan. 1, Wells Fargo consolidated $10 billion in securitized assets on its balance sheet, including $5 billion in nonconforming residential mortgages. The company said it resulted in a 4 basis point decline in its total capital ratio.

All banks and thrifts are having problems with commercial real estate loans, not just small community banks, according to FDIC chairman Sheila Bair. "Despite what you may be hearing, CRE credit problems are affecting big and small banks alike," the Federal Deposit Insurance Corp. chairman said in a prepared speech delivered at a Commercial Mortgage Securities Association conference in Washington, D.C. As of Sept. 30, FDIC-insured institutions held $1.3 trillion CRE and multifamily mortgages — nearly 18% of total loans. And $44.8 billion are classified as noncurrent (90-days or more past due or considered uncollectible). Banks and thrifts hold another $500 million in construction and development loans and 15% of these are noncurrent. "The annualized net charge-off rate of 6% on C&D loans in the third quarter significantly exceeds the highest rate of the last crisis, which was about 4%," Ms. Bair said. FDIC expects delinquencies and charge-offs will move higher in the coming quarters.

Mortgage banking income at U.S. Bancorp, Minneapolis, increased by $195 million in the fourth quarter 2009 over the same period one-year prior, driven by mortgage loan production volume of $11.1 billion. For the full year, the company had mortgage loan production volume of $55.6 billion. The company reported fourth quarter 2009 mortgage banking revenue of $218 million, down from $276 million in the third quarter but up from just $23 million in the fourth quarter 2008. For the full year, mortgage banking income was over $1 billion, compared with $270 million for all of 2008. The fourth quarter year-over-year increase is due, U.S. Bancorp said, to the lower interest rate environment. This led to strong mortgage loan production and related production gains. In addition, the net change in the valuation of mortgage servicing rights and related economic hedging activities was favorable and servicing income increased compared with the same period in 2008. Residential mortgage loan net charge-offs were $153 million in the fourth quarter of 2009, an increase over $129 million in the third quarter of 2009 and $84 million in the fourth quarter of 2008. Commercial and commercial real estate loan net charge-offs increased to $457 million in the fourth quarter of 2009, compared with $433 million in the third quarter of 2009 and $216 million in the fourth quarter of 2008.