Originations

For the fourth quarter of 2009, nonperforming assets decreased from the prior quarter by $289 million for KeyCorp in Cleveland, Ohio, for the first time since the fourth quarter of 2006. Most of the reduction came from nonperforming loans held for sale and a decrease in nonaccrual loans in the commercial portfolio, resulting from the charge-off of two large commercial real estate related relationships in the real estate capital and corporate banking services line of business within the national banking group. As a result of increased loan losses, write-downs of commercial real estate related investments, the provision for losses on lending-related commitments and costs associated with other real estate owned, at the end of the quarter, allowance for loan losses was $2.5 billion up from $1.6 billion one year ago. For the full year, Key had a net loss from continuing operations of $1.581 billion compared to a net loss of $1.337 billion for 2008. CEO Henry L. Meyer III said during the fourth quarter the company saw improvement in its credit metrics, including decreases in delinquencies, nonperforming loans and nonperforming assets. "Our allowance for loan losses stood at 4.31% of total loans and 116% of nonperforming loans at December 31." At Dec. 31, 2009, nonperforming loans totaled $2.2 billion. Nonperforming assets totaled $2.5 billion and represented 4.25% of portfolio loans, OREO and other nonperforming assets, compared to 4.46% at September 30, 2009, and 2.00% at December 31, 2008.

The residential mortgage banking segment at PNC Financial Services Group, Pittsburgh, recorded earnings of $25 million for the fourth quarter and $435 million for the full year 2009. Income for the third quarter was $91 million; the quarter-to-quarter decline is due to lower loan sales revenue, reduced net hedging revenue on its mortgage servicing rights, lower servicing fees and lower net interest income. Loan volume in the fourth quarter was $2.3 billion, down from $3.6 billion in the third quarter. The mortgage servicing portfolio was $145 billion as of Dec. 31, 2009, compared with $158 billion at the end of the third quarter. PNC said during the fourth quarter, it sold $7.9 billion of mortgage servicing rights; in addition, run-off slightly outpaced new loan origination volume. Overall PNC earned $1.1 billion in the fourth quarter and $2.4 billion for the full year. The company reemphasized the residential mortgage origination business following its acquisition of National City Corp. at the end of 2008.

Appraisers are being blamed for holding up the acceptance of so-called "green" building product innovations, several industry executives charged at the National Association of Home Builders' annual convention in Las Vegas. Technologies such as energy sharing, sleep functions for appliances, clothes dryers which use 20% less energy, ranges that self-clean with steam rather than three-hour bursts of 600 degree heat, recycled grey water from showers that is filtered for use in a washing machine are on the drawing boards of Whirlpool and other manufacturers. But product makers and the builders they serve have been slow to move the advancements forward because appraisers aren't valuing them as any better than conventional appliances. "Appraisers are out to lunch on this," said Orlando-based housing industry consultant William Nolan. "We're having a huge fight. Until we can get the values recognized, builders can't justify coming to market with products that can save the world." The appraisal issue is one reason Europe is far more advanced that the United States when it comes to green products, said Whirlpool's Ed Linder. "Appraisers don't understand the value of sustainability."

Fitch Ratings on Thursday upgraded the short- and long-term issuer default ratings on GMAC Inc., in the wake of the Treasury Department recently pumping $3.8 billion into the struggling company. GMAC is the parent of Residential Capital Corp., the nation's fourth largest servicer of home mortgages. Fitch upgraded both ratings to 'B,' noting that GMAC "has addressed the capital shortfall identified through the Supervisory Capital Assessment Program." Treasury is now a 56% shareholder in GMAC, which has been contemplating selling ResCap, or some of its assets. Fitch said the new capital from Treasury provides "further cushion and flexibility to address the mortgage business in an orderly manner." Fitch anticipates that GMAC will remain above the 15% total risk-based capital requirement, even factoring in the adoption of FAS 166 and 167, which require consolidation of off-balance sheet vehicles. Concurrent with the capital actions, GMAC took large write-downs on mortgage-related assets, classifying some as held-for-sale. Fitch believes future volatility emanating from GMAC's residential mortgage business will be significantly lower, particularly given the continued contraction of mortgage loans at the company — $28 billion at Sept. 30.

The average rate for 30-year fixed-rate mortgages was back below 5% in the most recent week covered by the Freddie Mac Primary Mortgage Market Survey, but just barely so. The average rate for a 30-year fixed-rate mortgage during the week ending Jan. 21 was 4.99%, down from 5.06% the previous week and from 5.12% a year ago. The average rate for a 15-year FRM was 4.40% during the most recent week, down from 4.45% a week ago and 4.80% a year ago. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages also fell to 4.27% from 4.32% a week ago and 5.24% a year ago. The average one-year Treasury ARM rate dropped to 4.32% from 4.39% a week ago and 4.92% a year ago. Average points for the most recent week were as follows: 0.7 for 30-year FRMs and 0.6 for all other aforementioned types of mortgages. "Fixed mortgage rates followed bond yields lower for the third consecutive week, pushing 30-year mortgages below 5% once more," said Frank Nothaft, Freddie Mac vice president and chief economist. "Similarly, ARM rates eased along with shorter-term rates, as the federal funds futures market indicates no increase in the Federal Reserves target rate following its upcoming committee meeting."

The Goldman Sachs Group Inc., New York, took a $1.5 billion commercial mortgage loss among commercial and residential write-downs during 2009. But the company also said it saw particularly strong performances compared to the exceptionally weak previous year in areas that included mortgage-related trading and principal investments. It also said it reduced its compensation and benefits by $4 billion to its lowest-ever compensation ratio. The company as a whole had net earnings of $13.39 billion with diluted earnings per common share of $22.13 during fiscal 2009, which ended Dec. 31 of that year. During fiscal 2008, which ended on Nov. 28 of that year, Goldman had diluted EPS of $4.47 and net earnings of $2.32 billion. During the fourth quarter of 2009, Goldman had net earnings of $4.95 billion and diluted earnings per common share of $8.20. During the fourth quarter ended Nov. 28, 2008, the company took a diluted loss per common share of $4.97 and net loss of $2.12 billion.

Mortgage brokers are hopeful that the newly elected Senator from Massachusetts — a closing attorney who once worked with loan officers — could come to their aid. State Senator Scott Brown, a Republican, on Tuesday won the open Senate seat created by the death of Sen. Ted Kennedy (D-Mass.) "He understands how things work," said Marc Savitt, president of the National Association of Independent Housing Professionals. A spokeswoman for Mr. Brown confirmed that he has worked as a closing attorney but said it is too early for him to start talking about where he stands on such issues as the Consumer Financial Protection Agency, and tighter regulation for loan officers and loan brokers. Still, some mortgage brokers are optimistic on the possibilities. "It certainly can't hurt that he used to do closings," said Mr. Savitt. Richard Shapiro, principal in Asset Mortgage Group of Natick, Mass., said he has not closed loans with Mr. Brown but said one of his staffers has. "He's a small local guy," he said of Mr. Brown. Mr. Shapiro said he is hopeful that if Mr. Brown becomes a member of the Senate Banking Committee he might be able to help brokers with some of the hefty licensing fees they are now being charged.

As the average rate for the 30-year fixed rate mortgage dropped back toward the 5% mark last week, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found a corresponding increase in refinance applications. For the week ending Jan. 15, 2010, the Market Composite Index, a measure of mortgage loan application volume, increased 9.1% on a seasonally adjusted basis and 10.4% on an unadjusted basis from one week earlier. The Refinance Index increased 10.4% and the seasonally adjusted Purchase Index increased 4.4% from one week earlier. There was a small gain in the market share of refinance activity, from 71.5% one week ago to 71.7% for the survey period. The market share of adjustable-rate mortgage loan applications increased to 4.1%, up from 4.0% for the previous two weeks. The average contract interest rate for 30-year fixed-rate mortgages fell to 5% from 5.13%, with points decreasing to 1.05 from 1.17 (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 decreased by 12 basis points to 4.33% from 4.45%, while for one-year ARMs the average contract interest rate increased by 11 basis points to 6.72%.

A "severe shortage" of new product is shaping up in the apartment market, just in time for an expected major pickup in demand. Industry experts predicted at the National Association of Home Builders convention in Las Vegas that because of the inability of developers to find financing, demand will be begin to outstrip supply by mid-2011. That, coupled with the long, two to three-year lead-time it takes to build a multifamily structure, will lead to increasing shortages of rental and condo properties through 2014. The shortfall — only 80,000 units will be built this year vs. the 300,000 or so that are needed — will grow during a period of increased demand as the economy continues to improve and immigration begins anew. "We desperately need lenders to begin financing apartment communities again," said NAHB chief economist David Crowe. "The vacancy rate is elevated now, but as the economy recovers and jobs return, people who've been doubling up with friends and relatives will want a place of their own." As a result of the impending shortage, the NAHB is forecasting that market rents are likely to rise by 8% to 10% in 2011 and 2012 and 4% to 7% annually thereafter through 2015. Jerry Durkin, managing partner of Woods Partners, an Atlanta-based firm which built an average of 3,600 units annually over the last 10 years but started only 150 last year — and that was in December — said the lack of debt and equity financing is crippling companies like his. Until lenders loosen up, his company is focusing more on buying properties and less on developing, he said. Woods Partners also is "virtually out of the condo business." The lack of financing "has really slowed the industry down," agreed Michael Costa, president of MacFarlane Costa Housing Partners, which at its peak started 30-35 workforce properties a year as either the developer or in a joint venture but expects to break ground on just four in 2010.

High unemployment levels will slow the pending housing recovery, economists speaking at the National Association of Home Builders' annual convention in Las Vegas agreed. But they didn't agree on just how much of a drag the poor job market would be. NAHB chief economist David Crowe, Frank Nothaft of Freddie Mac and David Berson of PMI tended to believe that while gains "won't be very big," buyers are poised to return to the field. But Edward Sullivan, chief economist at the Portland Cement Association, Skokie, Ill., said he reads the tea leaves a little differently. "Housing will turn," he said, "but not until very late this year and nowhere near the magnitude" the mainstream economic community suggests. Noting that small businesses shed 2.2 million workers over the last six months and are still doing so, Mr. Sullivan said the economy won't start generating jobs again until the second half of this year. He also cited the expiring homebuyer tax credits, the huge backlog on foreclosures and continued tight lending standards. The PCA economist said the market isn't likely to improve until the fourth quarter of 2010 and may not show real gains until the first quarter of next year. "I'm still projecting an increase" in starts "but I'm much more modest," he said. "There are so many hurdles out there that a full-fledged recovery won't materialize this year." The other economists voiced the same concerns. Nevertheless, they were more optimistic. The NAHB's Mr. Crowe said starts would jump from 555,000 last year to 700,000 in 2010. Mr. Nothaft of Freddie Mac was even bolder, suggesting that starts would reach the 775,000 level. PMI's Mr. Berson, the former chief economist at Fannie Mae, said starts would increase to 675,000.

Mark Savitt, the immediate past president of the National Association of Mortgage Brokers — and who recently launched a new trade group — has resigned from NAMB's board of directors, effective immediately. Mr. Savitt said his resignation from NAMB was his own decision but declined to comment further except to say this week he is meeting with government representatives on two key issues facing the industry: the Home Valuation Code of Conduct, and yield spread premiums. Mr. Savitt's new trade group is called the National Association of Independent Housing Professionals. He is president and CEO of the group, which officially launched two weeks ago. At NAMB, George Hanzimanolis, who was the organization's president in 2007- 2008, has been appointed to fill out Mr. Savitt's term and will serve as chairman of NAMB's nominating committee. No reason was given in a statement issued by NAMB.

Wells Fargo generated $3.4 billion in income from its mortgage banking operations in the third quarter, up from $3.1 billion in the previous quarter. Residential mortgage originations totaled $94 billion, down by $2 billion from the second quarter. The company said the $55 billion in "pick-a-pay" mortgages it acquired from Wachovia are "performing better than expected." Nearly 50,000 of these payment-option mortgages were modified during 2009 and the borrowers' monthly payments were reduced by 25% on average. The redefault rate is half the industry norm for payment-option mortgages, a company executive said. Overall, Wells Fargo has placed nearly 500,000 of its mortgage borrowers in trial or permanent modifications during 2009. The 60-day redefault rate is about 14%, the executive said.

Bank of America's residential mortgage operation appears be earning money hand-over-fist on an operating basis — until credit charges are factored into the equation. BoA, the nation's largest lender and servicer, reported a $3.8 billion loss in its mortgage and insurance division for all of 2009 compared to a $2.4 billion loss the year before. New figures show that $11.2 billion worth of credit charges (on delinquent loans) have more than wiped out its net profit in mortgage banking. The bank noted that at year-end it had $35.7 billion in nonperforming assets (company wide) and a provision for credit losses totaling $48.6 billion — most of it tied to residential "legacy" mortgages brought in-house when it bought Countrywide Financial Corp. and Merrill Lynch as well as their residential divisions. But according to supplemental materials released along with its fourth quarter earnings, BoA's mortgage banking division had an operating profit (before charges) of $1.8 billion in the fourth quarter, a 13% improvement over the fourth quarter of 2008. In the third quarter, its residential mortgage unit earned $1.4 billion before charges. To date, BoA has said little publicly about selling the problem mortgage loans and securities it acquired from Countrywide and Merrill. In the fourth quarter it funded $83.9 billion in residential loans, double its volume a year ago but a 7% drop from the third quarter.

The Federal Housing Administration is determined to clamp down on bad lending practices and it is preparing to suspend a lender's operations in a whole metropolitan area for six months if one branch has a default rate three times above the norm. FHA commissioner David Stevens said he is prepared to use FHA Credit Watch termination powers for the first time. And FHA will be issuing a mortgagee letter to implement it with an immediate effective date. After one year, the suspension threshold will be two times the normal default rate. "This is strong medicine, but it will have a positive impact," said mortgage banking consultant Brian Chappelle. At the same time, FHA is increasing its monitoring of lenders and it will publish a "report call" on lender performance that lenders can use as a "benchmark," the commissioner said. The Department of Housing and Urban Development also is pursuing regulatory and legislative changes to impose indemnification requirements on all FHA direct endorsement lenders. "This would essentially require all approved mortgagees to assume liability for loans they originate or underwrite should they violate our polices and underwriting standards," Mr. Stevens told reporters.

The Federal Housing Administration, which is trying to bolster its depleted cash reserves, unveiled tighter underwriting guidelines Wednesday morning, including a hefty downpayment for low FICO score borrowers and an increase in the upfront mortgage insurance premium to 225 basis points. However, in announcing the changes, FHA commissioner David Stevens declined to provide any guidance on how much money the changes will raise for the reserve fund. Most of the new guidelines outlined Wednesday will go into effect this spring. The 10% downpayment is required for borrowers with FICOs of less than 580. The MIP will be increased in a few months from the current charge of 1.75 basis points. FHA will allow borrowers to continue financing the upfront MIP. The agency also will pursue legislative authority to allow flexibility to bring the annual premium, which borrowers pay on a monthly basis, higher. (This premium is currently 55 basis points for low-downpayment loans that are popular with borrowers.) Also, seller concessions will be reduced to 3% from 6%. Scott Stern, who runs the Lenders One cooperative said, "On the whole, mortgage lenders will find the new rules painful but necessary. The problem is that for the past four years, FHA was an 'anything goes' environment." He added that, "What makes this hard is with FHA hovering around 40% of new loan originations, even small rule changes echo through the housing market with a big impact."

The Department of Housing and Urban Development is seeking White House approval to increase the upfront mortgage insurance premium charged by the Federal Housing Administration to borrowers. At a press conference scheduled for Wednesday morning, HUD and FHA officials are expected to announce other changes, including tighter underwriting standards. If approved by the White House, FHA will increase the 1.75% upfront mortgage premium (paid by those who take out a common type of home loan) simply by issuing a "notice" that goes into effect within 30 to 60 days. HUD also may ask Congress for permission to raise the annual premium that is paid monthly. This is 55 basis points paid over the course of the year for relatively low-downpayment loans.

Though credit availability is expected to pick up this year, it will be a slow improvement, according to a new report released by a group of senior bank economists. At the unveiling of their 2010 economic outlook, members of the American Bankers Association's Economic Advisory Committee said consumer and business lending will recover when other economic factors also show more strength. "Consumers are still retrenching to some extent — paying down debts — and small businesses as well are very conservative and reluctant to take on more debt at this point," said Scott Anderson, a senior economist at Wells Fargo & Co., Mr. Anderson said he expects improvement, "but it's just going to take some time for that to happen." The group predicted 3.1% growth in the gross domestic product. That would be an improvement of 3.4 percentage points over 2009 but much more modest growth than the 6% that has followed previous recessions. "I refer to it or characterize it on my own as a 'half-speed' economic recovery," said Stuart Hoffman, the committee's chairman and the chief economist at PNC Financial Services. He referred to "constraining factors," such as continued problems in commercial real estate and a lack of confidence in consumer spending, as holding back growth.

First Horizon National Corp., the parent of First Tennessee Bank, saw its fourth quarter loss widen, thanks, in part, to charges related to loan repurchases. The company — which lost $70.6 million in the quarter (compared to $52.8 million in 3Q) — said it is dealing with a "challenging economy." In the fourth quarter it booked a foreclosure and loan repurchase provision of $59.3 million. (It did not identify where the loan repurchase requests came from.) In mid-2008 it sold a large portion of its residential mortgage and servicing platform to Metropolitan Life which has a banking affiliate. In the fourth quarter of 2008 the bank lost $63.1 million,

Lenders took back 83 properties per day last year in the tri-county South Florida region, according to CondoVultures.com. In a report based on government records in Miami-Dade, Broward and Palm Beach counties, the consulting firm counted more than 30,000 foreclosures in 2009, and the number "could have been higher" had the local court system not been so overwhelmed, said Peter Zalewski, a principal in the Bal Harbour-based CondoVultures. "The courts and government are searching for creative measures — including online auctions and required discussions between borrowers and lenders at the early stages of mortgage defaults — to stem the foreclosure problem," he reported. Lenders seized 8,864 properties in the fourth quarter of 2009, outpacing the 8,240 properties seized in the third quarter, the 5,992 properties repossessed in the second quarter, and the 7,311 properties taken back in the first quarter, according to the report.

The politically powerful National Association of Home Builders has started the ball rolling on a new policy position regarding the future role and structure of the government sponsored housing enterprises. Though the group's current policy statement was adopted only a year ago, leadership believes that it is now time to become more specific. "Change is coming," said Housing Finance Committee Chairman Earl Armiger, a Maryland apartment builder. "We need to be out front with detailed policies." A final document will go through an arduous vetting process culminating with a vote by the NAHB board at the group's convention in Las Vegas on Thursday. But over the three-day Martin Luther King holiday weekend, the group's housing finance and federal government affairs committees signed off on a carefully worded resolution that, among other things, backs the notion that Fannie Mae and Freddie Mac should retain sufficient government backing to allow them to continue to ensure a reliable flow of credit at reasonable rates. "Mortgages should be packaged and sold as securities with a federal government guarantee of timely payment of principal and interest to investors," the resolution also says. "The federal government should incur exposure only for catastrophic risk." The two panels also voted to back the idea that entities benefiting from securitization of their mortgages should have some skin in the game by paying a fee to capitalize an insurance fund to mitigate government risk. And while they agreed that part of Fannie and Freddie's problems resulted from being public companies with an eye toward their bottom lines, they rejected a call that the two companies be recast as public utilities with limits on their profit. They also agreed that policies concerning the Federal Home Loan Banks should be kept separate so as not to inflict collateral damage on that GSE. "We need to focus on what needs to be fixed," said Dallas builder Kent Conine, a past NAHB president.