Originations

Standard & Poor's Ratings Services has lowered its ratings on 99 classes from six residential mortgage-backed securities transactions. The securities, issued between 2005 and 2007, are backed by U.S. subprime and alternative-A credit mortgages as well as prime credit jumbo loans. S&P said 42 of the 99 classes were on its CreditWatch list for possible downgrades and now have been removed from that list. The credit rating agency also affirmed its ratings on 31 classes from four affected MBS and removed two of the affirmed ratings from its CreditWatch negative list.

Fannie Mae has streamlined the process for approving condominiums in Florida through the creation of a "Special Approval" designation. Until now, the government-sponsored enterprise had been granting exceptions to its condo eligibility guidelines for loans on units in those projects not eligible on a case-by-case basis. With the new program, there is a dedicated team that is reviewing condo projects in the state that do not currently meet Fannie Mae's standard eligibility criteria. They will assess such items as occupancy, homeownership association dues, the financial stability of the project and the property's condition. Those that are considered sufficiently stable are granted the "Special Approval" designation, meaning lenders can originate and sell loans secured by units in those projects to Fannie Mae. Those projects that are eligible will be listed on www.eFannieMae.com. The designation is effective for a period of between nine and 18 months and applies only to established condo projects.

Investment funds controlled by Colony Capital, LLC of Los Angeles have agreed to purchase $1.02 billion in troubled commercial loans from the Federal Deposit Insurance Corp., paying just $90.5 million while receiving government funding of $233 million. The sale, a "structured transaction," will give Colony a 40% managing member equity stake in a newly formed limited liability company created to hold the acquired loans. The FDIC will retain the remaining 60%. In total, Colony will gain access to 1,200 commercial real estate loans. Deutsche Bank served as advisor to the FDIC on the sale. Even though Colony is private, it controls Colony Financial, Inc., a publicly traded company. Colony Capital is in the business of acquiring, originating and managing commercial mortgages. As reported by National Mortgage News, the FDIC is contemplating issuing a large security in the first or second quarter backed by delinquent and subperforming residential mortgage assets. Some of these assets could include subprime and/or alt-A MBS, said a source familiar with the plan.

The American Bankers Association has selected MetLife Bank N.A. as its exclusive provider of reverse mortgage programs to its member banks and thrifts. Under the program, MetLife Home Loans will provide ABA firms with a correspondent or broker channel for FHA-insured reverse mortgages, which are known as Home Equity Conversion Mortgages. "This product is a very good fit for community banks," said Deborah Whiteside, senior vice president at ABA Total Business Solutions. "Community bankers know their customers very well," she said, and they have the time to serve as a "trusted financial adviser" and work with seniors and family members. ABA had a similar affinity relationship with another reverse mortgage lender, Financial Freedom, but the relationship was terminated six months ago, said Ms. Whiteside. MetLife Bank securitized about $2 billion in HECMs through Ginnie Mae last year. MetLife vice president Craig Corn said many banks do not have Federal Housing Administration approval to underwrite and close HECMs. But they can take advantage of the broker channel to provide their customers with a reverse mortgage option. "I think we will see more and more banks who get into this program through the ABA will likely become correspondents so that they have full control over the customer's experience," Mr. Corn said.

More than 6% of securitized commercial real estate mortgages are 30 days or more past due, according to a new report issued by Trepp LLC. It marks the first time in the history of commercial mortgage-backed securities that the delinquency rate is above 6%, said Trepp. The New York firm tracks CMBS and issues monthly reports. The delinquency rate jumped to 6.07% in December, up 171 basis points from the end of the third quarter. A year ago, the 30-day or more delinquency rate was 1.21%. The December report also shows that multifamily delinquencies reached 9.27%, a 49 bps increase from November. A year ago, the delinquency rate on multifamily CMBS was 2.82%.

Prepayment speeds for Fannie Mae 30-year fixed-rate MBS jumped 26% to 31% in December, surprising some MBS trackers, according to a sample of Wall Street reports published Friday morning. Freddie speeds jumped by 16% to 19%. Some reports, but not all, said the ramp-up in 30-year Fannie speeds exceeded their expectations. Barclays said the increase in Fannie 30-year paydowns was surprising only in securities with 6.5% and 7% coupons and that speeds on those coupons came in slower than they had expected. Credit Suisse researchers attributed the jump in Fannie speeds to completions of modifications done under the federal Home Affordable Modification Program that were more aggressive than it anticipated. Deutsche Bank researchers said they believe the ramp-up in high premium Fannie coupon speeds reflects an amendment to Fannie's servicing guide that suspended loan repurchases of HAMP modifications in November but permitted them in December. Barclays also said the return in HAMP-related buyouts contributed to the acceleration in Fannie Mae speeds.

The residential mortgage industry added 200 full-time employees to their payrolls in November, the first uptick in industry employment since July. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 255,700, compared to 255,500 in October. The BLS data shows the increase is entirely due to more mortgage brokers having jobs. Employment at mortgage banking firms was flat in November. Overall, the mortgage industry experienced a 10% drop in its workforce over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating demand. Meanwhile, the nation's unemployment rate held steady at 10% in December, but 85,000 workers were laid off, according to the new jobs report. This disappointed analysts who were looking for a sign that the job market had finally turned the corner. It is also the second disappointing economic report this week. On Tuesday, the National Association of Realtors reported that its index of pending sales plunged 16% in November. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

A U.S. district court judge has ruled in favor of Wells Fargo Bank NA and dismissed a lawsuit by the City of Baltimore seeking reimbursement for expenses and loss of revenues due to foreclosures and vacant homes. The city alleged that Wells Fargo targeted minority neighborhoods with subprime loans, which lead to foreclosures and deterioration of inner city neighborhoods. Judge Frederick Motz noted in his opinion that the bank is responsible for only a "negligible portion" the city's vacant properties and other factors such as high unemployment, drug use and violence also are factors. The city's allegations of a "casual connection between Wells Fargo's alleged misconduct and the damages the city claims is not plausible," the judge ruled. The opinion says the number of vacant homes in Baltimore range from 16,000 to 33,000 and the city has identified only 401 vacant properties involving Wells Fargo loans. "From the beginning, we have consistently maintained that Baltimore's economic problems could not be attributed to the small number of foreclosures Wells Fargo has done in Baltimore," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We are pleased the court's decision rejects the city's claim and reflects this point of view." Judge Motz has opened the door for the city to file an amended complaint that seeks damages for "specific houses that became vacant allegedly because of Wells Fargo's lending activities." No comment from the city was available at press time.

The 30-year mortgage rate dropped slightly from where it was at the end of 2009 during the first week of 2010, according to the most recent Freddie Mac Primary Mortgage Market Survey. The average rate for the 30-year fixed rate mortgages slipped to 5.09% from 5.14% the week before but was up from the exceptionally low rate of 5.01% for the same week a year ago. The average 15-year FRM rate slid to 4.50% from 4.54% the previous week and 4.62% a year ago. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages remained stable week-to-week at 4.44% and was down from 5.49% a year ago. The average one-year Treasury ARM rate was 4.31%, down from 4.33% the week before and 4.95% a year ago. Frank Nothaft, Freddie Mac's chief economist, said fixed rates are near their annual average for 2009 but ARM rates are considerably below last year's averages. He noted that ARM rates could rise later this year if the Federal Reserve begins to tighten short-term rates as largely expected. He said activity in the Fed Funds futures market suggests there will not be any Federal Reserve action until the second half of 2010.

The Clear Capital Home Data Index Market Report shows a 1.7% national quarterly price gain for the 30-day period ended Dec. 24, 2009. Yearly national home prices went from a decline of over 20% on a year-to-year basis for 2008 to a much more modest decline of 1.3% for 2009. On a quarterly basis all four regions showed gains: at 4.1% in the Midwest, 1.2% in the South and the West and a modest 0.4% in the Northeast. What is remarkable about these gains, according to Clear Capital president Kevin Marshall, is that home prices for the nation as a whole were generally flat for 2009 despite yearlong volatility that included record declines early in the year, followed by the gains during the summer and fall. Also, by year-end the annual national real estate owned saturation rate dropped 16 percentage points to 25.5%. Some encouraging results came from several micro markets. For example, the Las Vegas metropolitan statistical area drilldown showed its first positive quarterly price gain in over three years at 1.1%, even though yearly price declines in the area remain high at -27.4%. According to Clear Capital, Las Vegas "is showing signs of transitioning from home-price free-fall, to more traditional trends."

The seasonally adjusted 30-day delinquency rate on home equity lines of credit jumped 20 basis points in the third quarter from the previous quarter to a new record of 2.12%, according to an American Bankers Association survey. On closed-end second mortgages, the seasonally adjusted delinquency rate shot up 29 BP to 4.3% in the third quarter, also a new record. At the start of the year, 1.46% of HELOCs were 30 days or more days past due and 3.0% of closed-end second liens were 30 days or more past due. Banks and thrifts held $667.5 billion in HELOCs as of Sept. 30, according to Federal Deposit Insurance Corp. Call Report data. Of that, $9 billion or 1.3% was 30-to-89 days past due. Banks charged off $5.1 billion in HELOCs in the third quarter. FDIC-insured institutions held $187.7 billion in closed-end second liens and 2.6% or $4. 9 billion were 30-89 days past due. Charge-offs on second liens totaled $2.8 billion.

WL Ross & Co. has reportedly ended negotiations with American International Group, New York, to buy its mortgage insurance division, United Guaranty, Greensboro, N.C., according to MI industry sources. Wilbur Ross, chairman and chief executive of the company, was out of the country and could not be reached for comment. But he issued a statement to National Mortgage News which said, "We never confirmed we were in the deal." However, this past fall reports began to surface that WLR&C was indeed negotiating with AIG and even had an exclusive with the company for several months. Sources familiar with the original parameters of the talks say WLR&C wanted to purchase all of UG's licenses, operating systems, and its entire 2009 book of business, leaving the "legacy" coverage with AIG. No price was ever mentioned. According to the Quarterly Data Report, UG ranks fifth nationwide in terms of policies-in-force with $127 billion. AIG has received pledges of up to $180 billion in taxpayer aid since its near collapse 16 months ago. The U.S. Treasury owns about 80% of the company, which is still publicly traded after undergoing a reverse stock split last year.

A Standard & Poor's review of 15 U.S. subprime transactions issued between 1998 and 2004 has ended with lower ratings on 48 classes from 14 transactions. The rating agency also removed seven of the lowered ratings from CreditWatch with negative implications. In addition, it affirmed ratings on 45 classes and removed one of these ratings from CreditWatch Negative. "The downgrades reflect our belief that credit enhancement for the affected classes will be insufficient to cover projected losses due to increased delinquencies and the current condition of the housing market," S&P said.

Despite an increase in home sales, the housing market continues to face "strong" headwinds due to tight credit conditions and high foreclosure rates, according to Federal Reserve governor Elizabeth Duke. "Many of the existing homeowners who face payment problems are having trouble restructuring their loans and the backlog of foreclosed properties will likely take years to resolve," Gov. Duke told an economic forecasting forum in Raleigh, N.C. She noted that "tighter standards" on government-backed loans and the shortage of jumbo loans are "likely to slow the housing recovery." Meanwhile, the commercial real estate sector has been "hit hard" by business bankruptcies, job losses and vacancies, Gov. Duke said. CRE mortgage delinquency rates have "soared," she added. However, the Fed governor contends the CRE downturn is largely due to "poor business fundamentals" rather that overbuilding. This suggests the performance of the CRE sector will "gradually improve as the economy continues to strengthen," the former Virginia community banker said.

There was a strong decline in mortgage loan applications the week that ended with Christmas Day followed by a very slight gain the following week, said the Mortgage Bankers Association in its most recent Weekly Application Survey. For the week ending Dec. 25, 2009, the Market Composite Index, a measure of mortgage loan application volume, decreased 22.8% on a seasonally adjusted basis from the prior week. For the week ending Jan. 1, 2010, this index increased 0.5% on a seasonally adjusted basis. Both weeks' results include an adjustment to account for the Christmas and New Year's Day holidays. On an unadjusted basis, the Index decreased 46.9% the week before Christmas and increased 0.4% the week after. The Refinance Index decreased 30.5% for the first week and 1.6% in the second, while the seasonally adjusted Purchase Index fell 33.1% and increased 5%, respectively. The share of refinance activity fell under 70% for both weeks (69.6% and 68.2%), where in the previous two weeks leading up to Dec. 25, it had been above three-quarters of all applications. The average contract interest rate for 30-year fixed-rate mortgages zoomed up 26 basis points over two weeks and for the most recent week is at 5.18%, with points at 1.28 (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 increased in the two-week period by 28 basis points to 4.62%.

GMAC Financial Services has written down the value of the riskiest mortgage assets of its mortgage division by 41%, a move that could be a precursor to a sale of the unit. To date, GMAC has declined to comment on reports that Berkshire Hathaway has shown an interest in Residential Capital Corp., the nation's fourth largest home lender. (Berkshire also has declined to comment.) The risky mortgage assets that were marked down by 41% once had a face value of $9.2 billion. Company executives said the markdowns came as a way to make these assets attractive to buyers. "The values we have put on these assets would be sellable in the market," said GMAC chief of mortgage operations Thomas Marano. He noted GMAC sells loans on a regular basis and major capital market players have been consulted. "Yes we do believe we can sell those assets in the market," he added in response to an analyst's question. The writedowns, restructuring and recapitalization of ResCap leave the entity with $19.7 billion in mortgage assets, servicing rights and real estate owned. GMAC chief executive Michael Carpenter noted there are "potentially different strategic alternatives" for the mortgage assets and the servicing business. He also said ResCap can be operated as a wholly owned subsidiary for some time. "We are not in a hurry to do anything." GMAC noted that it will take $3.8 billion of mortgage-related charges for the fourth quarter. GMAC said ResCap owns $4.3 billion in assets that have "greater economic exposure." According to the Quarterly Data Report, ResCap ranks fifth among all residential servicers with $380 billion in servicing rights. To date, the government has pumped $15.1 billion of capital into GMAC through preferred stock and other maneuvers.

The Federal Housing Administration is temporarily delaying the effective date of its new policy to shield appraisers from loan officer and mortgage broker pressure until Feb. 15. The new policy would put FHA in synch with Fannie Mae and Freddie Mac and prohibit commission-based staff and brokers from selecting appraisers. FHA officials initially set a Jan. 1 effective date. But they concluded FHA lenders need more time to change to their systems and decided to give them 45 more days, according to sources. Back in September, FHA officials outlined a number of risk management initiatives, including the new appraisal policy. "FHA does not require the use of appraisal management companies or other third party providers, but it does require lenders take responsibility to assure appraiser independence," FHA officials said.

Commercial real estate loans held by commercial banks and in CMBS are experiencing higher delinquency rates than CRE loans held by other investors, according to a new report from the Mortgage Bankers Association. Banks hold nearly 45% of the outstanding $3.4 trillion in CRE and multifamily mortgages on their books and 20% are packaged into CMBS, according to MBA's newly released CRE Quarterly Data Book for the third quarter. "While loans held by banks and thrifts and CMBS are experiencing stress roughly on par with the stress with what was seen following the stress of the late-1980s/early-1990s, loans held by life insurance companies, Fannie Mae and Freddie Mac are performing far better than the experience of that time," MBA says. Thrifts hold 5.6% of CRE and multifamily loans. The Quarterly Data Book also shows that commercial banks have reduced their CRE lending over the past three years. In the third quarter of 2009, banks originated $62 billion in CRE/multifamily loans, down 52% from the same period a year ago. Meanwhile, Fannie and Freddie originated $143 billion in multifamily loans in the third quarter, down 31% from the same period in 2008.

American International Group has agreed to sell its Canadian mortgage insurance unit to a private investor group with the Ontario Teachers' Pension Plan as the lead sponsor. Terms of the transaction were not disclosed. With assets of $274 million (Canadian dollars) and total equity of $127 million (Canadian), United Guaranty Canada is that nation's smallest non-government MI firm. (There are only two private MIs operating there.) The Toronto-based UGC commenced operations in 2006. Its chief competitors in Canada include a government-run organization (Canada Mortgage and Housing Corp.) and Genworth MI Canada Inc., whose majority shareholder is Genworth Financial, Richmond, Va. At one time three other U.S.-based mortgage insurers had established or attempted to establish operations in Canada — MGIC, PMI and Triad — but all three are no longer operational. "We believe the mortgage insurance industry in Canada to be an attractive market, and that United Guaranty Canada is well positioned to grow its market position," said Erol Uzumeri, senior vice president of Teachers' Private Capital, the private equity arm of OTPP. A request for comment from United Guaranty was not returned by press time.

A Department of Housing and Urban Development proposal goes "too far" in transferring all supervision of mortgage brokers and other loan correspondents to Federal Housing Administration-approved lenders, according to the National Association of Mortgage Brokers. NAMB wants the Department of Housing and Urban Development to continue setting standards for loan correspondents and start sharing oversight responsibilities with FHA-approved lenders that chose to sponsor brokers. "NAMB respectfully recommends that HUD revise the proposed rule and provide for a more balanced, dual oversight of loan correspondents," NAMB president Jim Pair said in a comment letter on the FHA proposal. To conserve resources, HUD wants to stop dealing directly with brokers and focus its attention on FHA lenders that buy loans from brokers. Under the HUD proposal, FHA-approved lenders would be totally responsible for the quality and performance of broker loans. Meanwhile, the brokers want to remain connected to FHA in some way — along with their authority to obtain case numbers for FHA loans. "The inability to communicate with FHA or access FHA websites will pose serious issues for loan correspondents attempting to determine whether a borrower is eligible for FHA financing," NAMB said.