Originations

The Federal Reserve Board will be able to influence interest rates through sales of the mortgage-backed securities it has accumulated over the past year, according to a Fed official. Fed governor Donald Kohn said the central bank has no "shortage of tools" to tighten monetary policy and raise interest rates. "And we can sell portions of our holdings of MBS, agency debt and the Treasury securities if we determine that doing so is an appropriate approach to tightening financial conditions when the time comes," Mr. Kohn said at the American Economic Association annual meeting in Atlanta. Previously, Fed officials said their "oversized" balance sheet would shrink over time as MBS mature or prepay. As of mid-December, the Federal Reserve had purchased $1.1 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS and $157.7 billion in Fannie, Freddie and Federal Home Loan Bank agency debt. The Fed is planning to end its purchases of MBS by March 31.

Anthony Hsieh, an entrepreneur who previously created and sold LoansDirect and Home Loan Center, has started a new online mortgage company, loanDepot.com which is based in Irvine, Calif. The backers for loanDepot include San Francisco-based private equity company Parthenon Capital Partners. Mr. Hsieh has ambitious plans for the company, projecting the creation of over 1,000 jobs by 2013. Right now it is licensed in 18 states, with plans to be approved nationwide by the end of this year. In support of its business plan, loanDepot cites two studies, including one from National Mortgage News that shows 80% or more of all mortgages originated have touched the Internet at some point in their process. It also pointed to Deloitte Consulting research which found 93% of those who applied for a loan online started their research online, 71% of telephone applicants started their research online and 60% of face-to-face applicants started their research online. The company has already been approved by the Federal Housing Administration as a non-supervised lender.

The National Association of Realtors expects existing home sales will rise 9.9% in 2010 to 5.71 million units, after falling 12.8% last year. The trade group's updated forecast also calls for a surge in sales this spring as the newly extended and expanded homebuyer tax credit expires on April 30. Homebuyers that sign a sales contract before the end of April will have 60 days to close. NAR economists see sales surging to a seasonally adjusted rate of 6.03 million units in the second quarter before falling back to a 5.45 million rate in 3Q. Despite this optimistic outlook, a leading indicator of future home sales plunged 16% in November after rising nine consecutive months with the help of the first-time homebuyer tax credit. (Due to expire Nov. 30, the tax credit, this fall, was extended by Congress and the White House.) The uncertainty surrounding the tax credit legislation has been cited as a reason for first-time buyers staying on the sidelines. NAR reported that its 'Pending Home Sales' index fell to 96 in November from 114.3 in October. The PHS index is based on newly executed sales contracts with the closing expected to be completed in the next month or two.

The Independent Community Bankers of America has expanded its preferred service provider program with Wolters Kluwer Financial Services to include the company's RESPA and Regulation GG Tool Kits, as well as the company's suite of Regulation CC products. Wolters Kluwer Financial Services introduced all three solutions to financial institutions in 2009 to help them address regulatory changes. Under the terms of the expanded ICBA preferred service provider relationship, Wolters Kluwer Financial Services will provide ICBA community bank members with access to the company's RESPA tool kit, Regulation CC solutions and Regulation GG tool kit.

American Eagle Mortgage Co. LLC, Lorain, Ohio, is adding to its branch network in the greater Cleveland area through its acquisition of Real Estate Mortgage Corp. REMC has three locations — Rocky River, Beachwood and Twinsburg — and its president Mark Johnston will join AEMC as a vice president. Prior to the deal, AEMC had 12 offices, 10 across the state of Ohio and one each in Kentucky and Florida.

The advocacy arm of the Small Business Administration is taking the Federal Reserve Board to task for failing to estimate the economic impact a proposed mortgage lending rule would have on community bankers and mortgage brokers. The Fed has an "obligation" under the Regulatory Flexibility Act (RFA) to estimate the costs of changing the timing of Truth in Lending Act disclosures and imposing restrictions on loan officer and broker compensation, according to the SBA Office of Advocacy. "Failure to do so not only compromises and usurps the purpose of the RFA; it also impinges on the board's ability to consider less burdensome alternatives as required by the RFA," advocacy office acting chief counsel Susan Walthall says in a comment letter to the Federal Reserve Board. Under the Fed's TILA proposal, loan officer and broker compensation based on increases in the interest rate or changes to other loan terms would be prohibited. The National Association of Mortgage Brokers has proposed an alternative to prohibiting yield spread premiums, Ms. Whitehall says. It would ensure consumers know the "lowest interest rate the creditor will accept" so they can tell if the originator has increased the rate. "Advocacy encourages the board to consider this less costly alternative," the acting chief counsel says.

The Federal Reserve must be open to raising rates to pop future asset bubbles, even though stronger regulation remains the best solution to prevent a repeat of the nation's financial crisis, Fed chief Ben Bernanke said over the weekend. The nation's central banker said all efforts should be made to strengthen the U.S. financial regulatory system to prevent a repeat of a crisis that Mr. Bernanke described as perhaps the worst in modern times. "However, if adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous build-ups of financial risks, we must remain open to using monetary policy as a supplementary tool," Mr. Bernanke told an annual meeting of the American Economic Association.

The Federal Housing Administration should give lenders five years, instead to three years, to meet a higher $2.5 million net worth requirement, according to the Mortgage Bankers Association. The current net worth requirement for FHA-approved lenders is $250,000. "MBA supports limiting the approval process to qualified mortgagees and increasing the net worth requirement," MBA president and chief executive John Courson says in a comment letter to the Department of Housing and Urban Development. "However, we strongly believe market conditions merit an increased phased-in period," MBA says, "with lenders meeting a minimum net worth of $1 million by the end of year one." HUD wants to raise the minimum to ensure the financial strength of lenders that endorse FHA-insured mortgages. "Based on MBA analysis, it will take companies with a current net worth of approximately $1 million five years to retain enough earnings to reach the $2.5 million threshold," the trade group says.

Mark Oman, who oversees the mortgage division of Wells Fargo & Co., has been granted a "retention" bonus in the form of stock that is valued at $5 million, according to a statement made by the company. Wells says the "grant" is not a form of cash compensation and has strings attached to it: Mr. Oman will forfeit the shares if he leaves the lender to join a competitor; the shares do not vest for three years and only if Wells meets certain performance goals. In total, Mr. Oman — who joined a Wells affiliate back in 1979 — was granted 189,800 shares. The bank's stock has been trading in the range of $28 a share of late. Four other Wells executives were given retention bonuses including CEO John Stumpf. Wells is the nation's second largest originator of home loans, according to the Quarterly Data Report. Mr. Oman carries the title of senior executive vice president.

There was a record increase in the Eleventh Federal Home Loan Bank District Cost of Funds Index between October and November, wiping out all of the decline which had taken place since February. According to the Federal Home Loan Bank of San Francisco, the Index for November was 2.094%, up approximately 84 basis points from October's 1.259%, which is COFI's all time low point. The previous record increase in COFI, which has been issued every month since July 1981 and is used as an index for adjustable rate mortgages, was 51 basis points between May and June 1982, according to data on the FHLB-SF website. February 2009 was the last time COFI was above the 2% mark, at 2.003%. FHLB-SF calculated the weighted-average Index using total average funds of $38.5 billion and total interest expense of $67.2 million. There were 25 institutions that reported data for the COFI calculation, which is the cost of funds used by those institutions to originate mortgage loans.

Now is the time to start doing what is necessary for success.

A temporary tax break for those buying properties sold in a certain price range in the United Kingdom has benefited a greater percentage of borrowers than expected but its effects vary by region, according to the Council of Mortgage Lenders, London. The trade group said, "In September last year, when the government first raised the nil rate threshold for stamp duty, ... the CML estimated that this would mean the proportion of homebuyers who would not have to pay would rise from a quarter to a half. In fact, at its peak in the first quarter of this year, the concession benefited even more than this, with 57% of all those buying with a mortgage not having to pay [the tax]." However, that percentage decreased over the course of the year. "Modest house price increases and a shift in the mix of houses bought (toward higher value properties) brought this down to 51% in the third quarter." The CML also noted, "The flat nature of the concession - the same in all regions of the country - means that there is a wide geographic variation in the effect. Those areas with generally lower home prices see the greatest benefit."

In lieu of cash bonuses for 2009, the board of Wells Fargo & Co., San Francisco, Calif., has approved multimillion-dollar retention performance shares for three key executives, including the head of Wells Fargo Home and Consumer Finance, Mark Oman. Mr. Oman, a senior executive vice president, and Howard Atkins, also a senior EVP as well as well as the company's chief financial officer, both got approved for a target of 189,800 shares having a current value of about $5 million. The board approved for John Stumpf, president and chief executive officer, a target of 379,600 shares having a current value of about $10 million. "These retention performance shares, which are not a form of cash compensation or annual incentive bonus, are forfeited if the executive receiving the shares leaves the company to work for a competitor," Wells said. The shares will vest after three years of service only if the company meets specified performance goals. A portion of all shares earned by executives as compensation must be held for as long as they remain employed by the company. Steve Sanger, chair of the board's human resources committee and retired chairman and CEO of General Mills Inc., said the executives receiving the compensation have been "leading the company through the largest merger integration in U.S. banking history and they have played key roles in generating record profits in the first three quarters of 2009, despite the challenging economy." Commenting on the rationale behind the performance shares, he noted that given those accomplishments and "the current challenges impacting the banking industry, Wells Fargo executives, at all levels, are being increasingly and aggressively recruited by competitors."

After the biggest housing boom and bust in U.S. history, prices of existing homes managed to increase by only 25% over the past 10 years, according to the National Association of Realtors. The Realtors reported that median home values rose from $137,600 in November 1999 to $172,600 in November 2009 or 25%. At the peak of the market, the median house price hit $230,300 in July 2006. The latest forecast by NAR economists shows that the median house price will rise 3.6% in 2010 to $178,900, after falling 12.8% in 2009. The economists expect existing home sales will rise 10.8% in 2010 to 5.71 million from 5.15 million in 2009.

The dollar volume of primary new insurance written for the private mortgage insurance companies remained relatively low in November at just under $4.9 billion but was an improvement over last month. According to data from the Mortgage Insurance Cos. of America, that was higher than the low seen for the year in October (just shy of $4.8 billion). A statement from MICA said this includes HARP originations, but the group did not break out how many. Last November, MICA members wrote $5.8 billion, but this does not include figures from Radian Guaranty Inc., whose data was not included in the group's statistics until December 2008. Since that month, the industry's primary insurance in force has declined to $879.7 billion from $952.2 billion. New pool risk written was $2.5 billion for November, compared to $7.9 billion during the same month a year ago. The cure/default ratio in November, at 61.8%, was an improvement over 57% in October. There were 55,437 cures and 89,772 defaults during the latest month.

The year ends with the average weekly rate for a 30-year fixed-rate mortgage a bit above 5%. The average 30-year FRM rate for the week ending Dec. 31 was 5.14%, up from 5.05% the prior week and from 5.10% a year ago. "Although long-term mortgage rates rose for the fourth week in a row, they still remain affordable by historical standards," said Frank Nothaft, Freddie Mac vice president and chief economist. "Based on today's median loan amount of $138,000, monthly principal and interest payments for a 30-year fixed-rate mortgage are close to one-third less than a decade ago when rates peaked at 8.6% in May 2000." The average 15-year FRM rate during the week ending Dec. 31 was 4.54%, up from 4.45% a week ago but down from 4.83% a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage was 4.44% in the most recent week, up from 4.40% a week ago but down from 5.57% a year ago. The latest average weekly one-year Treasury ARM rate was 4.33%, down from 4.38% a week ago and from 5.57% a year ago. Average points were 0.7 for 30-and 15-year FRMs and 0.6 for five-year Treasury hybrids and one-year Treasury ARMs.

GMAC Financial Services has used a $3.8 billion capital infusion from the Treasury Department to take a $2 billion writedown on its mortgage assets and pursue options that could include the sale of Residential Capital. GMAC also made a $2.7 billion capital contribution to ResCap in the form of mortgage loans, debt forgiveness and cash. "These decisive balance sheet actions and resulting capital infusions are intended to minimize the impact on GMAC and Ally Bank of any future losses related to ResCap's legacy mortgage business," GMAC chief executive Michael Carpenter said. (ResCap was known as a subprime and Alt-A mortgage lender before that market died.) The CEO also noted these actions will allow GMAC to "pursue strategic alternatives" with respect to ResCap and the mortgage business. "We expect to consider various possible options," company spokeswoman Gina Proia said when asked about a possible sale. "There are no special plans at this time," she added. Losses due to ResCap's mortgage operations totaled $3.9 billion for the first three quarters of 2009, including a $747 million loss in the third quarter. In propping up ResCap, GMAC also took a $500 million "repurchase reserve expense" for mortgage buyback demands from investors who claim the loans they purchased from ResCap violate representations and warranties. GMAC took a similar $515 million expense in the third quarter. ResCap and its mortgage affiliates originated $15.4 billion in residential loans in the third quarter - predominantly Fannie Mae, Freddie Mac and Federal Housing Administration product. It is a top-10 mortgage servicer with a $380 billion servicing portfolio.

Federal Housing Administration lenders are expected to charge reasonable origination fees but in most cases they will no longer be bound to a 1% limit, according to the Department of Housing and Urban Development. As a result of a new Real Estate Settlement Procedures Act rule, "FHA no longer limits the origination fee to 1% of the mortgage amount for its standard mortgage insurance programs," HUD says in mortgagee letter 2009-53. However, the 1% limit will continue to apply to FHA-insured reverse mortgages and FHA 203(k) purchase/renovation loans. The new RESPA rule that goes into effect Friday (Jan. 1, 2010) mandates the use of a standardized Good Faith Estimate disclosure that bundles all origination charges into a single fee. The GFE does not disclose the lender's origination fee as a single line item. "FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged," FHA commissioner David Stevens says in the mortgagee letter.

As mortgage brokers feel the pinch, Mortgage Options of America Inc., a full service mortgage broker, has managed to save more than $20,000 in operating costs while reducing its loan fees more than 15% by automating. Specializing in first and second mortgages, debt consolidation and refinancing, MOA is licensed in Florida, Maine, Massachusetts and New Hampshire. Because the majority of its employees work on the road, the company needed total transparency, which it was not receiving from its previous system. This spurred the company's decision to switch to Xetus' XetusOne Loan Origination System. Prior to utilizing XetusOne, MOA had costly server needs, a T1 fiber optic line, and had to devote a lot of time backing up files and updating software. MOA credits a lot of its success to its strategic plan to automate.

More smaller banks and credit unions are adopting online, integrated point-of-sale technology to grow in the current down market. For example, Louisiana Federal Credit Union of LaPlace, La., decided that offering an online mortgage application would not only enable the organization's two-person mortgage team to increase their application volume, but would also help LFCU become a bigger player in the local mortgage market. As a result from 2004 to 2009, LFCU has used Mortgagebot's PowerSite technology to triple its annual mortgage volume without having to add staff. Similarly, Illini Bank, a $248-million-asset commercial bank with 12 locations near Springfield, Ill., had actually exited the mortgage business until realizing that a lack of mortgage products was costing them business to competitors. The bank implemented PowerSite Consumer as its direct-to-consumer mortgage website - enabling self-serve borrowers to quickly apply for mortgages online. Illini Bank has benefited significantly from its online solution, citing an average annual increase in application volume of 71% over the last three years.