Originations

Almost 217,000 mortgage borrowers in the United Kingdom that moved in the past two years did it primarily to get a better home, but the main motivation of a smaller but significant subset of others was to get away from annoying neighbors, according to new research by Santander U.K.'s Abbey Mortgages division. About 95,000 of the 680,000 mortgage borrowers the Council of Mortgage Lenders said moved in the past two years did it because they disliked the people they had been living near, according to Abbey. Other significant borrower motivations included a need for more space, about 136,000; finding one's dream home, 108,000; downsizing, 102,000; and moving into an area with better schools, 40,800. Layoffs and financial woes forced about 6,800 to move.

The creation of a Consumer Financial Protection Agency would ensure that loan brokers have a vested interest in the performance of mortgages they facilitate, according to HUD secretary Shaun Donovan. The CFPA could end "abusive" yield spread premiums and impose a "duty of best execution" on brokers to make sure they put borrowers into affordable mortgages, the Department of Housing and Urban Development secretary told a Consumer Federation of American conference. In addition, the broker's fee could be paid over time, instead of in a lump sum at the closing table, giving brokers "skin in the game" the secretary said. The National Association of Mortgage Brokers top lobbyist Roy DeLoach said NAMB has a long-standing policy against abusive YSPs that act as incentives for brokers to steer borrowers into riskier, higher cost loans. He noted that NAMB supports a provision in a House-passed bill (H.R. 1728) that prohibits incentivized YSPs. As long as the broker's fee can be financed inside the interest rate, "we are supportive," he said. However, NAMB believes brokers should be paid at closing. In terms of best execution, the NAMB lobbyist noted that wholesale lenders, not brokers, underwrite and approve the loans. "The lenders have all the information we have before the loan goes to close," Mr. DeLoach said.

Delinquency rates on commercial real estate mortgages continued to rise in the third quarter as the 30-day or more past due rate on commercial mortgage-backed securities topped 4% - the highest ever. "Commercial and multifamily mortgages continue to feel stress in the face of the weakened economy, " said Jamie Wood, MBA's vice president of CRE research. The 30-day plus delinquency rate on CMBS hit 4.06% in the third quarter, up 17 basis points from the previous quarter. It was 0.63% in the third quarter of 2008. Meanwhile, 3.4% of CRE mortgages held by banks and thrifts are 90 days or more past due, up 51 bps from the second quarter. These delinquency rates do not include construction and development loans.

AmTrust Bank of Cleveland, which until recently was the nation's third largest residential wholesaler, was seized by the government late Friday with a majority of its assets sold to New York Community Bank, Westbury, N.Y., a top ranked player in multifamily lending. A source familiar with the matter said the government actually took bids on AmTrust's operations two weeks ago, saying interested investors included BB&T, EverBank, Fifth Third Bancorp, Key Bank and others. Its failure is expected to cost the government roughly $2 billion. The lender's demise is yet another blow for loan brokers in search of wholesalers willing to table fund their customers. At press time, it was unclear whether NYCB would keep AmTrust's wholesale division intact. A thrift, AmTrust had $12 billion in assets and until a few years ago was called Ohio Savings and Loan. The thrift was a national correspondent originator, selling its conventional loans to Fannie Mae and Freddie Mac. NYCB paid no premium to assume all of AmTrust's $8 billion in deposits, and also agreed to take over $9 billion of the failed thrift's assets. New York Community and the FDIC will share losses on $6 billion of those assets. The nation's largest privately owned thrift, AmTrust had been stung by a string of losing quarters and mounting losses from construction and development loans. Last Monday its holding company, AmTrust Financial Corp., filed for Chapter 11 bankruptcy protection.

Residential lenders funded $503 billion worth of home mortgages in the third quarter, a 48% gain from the same period last year, but a letdown compared to the second quarter, according to figures compiled by National Mortgage News and the Quarterly Data Report. Mortgage lenders are continuing to benefit from record low interest rates and the $8,000 first-time homebuyer tax credit which was extended by Congress through the Spring. In the second quarter the industry wrote $583 billion in new home loans. Bank of America and Wells Fargo continued to dominate the production business with a combined market share of 39% in 3Q, NMN/QDR found. (For complete rankings see the Monday edition of NMN.)

Genworth Financial Inc. has priced a $300 million seven-year senior note offering at an interest rate of 8.625% per year. Proceeds from the offering will be used by the Richmond, Va., life and mortgage insurer for "general corporate purposes." Deutsche Bank Securities Inc., Keefe, Bruyette & Woods Inc. and UBS Securities LLC are joint book-running managers for this offering, which is expected to close on Dec. 8, 2009.

Construction of multifamily housing weakened further in October, falling to the lowest number of starts on record. Apartment builders started just 48,000 properties with five or more units in October, the Commerce Department reported. The previous low was reached in July and again in September, when started five-plus apartments had an annual rate of 72,000. According to the National Association of Home Builders, while the government's monthly multifamily production figures tend to be volatile. But until this April, they had not dipped below 90,000 units on a seasonally adjusted basis since 1963. Since April, the multifamily starts rate has gone below 90,000 four times. Apartment completions also have fallen. There were just 200,000 of these in October.

Willie Newman, the former executive vice president of ABN Amro Mortgage Group, has been hired to head up the newly created residential mortgage origination unit at Cole Taylor Bank, Rosemont, Ill. The new affiliate will have offices in several states and source loans from established relationships with mortgage brokers, remote retail origination sites and the bank's retail branches. Cole Taylor Bank said it does not plan to hold the originations in its portfolio but will sell them in the secondary market. "We expect that the addition of this new line of business will be an important new source of fee income for our organization and will provide additional earnings diversification," said Bruce W. Taylor, chairman of Taylor Capital Group Inc., the bank's parent company. "We believe that this is a significant opportunity for us, and we are fortunate to be able to attract an industry leader like Willie Newman for this new line of business." The company expects to start originating mortgage loans in the first quarter of 2010. During his time at AAMG, Mr. Newman also had the title of president of InterFirst Wholesale Mortgage Lending. At Cole Taylor, he will report to Randy Conte, Taylor Capital's chief financial and chief operating officer. Mr. Conte at one time was COO at AAMG.

If the Federal Housing Administration had raised its annual mortgage insurance premiums by a modest amount in September 2008, its capital reserves would not have fallen below its statutory 2% minimum, according to a former Freddie Mac economist. "We found that a 20 to 25 basis point increase in the premium would have allowed the [FHA mortgage insurance] fund to meet its statutory capital requirement in fiscal year 2009," economist Ann Schnare told a congressional committee. FHA officials have asked Congress to raise the 55 bp cap on the annual premium so they can replenish the FHA fund's capital reserves. However, these same officials have not told Congress how high they want to raise it. "While we have not updated our analysis, we believe that something around" a 20 bp to 25 bp increase "would be appropriate today," she testified. She noted such an increase would bring FHA's pricing in line with Fannie Mae and Freddie Mac pricing. Ms. Schnare is a partner at Empiris LLC, a Washington economic consulting firm. In the 1990s, she was vice president for housing economics and financial research at Freddie Mac.

The housing recovery is still at a fragile stage, but with inventories of unsold homes receding and home sales and prices rising "we may be finally seeing the light at the end of the tunnel," HUD secretary Shaun Donovan said. The Department of Housing and Urban Development secretary made his remarks at a Consumer Federation of America conference. He stressed to reporters afterwards that it is "far too early to say we are out of the woods." But he noted that completed foreclosures have declined three months in a row and the Obama administration's loan modification program is a contributing factor. Foreclosures are "still too high," he said, and the administration is considering several options to assist unemployed homeowners. "We will make an announcement relatively soon," he added. The HUD secretary noted that a Pennsylvania state mortgage assistance plan does not require lenders or private investors to absorb any of the principal reduction. "I would not support a process where there is no principal reduction by whoever owns the loan," he told reporters.

The Mortgage Bankers Association is continuing to lose experienced staffers, confirming the departures of senior vice president in charge of commercial/multifamily, Jan Sternin, and one other. Leaving the trade group next week is Chris Oswald, who serves as director of state government affairs. Ms. Sternin will depart by late January. A spokeswoman for the trade group confirmed the departures but said MBA will hire replacements. The trade group, which hopes to turn a profit in the current fiscal year, is in the process of reorganizing parts of its government affairs division. It is in the process of selling its new Washington headquarters building but expects to take a loss on the sale.

Lend America, which was banned from FHA lending on Monday, was refinancing certain customers without paying off their prior existing lien, according to veteran mortgage banking attorney Robert Lotstein. Mr. Lotstein, who has clients that did business with Long Island-based Lend America, said this has created a situation where customers received a new loan from the lender but without their existing lien being paid off. A managing attorney with Mortgage Banking Advisors PLLC, Mr. Lotstein said this has created a situation where some Lend America mortgagors "will get a call from their old lender asking where the payment is." The attorney said his mortgage banking and vendor clients informed him of the situation. He said he could not quantify how many Lend America refi customers might be having this problem. A spokesman for the company said the lender is trying to rectify the problem.

The mortgage industry continues to shrink in terms of full-time employees as companies rely more on temporary workers to deal with servicing and origination demand. The U.S. Bureau of Labor Statistics reported that mortgage companies cut 3,700 full-time workers from their payrolls in October, including 1,700 mortgage brokers. Overall employment in the mortgage banker/broker sector fell to 255,500 in October from 259,200 in September. "You have a lot of temps being hired," a Mortgage Bankers Association executive said, noting that those figures do not show up in the BLS mortgage sector data. MBA associate vice president of industry analysis Marina Walsh said that mortgage firms are definitely hiring servicing-related workers but it is hard for them to justify hiring full-timers given the volatility in the market. "To forecast what it going to happen with originations and interest rates is very difficult," she said. Meanwhile, Friday's jobs report provided some good news with the national unemployment rate falling to 10% from 10.2% previously. BLS also revised downward the job losses in October and September - by a combined 150,000. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

A steep yield curve could selectively keep earnings/dividends for agency mortgage real estate investment trusts above normal levels even though a rally in the sector is running out of steam, according to a report Wednesday by Sandler O'Neill & Partners LP, which is initiating coverage on the sector. "We view the agency mortgage REIT sector as attractive, particularly for conservative investors seeking to earn low- to mid-teen returns while avoiding the credit challenges encompassing financial stocks more broadly," the company said in its equity research report. "We believe the favorable environment will likely continue into next year but are concerned that the hint of a Fed tightening cycle and/or the phase out of the Fed's MBS purchase program could deflate the stocks' upward momentum in 2010," said the report by associate director Michael Taiano and associate Michael Sarcone. "Consequently, we recommend being selective within the group and buying those REITs that have more balanced models and cheaper valuations." The company covers six agency mortgage REITs and has "buy" recommendations on two of them: Annaly and Anworth, primarily based on the former's "more diversified and balanced model, along with its track record of managing through various interest rate cycles" and the latter's "more defensive strategy toward higher rates" as well as the fact that "its valuation is the cheapest among the group." Sandler O'Neill has "hold" recommendations on the other agency mortgage REITs it covers.

The Federal Housing Administration wants to stay away from traditional risk-based pricing for mortgage insurance premiums, saying it doesn't want the government to compete against private sector MI firms. Lowering prices for the least risky borrowers could have the effect of "potentially crowding out the return of a private market" or delaying its return, HUD secretary Shaun Donovan told a congressional panel. FHA officials are planning to raise the upfront premium or the annual premium — or both. The agency will unveil details of their proposal in January. In determining the premiums, they want to employ some combination of credit scores, loan-to-value ratios and other underwriting criteria that would limit the entry of the riskiest borrowers into the FHA fund. For example, FHA might raise the down payment for borrowers with low FICO scores. "We also have to be careful about overpricing risk," secretary Donovan testified. He noted new FHA originations are "quite profitable."

MGIC Investment Corp., Milwaukee, has cleared another hurdle in its plan to write new business through a reactivated unit, MGIC Indemnity Corp. The Office of the Commissioner of Insurance for Wisconsin has waived a requirement that MGIC maintain a specific level of minimum regulatory capital; the waiver lasts until Dec. 31, 2011. MIC is a subsidiary of the company's primary operating unit, Mortgage Guaranty Insurance Corp. The regulator also approved a change in the business plan for MIC where the reactivated subsidiary would only write new policies in states which MGIC's primary mortgage underwriting unit no longer met minimum capital requirements. There are 17 states that impose some sort of requirement, including Wisconsin, where MGIC is domiciled. Previously, Fannie Mae had approved MIC as an eligible mortgage insurer through Dec. 31, 2011. However, Freddie Mac has yet to approve MIC. MIC has been capitalized by MGIC with $200 million.

For the first time in over three years, title insurance underwriters wrote more in new premiums when compared to the same quarter in the previous year. According to the American Land Title Association, underwriters generated $2.51 billion in premiums during the third quarter of 2009, compared with $2.48 billion for the same period in 2008. This ends a run of 13 consecutive quarters where title premiums declined from the prior year's equivalent quarter. Kurt Pfotenhauer, chief executive of ALTA, said "Congress' temporary tax incentives and the Federal Reserve's efforts to keep mortgage interest rates low have brought more homebuyers to the table. We are hopeful that the extension and expansion of the homebuyer tax credit will keep this momentum going through 2010 and begin to drive activity beyond the first-time buyer market." The momentum of increased premiums is not a nationwide phenomenon. There were 32 states that had increased premium volume, including California, which had $396.3 million vs. $349.6 million for third quarter 2008. Alaska had a 77% increase, $11.6 million this year, compared with $6.6 million one year ago. New Jersey had a 36% increase, Rhode Island, 57%, Colorado, 40%, and North Dakota, 31%. But three of the largest states saw declines in premium volume: Texas, down 9.9%, Florida, down 16%; and New York, down 26.1%. Mr. Pfotenhauer warned that this local cyclicality needs to be remembered by legislators and regulators looking to change the structure of the industry.

The weekly average for the 30-year fixed-rate mortgage that dominates the market had fallen again to yet another record low at 4.71%, according to the most recent Freddie Mac Primary Mortgage Market Survey. That average rate for a 30-year fixed-rate mortgage during the week ending Dec. 3 was the lowest seen since Freddie started tracking the rate in 1971. It was 4.78% the previous week and 5.53% a year ago. The average 15-year FRM rate, which Freddie has been tracking since 1991, also dropped to a new record low. It was 4.27% during the most recent week, 4.29% the previous week and 5.77% a year ago. In contrast, the average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage inched up during the most recent week to 4.19% from 4.18% the week previous. This rate was 5.77% a year ago. The average one-year Treasury ARM rate during the most recent week, at 4.25%, was higher than the average five-year rate during that time but down compared to the rate for the same type of loan the week previous. During the previous week, the average one-year Treasury ARM rate was 4.35%. A year ago this rate was 5.02%. Points in the most recent week were 0.7 for 30-year FRMs and 0.6 for the three other types of mortgages. "Interest rates for 30-year and 15-year fixed-rate mortgages fell for the fifth consecutive week to an all-time record low while the average rate on five-year ARMs hovered near its record set in the previous week," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, interest rates on 30-year and 15-year fixed mortgages thus far in 2009 averaged one percentage point below their respective average in 2008."

Former New York mayor Rudolph Giuliani and some of his advisors attended talks between Lend America officials and the Department of Housing and Urban Development last week, hoping to find a solution to the lender's problems, according to sources familiar with the matter. A source close to Lend America told National Mortgage News that Mr. Giuliani "was there" at the meetings but at press time it was unclear whether he attended as a representative of his law firm, Bracewell & Giuliani, or in an outside capacity. A spokeswoman for Bracewell said to the best of her knowledge, Lend America and its 'dba,' Ideal Mortgage Bankers, are not clients of the law firm. Also in attendance was Lend America president Michael Primeau. Before going into politics, Mr. Giuliani was U.S. Attorney for the Southern District of New York and made his name by busting junk bond king Michael Milken. On Monday HUD ordered the New York-based Lend America to halt the origination of FHA-backed loans. The next day the company laid off most of its work force - roughly 550 workers. HUD fined the company $512,000, accusing it of underwriting fraud and other misrepresentations.

Wells Fargo & Co., the nation's largest residential wholesale lender, is once again tightening its menu of products available to loan brokers, including new restrictions on high-balance mortgages that it sells to Fannie Mae and Freddie Mac. In a "Newsflash" memo its wholesale department sent to brokers on Wednesday, Wells said it is lowering the allowable LTV on high balance loans to 80% from 95%. The change goes into affect Dec. 14, 2009. It also is telling brokers that non-occupant "co-borrowers" will no longer be allowed on these loans. Wells is also tightening its condominium loan requirements. Wells said it is making these changes because mortgage insurance companies are being more selective about what they will cover in regard to broker-sourced loans.