Originations

The House of Representatives is slated to debate and vote on a massive regulatory reform package next week that includes several bills addressing abusive mortgage lending practices and risk retention on sales and securitizations of mortgages. The House Financial Services Committee completed action on the reform package on Wednesday when it approved a bill to set up a resolution process for "too big to fail" institutions. The "systemic risk" bill also gives regulators the discretion to set risk retention requirements as high as 5% on Federal Housing Administration, Fannie Mae and Freddie Mac loans. The regulatory reform package also includes bills that create a Consumer Finance Protection Agency, regulates the trading of derivatives, and a bill (H.R. 1728) the House passed in May that curbs subprime lending practices. The mortgage industry prefers the risk retention provisions in H.R. 1728, which totally exempts lenders and securitizers from retaining a portion of the credit risk on FHA and GSE loans. Some industry lobbyists have been wondering how committee chairman Barney Frank, D-Mass., would deal with the different risk retention provisions. Rep. Frank told reporters he would drop the original provision in H.R. 1728. "The risk retention section of the subprime bill will conform to what we did in the systemic risk bill," the chairman said.

Automated underwriting and pricing engine provider PriceMyLoan and advisory firm Mortgage Capital Trading are introducing an interface that links their technologies and allows for pipeline hedging. The Automated Loan Pipeline Hedges and Analysis interface feeds loan pricing data from the former's AU and pricing engine into the latter's proprietary hedging model. The interface is designed to automatically update the hedging model when a lender locks in a rate.

The Eleventh Federal Home Loan District Cost of Funds Index for October 2009 is plumbing new lows at 1.259%. This is a decline of a little over 11 basis points from September's 1.272%. There were 26 eligible member institutions of the Federal Home Loan Bank of San Francisco that reported the data used to calculate the Index. Average total funds used in the calculation were $90.2 billion while total interest expense was $94.7 million. Since the start of the year, COFI, which is used by some thrifts to index adjustable-rate mortgages, is down 120 basis points. In comparison, the Freddie Mac monthly Primary Mortgage Market Survey data for the one-year ARM shows the average commitment rate declining just 38 basis points between June, when the 4.93% average was 1 BP higher than in January, and October's 4.55%. According to Freddie Mac's data, the lowest monthly average rate recorded for the one-year ARM was in March 2004 at 3.41%.

During the week of Nov. 27, which was shortened due to Thanksgiving, the Mortgage Bankers Association Weekly Mortgage Applications Survey found its Market Composite Index increased 2.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index — a measure of mortgage loan application volume — decreased 29.3% compared with the previous week. The Refinance Index increased 1.7% from the previous week and the seasonally adjusted Purchase Index increased 4.1% from one week earlier. These results included an adjustment to account for the Thanksgiving holiday. The share of refinance activity increased to 72.1% of total applications, up from 71.7% the previous week. The adjustable-rate mortgage share of activity decreased to 4.8% from 5.3%. The average contract interest rate for 30-year fixed-rate mortgages fell to its lowest point since May of this year, going to 4.79% from 4.82%, with points decreasing to 1.00 from 1.19 (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 has reached its lowest point ever for this survey, declining by 5 basis points, to 4.27%. Since the week of Nov. 6, that rate had been stable at 4.32%. For one-year adjustable rate loans, rates decreased by 10 BP to 6.56%.

A suit that left securitized commercial mortgages affiliated with the bankrupt General Growth Properties exposed to potential losses and highlighted the limits of securitizations' "bankruptcy remote" nature is close to finalizing a settlement that would alleviate the loss concern, according to Fitch Ratings. "Settlement terms have been reached between a group of special servicers and GGP for 73 CMBS loans securitized in various CMBS transactions included in the April 2009 Chapter 11 filing of GGP," the rating agency said. The settlement would "convert U.S. CMBS loans affiliated with [GGP] back to performing status" and if confirmed by the bankruptcy court, 92 properties would emerge from bankruptcy within the next 60 days and would return to performing loan status 60 to 90 days thereafter." The bankruptcy remote special-purpose entities that commercial mortgage-backed securities and other securitizations are issued through are not - as Fitch notes and the case illustrates - completely "bankruptcy proof." However, if the case is settled as agreed it would show SPEs are still effective, as it would demonstrate that they do allow for a situation in which mortgages can be removed intact from a bankruptcy, according to Fitch senior director Adam Fox.

The former regional director of a downpayment assistance provider rejects characterizations of downpayment aid, now banned by the Federal Housing Administration, as a scam, saying it instead has been an opportunity for those with strong credit records and solid jobs who found themselves short of the cash needed to close a loan. The aid served a need because 20%-30% of denials were because of borrowers not having cash to close, said Algernon H. Penn, previously a regional director with downpayment assistance provider Nehemiah Corp. of California, in a letter to National Mortgage News about an item that appeared Dec. 1 on its website. He said that FHA did benefit from downpayment assistance in the form of an increase in the size of its loan pool and revenues. HUD had guidelines for the program in its 4155 handbook that Nehemiah used to design its program and this has been validated in court, said Mr. Penn, who is now president of the Penn Consulting Group. He said downpayment assistance loans performed poorly because of a lack of requirements his company had but others did not, including a dearth of homebuyer education and abuse of what was supposed to be nonprofit intent as well as unchecked appraisal inflation. (Mr. Penn's letter will appear in the Dec. 7 print edition of NMN).

The Federal Housing Administration's proposal to increase the net worth requirement for FHA lenders to $2.5 million is too high, according to the chief executive of the nation's largest mortgage cooperatives. Lenders One chief executive Scott Stern said raising the FHA net worth requirement from $250,000 to $1 million is workable. But FHA wants to raise it to $2.5 million within three years. "These are very high net worth levels" that will force a lot of traditional lenders to stop offering FHA products, he said. He noted that FHA's proposal comes at a time when Fannie Mae is raising its credit score requirement to 620 and Congress is threatening to impose risk retention requirements on lenders that sell or securitize mortgages. "Risk retention could decimate the mortgage industry and force a lot of lenders to go out of business," he said in an interview. Requiring a lender to retain an interest in every loan is not necessary on FHA, Fannie and Freddie loans, he added. The Lender One CEO stressed that the safety and soundness of FHA, Fannie and Freddie is paramount. But it is already difficult for consumers to get loans and rejection rates are very high. "It is getting very tight," he said.

The Federal Housing Administration is asking for an increase in mortgage insurance premiums to replenish its diminishing capital reserves while hiking credit scores for applicants. Housing secretary Shaun Donovan will ask Congress Wednesday afternoon to raise the 55-basis point cap on annual government MI premiums. Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.) Even though it is hiking loan costs, HUD will allow the upfront premium to be priced into the interest rate. It also will allow home sellers to pay the premium. "The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a mortgage-banking consultant with Potomac Partners. As the health of the mortgage insurance fund improves, FHA can reduce the premiums and other restrictions, he added.

The Department of Housing and Urban Development is asking Congress for additional authority allowing FHA to require lenders to indemnify the insurer against losses on bad loans. In testimony before the House Financial Services Committee, housing secretary Shaun Donovan said, "We are asking for additional authority for our proposals to hold FHA lenders responsible for fraud and misrepresentations by indemnifying the FHA fund." In his prepared testimony, secretary Donovan also noted that FHA's enforcement actions are presently limited to sanctioning individual lender branches. "We will be asking Congress to expand FHA's ability to hold lenders accountable nationally" across their entire branch network, the HUD secretary said. HUD is developing a "Lender Scorecard" that will summarize each FHA lender's performance. "This scorecard will be posted on our website to ensure transparency and accountability for lenders, borrowers and the market," Mr. Donovan testified.

The parent company of Cleveland's AmTrust Bank — the nation's third largest residential wholesale lender — filed for bankruptcy protection Monday. AmTrust Financial Corp., the corporate parent of AmTrust Bank, filed for Chapter 11 protection Monday in U.S. Bankruptcy Court in Cleveland. According to the Quarterly Data Report, AmTrust ranks third among all residential wholesalers. The company's bank unit and its 66 branches in Florida, Ohio and Arizona are not part of the Chapter 11 filing. Peter Goldberg, AmTrust's chief executive and a member of the family that controls AmTrust, said in a court filing that the bank and its subsidiaries "will continue their business operations."

Fannie Mae is raising its minimum credit score to 620 from 580 and lowering its maximum debt-to-income ratio to 45% to reduce future defaults. The underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter, the GSE's automated underwriting system. "The adjustments reflect careful analysis of a borrower's ability to repay their mortgage obligation over the life of the loan," said Fannie spokesman Brian Faith. Fannie claims that borrowers with credit scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. In modifying loans, "we have seen too many borrowers where their other consumer debt has jeopardized their success at homeownership," Mr. Faith said. He noted that none of these changes apply to Fannie's Refi Plus program, which provides a streamlined refinancing option for existing Fannie borrowers that have loan-to-value ratios greater than 80% and up to 125%.

The National Association of Realtors' pending home sales index rose 3.7% in October and posted its ninth consecutive monthly gain. The index, considered a leading indicator of future sales, hit 114.1 in October, compared to 110.1 in September. The PHSI has risen 31.8% since October 2008. The upward trend reflects the success of the $8,000 first-time homebuyer tax credit, said NAR chief economist Lawrence Yun. "This means the tax credit is helping unleash pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," Mr. Yun said. However, the Realtors are expecting a dip in sales in the months ahead followed by a surge in early spring. Their economists are forecasting that 2010 existing home sales will come in at 5.7 million, up 10.8% from this year.

Essent Guaranty of Philadelphia has been greenlighted by 35 states to write mortgage insurance policies and hopes to close its first policy early next year. "Early 2010 is when they'll start writing coverage," said a company spokeswoman. She noted that back in October Essent — which was formed by former Radian executive Mark Casale — had approvals from 24 states. On Tuesday Essent announced that it has closed on its purchase of technology assets and the operating platform of Triad Guaranty, an MI that is in self-liquidation mode.

A group of former executives for Triad Guaranty is exploring the possibility of creating a new mortgage insurance company, according to MI executives and other industry officials familiar with the situation. If the company gets off the ground, it would be the second new MI company formed since the credit crisis begun in earnest in the fall of 2008. (See related story on Essent.) At press time few details were available concerning the company which has the working name of 'MAC.' Triad, which is headquartered in Winston-Salem, N.C., is self liquidating and has roughly $57 billion of policies-in-force left on its books. The company is the smallest of the nation's seven operating MIs, according to National Mortgage News and the Quarterly Data Report.

Fannie Mae is raising its minimum credit score to 620 from 580 and lowering its maximum debt-to-income ratio to 45% to reduce future defaults. These underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter - Fannie's automated underwriting system. "The adjustments reflect careful analysis of a borrower's ability to repay their mortgage obligation over the life of the loan," said Fannie spokesman Brian Faith. Fannie claims that borrowers with credit scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. In modifying loans, "we have seen too many borrowers where their other consumer debt has jeopardized their success at homeownership," Mr. Faith said. He noted that none of these changes apply to Fannie's Refi Plus program, which provides a streamlined refinancing option for existing Fannie borrowers that have loan-to-value ratios greater than 80% and up to 125%.

Phoenix-based CCG Catalyst now offers contract negotiation services to financial institutions for vendors such as loan origination systems, servicing and online banking providers. As banks seek ways to cut costs, many are looking to contract negotiations with their existing vendors as a way to streamline operating expenses. In the case of contracts that were signed during prosperous times in the industry, institutions are looking at renewals in regards to their decreased budgets and investigating whether they are receiving enough value from their investment. CCG Catalyst has found significant savings for institutions that enter into early renewal talks with their vendors. The service also helps to assess if an organization has gone too far with concession requests so a vendor no longer views the business as profitable.

The median price of existing houses rose for the eighth consecutive month in California in October, while the statewide inventory on unsold units fell to a four-months' supply, according to the California Association of Realtors. Sales also were up for the month, rising 1% above October a year ago to a seasonally adjusted rate of 562,400 annually, according to data collected by CAR from the state's more than 90 local Realtor associations. The statewide sales figure represents what the total number of homes sold during 2009 would be if sales maintained the October pace throughout the year. October's sales and price figures are "signs that California has hit and passed the bottom of this real estate cycle," said Leslie Appleton-Young, CAR's chief economist. Ms. Appleton-Young also reported that the number of distressed sales "has shown considerable improvement" since the first of the year, and that for the first time since July 2007, sales of houses priced above $1 million rose on a year-over-year basis. In another bit of good news for sellers in the Golden State, the median number of days it took to sell a single-family home fell by 11 days and a few hours in October, from 45.5 days a year ago.

The Federal Housing Administration on Monday unveiled new proposals to strengthen its depleted insurance fund, including a mandate for all FHA lenders to maintain minimum capital of $2.5 million within three years. Since 1993, FHA has required lenders that use its insurance program to have a net worth of at least $250,000. But with its new proposals, lenders will need to have $1 million of capital within 12 months of implementation of the final rule, and then $2.5 million two years later. FHA is soliciting public comment for 30 days on its proposals, telling the industry that "comments received will be considered in the development of a final rule." Fannie Mae and Freddie Mac have announced similar minimum capital standards for their seller/servicers. At the end of September FHA had roughly $3.6 billion in cash left to cover a $685 billion book of business, leaving the fund with a capital ratio of just over 0.5%. Under the new proposals, mortgage brokers would no longer need to be FHA certified, but table funders that accept their loans would be financially responsible for them.

Citing "tremendous opportunity" in Alabama and Florida markets, Superior Bank is expanding its mortgage banking operations by adding over 60 people and doubling its existing team based in Birmingham. Adding new staff is a timely step, Superior Bank president Rick Gardner said following investments in new systems, expanded product offerings and the branch network in the last several years. Currently the company operates 72 branches. While the expanded operation will serve primarily Alabama customers, the $3.2 billion thrift holding company said additional support positions will ensure a larger number of customer needs are met both in Alabama and in Florida in the coming years. Currently the company operates 72 branches in 44 locations throughout the state of Alabama and 28 locations in Florida.

The pace of new construction in California has slowed to under 3,000 units a month, according to the latest figures from the Construction Industry Research Board. Builders in the Golden State pulled just 2,017 single-family permits in October and a mere 798 multifamily units, a grand total of 2,815. That's less than 10 new dwelling units a day for the country's largest state. During the first 10 months of the year, builders started 29,901 units, a 46% decline from the same period in 2008, when 55,632 permits were issued, according to CIRB. Single-family construction dropped 33% for the 10-month period, while multifamily construction was down 64%. The research board is projecting a total of just 36,000 starts for 2009, which, if it is right, would be the lowest on record. California Building Industry Association president and CEO Liz Snow is expecting the new and extended federal tax credits to give the business a much-need shot in the arm. Now, the group is calling on state lawmakers to resurrect the state's $10,000 tax credit, which expired a few months ago.