Originations

Thrifts originated $47.1 billion in single-family loans during the third quarter, down nearly 25% from the previous quarter as refinancings dropped off. Refinancing activity accounted for 39% of thrift originations, compared to 55% in the second quarter when refis were near record levels, according to the Office of Thrift Supervision. The 780 OTS-supervised thrifts hold $348.9 billion in one-to-four family loans on their books and 5.76% are classified as "noncurrent" (90 days or more past due or considered uncollectible), up from 3.39% a year ago. The noncurrent rate on construction loans is 13.1% and 2.7% on commercial real estate loans. Thrifts posted a profit of $1.3 billion for the third quarter, up from $94 million in the previous quarter. But $1.1 billion of that profit came from a sale or non-operating gain from one institution. "Without that gain, the industry's net income would have been $200 million, essentially breaking even," OTS said.

Survey data from the Mortgage Bankers Association released Tuesday show a decline in loan applications during the week ended Nov. 20 relative to an upwardly revised number the week previous. The group's Market Composite Index during the week ended Nov. 20 slid 4.5% on a seasonally adjusted basis and 5.8% on an unadjusted basis. The MBA said the comparative data for the week ended Nov. 20 reflect an upward change in survey information from the week ended Nov. 13 that stemmed from one participant's upward revision of its submission to show higher application volume. That participant also reclassified of some of its loan applications to refinance from purchase. This left the total for the former "modestly higher" and the total for the latter "slightly lower" than originally reported for the Nov. 13 week. During the week ending Nov. 20, purchases were up 9.6% on a seasonally adjusted, week-to-week basis, up 4.9% from the previous week on an unadjusted basis and 13.7% lower than the same week a year ago. Respective MBA indices on a seasonally adjusted, four-week moving average basis register the following: a 0.5% increase in applications overall, a 6.4% drop in purchases and a 4% gain in refis. The refi share for the week ending Nov. 20 was 71.7% of total apps, down from 74.6% the previous week. The adjustable-rate mortgage share inched up to 5.3% from 5.1% during the same period. The average contract interest rate for one-year ARMs dropped to 6.66% from 6.85% with points increasing to 0.33 from 0.29 during the week ended Nov. 20. During the same period, the rate for 15-year fixed-rate mortgages stayed stable at 4.32% while points jumped to 1.05 from 1.01, and the rate for the 30-year FRMs that dominate the market fell slightly to 4.82% from 4.83% with points increasing slightly to 1.19 from 1.18.

New home sales rebounded 6.2% in October after a slight 2.4% dip in the previous month, while the inventory of newly constructed homes plunged to a 38-year low. The U.S. Census Bureau found that the new home inventory fell to a 6.2-month supply during the month, down from a 12-month supply in January. "If you are looking for a sign that builders need to start swinging their hammers soon, this is it," said Mike Larson, real estate analyst at Weiss Research. Sales of new single-family homes rose to a 430,000 seasonally adjusted annual rate in October, up from 405,000 in September. The sales are now 5% above the pace in October 2008. "The evidence continues to show stabilization in the housing market," Mr. Larson said.

The average Freddie Mac rate for a 30-year fixed-rate mortgage has matched a record low last seen earlier this year. The average FRM rate during the holiday-shortened week ended Nov. 25 was 4.78%, down from 4.83% a week ago and the lowest it has been since the week ending April 30. A year ago, the average 30-year FRM rate was 5.97%. The average 15-year FRM rate in the latest week continued to breach lows never before seen in the history of Freddie's rate survey of this particular product, which started in 1991. The average 15-year FRM rate was 4.29%, down from 4.31% the previous week and 5.74% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage also dropped to its lowest point since Freddie started tracking it. Freddie first began tracking this product in 2005. In the latest week, the five-year Treasury hybrid fell to 4.18% from 4.25% a week ago and 5.86% a year ago. The one-year Treasury ARM remained unchanged in the latest week at 4.35%, a low that before the previous week one would have had to go back to July 7, 2005 to beat (at that time, it was 4.33%). A year ago, the average one-year Treasury ARM rate was 5.18%. Average points were as follows: 0.7 for 30-year FRMs and one-year ARMs and 0.6 for the other two aforementioned products.

Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and BoA repurchased $2.3 billion to satisfy investor demands. Both are on the hook for troubled loans they took control of when they purchased ailing mega-thrifts — Countrywide in the case of BoA and Washington Mutual by Chase. The FDIC information also lists buybacks by Citibank ($898 million), National City Bank ($361.6 million), Wells Fargo Bank ($266 million) and SunTrust Bank ($232.3 million). Investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that don't comply with their underwriting requirements. Freddie Mac forced its seller/servicers to buy back $960 million in bad mortgages in third quarter. (Fannie does not disclose buyback information.) Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.

Once booming, home equity conversion mortgages have begun a slowdown that could continue until home prices stabilize. In the year ended Sept. 30, mortgage lenders funded 114,692 reverse mortgages under the Federal Housing Administration's HECM program, an increase of 1,336% compared with 1999. Five years ago, just 43,000 reverse loans were written. Until a year ago, the reverse mortgage niche looked like a safe bet for mortgage bankers seeking a haven from the carnage in the industry. But now — with home prices still under pressure and fears of a double-dip recession growing — reverse mortgages no longer look like a safe bet.

Housing starts will increase by 36% next year and the housing sector will contribute to economic growth for the first time since 2005, according to the November survey by the National Association of Business Economics. The 48 professional forecasters see housing starts hitting 790,000 units in 2010, which is up from 580,000 in 2009. The economists also expect house prices will bottom out this year and rise 2% in 2010. "When asked what factors were driving the housing rebound, panelists identified low house prices and interest rates as the two most important factors," a summary of the survey results says. The economists are forecasting that the 10-year Treasury note will yield 4.2% by the end of 2010 and the unemployment rate will average 9.6% in the fourth quarter of 2010. The unemployment rate is expected to "remain stubbornly higher." However, hiring is expected to pick up soon. "Within the next few months, companies should be adding instead of cutting jobs," said NABE president Lynn Reaser.

Home prices rose 0.3% in September, compared to 1.2% in August, according to the Standard & Poor's/Case-Shiller 20-city house price index, which posted its fourth consecutive monthly increase. Overall, the 20-city HPI is down 9.4% from a year ago but the declines are decelerating. In August, home prices were off 11.3% from a year ago. Values have improved since the spring, according to David Blitzer, chairman of S&P's index committee. "However, the gains in the most recent month are more modest than during the seasonally strong summer months," he said. IHS Global Insight economist Patrick Newport said prices are stabilizing across the country but he still expects another 5% decline. "We believe that prices have further to fall — about another 5% — because the foreclosure rate, which hit a record at the end of the third quarter, and the unemployment rate are still rising," he said.

Commercial banks originated $405.6 billion of residential mortgages in the third quarter, down 25% from the second quarter. New call report figures released by the Federal Deposit Insurance Corp. show that retail originations at the 874-reporting banks totaled $163.3 billion in the third quarter, compared to $222.2 billion in the previous quarter. Meanwhile, wholesale and correspondent originations totaled $242.7 billion, compared to $318.5 billion in the second quarter. Only commercial banks and FDIC-supervised savings banks with at least $1 billion in assets or smaller banks with at least $10 million in originations over the past the two quarters are required to report origination data to the FDIC.

Freddie Mac purchased $32.1 billion in mortgages from its seller/servicers in October, its weakest acquisition month since January and a sign that originations are slowing in the primary market. According to the GSE's new monthly volume summary, purchases fell slightly from September, but rose 66% compared to October of last year, a month in which credit markets came to a halt and the nation's financial system was on the brink of collapse. Freddie also disclosed that its delinquencies rose yet again to a new record, 3.54% at the end of October, compared to 1.34% in the same period last year. Its delinquency number reflects loans that are 90 days or more past due but exclude loan modifications.

The Federal Reserve should continue its MBS purchase program past the March 31 cutoff date, according to James Bullard, president of the St. Louis Federal Reserve Bank. "I have advocated to keep the asset-purchase program open but at a very low level and wait and see want happens," Mr. Bullard told Dow Jones Newswires. To support the secondary mortgage market, the Federal Reserve has purchased nearly $850 billion in Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities since December 2008. Mr. Bullard said in a recent speech that he would like the FOMC to adopt a "state-contingent policy that would allow for the adjustment of asset purchases as new information on the economy becomes available." At a Sept. 23 Federal Open Market Committee meeting, the Fed decided to extend its $1.25 trillion MBS purchase program through the first quarter and slow its MBS purchases. Since then, weekly MBS purchases have slowed to a $16 billion to $19 billion range from the faster pace of $20 billion to $25 billion a week. During the week of Nov. 11, however, the purchase activity spiked to $45.3 billion, as the Fed acquired $39.5 billion in Fannie MBS.

A U.S. district court judge in California has denied a motion by JPMorgan Chase Bank to dismiss a lawsuit that alleges the bank illegally reduced a couple's home equity line of credit. Chase argued that the plaintiffs, Jeffrey and Jenifer Schulken, are former customers of Washington Mutual and they should sue the Federal Deposit Insurance Corp. - which approved Chase's acquisition of WaMu - not Chase. But the judge sided with the Schulkens. According to the plaintiffs' attorney Jay Edelson, "Chase's unprecedented position was simple: Chase can harm former WaMu customers with impunity and anyone who suffers damage should sue the FDIC." Chase acquired the troubled WaMu with the approval of the FDIC in September 2008. The bank moved to reduce the plaintiffs' HELOC in March 2009, claiming their income had declined. Plaintiffs claim their income hasn't changed and sued Chase for violating the Truth in Lending Act. If the judge certifies the class act lawsuit, the plaintiffs' attorneys want the class to cover all Chase HELOC customers as well as former WaMu customers. A Chase spokeswoman said the bank does not comment on litigation. Chicago-based KamberEdelson LLC also is pursuing class action litigation against two large institutions that are among Chase's peers for suspending and reducing HELOCs. An FDIC spokesman did not have an immediate comment pending a review of the case by the FDIC's legal team.

Sales of single-family existing homes jumped 9.7% in October following an 8.7% jump in September, as first-time buyers rushed to take advantage of the $8,000 tax credit, according to the National Association of Realtors. NAR economist Lawrence Yun expects robust sales in November and a drop off in December. "With such a sales spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer," he said. The Realtors reported that sales of previously owned single-family homes jumped to a seasonally adjusted annual rate of 5.33 million in October from 4.86 million in September. The first-time buyer tax credit was due to expire at the end of November, but Congress extended it and created a new $6,500 tax credit for repeat and move-up buyers. The extension runs from Dec. 1 through April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The median sales price of a single-family home in October was $173,100 in October, down 6.8% from a year ago. The Realtors noted that 30% of sales involved short sales and foreclosed properties. Meanwhile, inventories of unsold homes, including condominiums and coops, fell to a seven-month supply at the current sales pace. The supply of homes on the market is now at the lowest level in two and a half years, the NAR chief economist said.

The origination of commercial mortgages backed by apartment buildings fell 40% in 2008 to $88 billion with a small cadre of lenders dominating the market, according to an analysis released by the Mortgage Bankers Association. The trade group said 2,877 different lenders funded multifamily loans during the year with PNC Real Estate, Wachovia (now part of Wells Fargo), Wells Fargo, Capmark Financial and Deutsche Bank Commercial Real Estate having the largest market shares. (Capmark recently filed for bankruptcy protection.) MBA found that 26% of lenders that funded MF loans made just one mortgage on these properties in 2008. And two-third of originators made five or less. Over the past year multifamily loan defaults have been on the rise even though housing analysts believe there will be more renters because of a weak job market.

The United Kingdom's year-to-year gross mortgage lending could slow down a bit on a monthly basis in coming months but it might start to look a little better on a year-to-year basis. "The sharp drop in lending volumes at end of 2008 and beginning of 2009 should lead to a relative improvement in year-to-year comparisons, according to the Council of Mortgage Lenders, London. But on a monthly basis lending could see its usual seasonal declines. In the latest month, October, U.K. gross mortgage lending was 13.5 billion pounds ($22.3 billion). This was up the usual seasonal 5% from the previous month but down 27% from the same month a year ago. The CML said this is in line with its most recent forecast of about 141 billion pounds ($233 billion) in gross mortgage lending for 2009 as a whole. "There has been a significant change in the type of lending taking place from the start of the year. House purchase activity has picked up significantly," said CML economist Paul Samter. He added that, in contrast, refinancing has dropped to record lows. However, he said the coming months "are likely to be dominated by seasonal factors rather than underlying change."

Barclays Capital has entered into a joint venture with Goff Capital, Inc., to acquire Crescent Real Estate Equities LP from Morgan Stanley Real Estate Funding II. John Goff has been named as chairman and chief executive of Crescent. Until its sale to Morgan Stanley in 2007, he was Crescent's vice chairman and CEO. "The quality of Crescent's portfolio is strong and I look forward to partnering with the Crescent and Barclays Capital teams to manage the company through the current cycle and ensure that we are well positioned for the market recovery," said Mr. Goff.

The National Reverse Mortgage Lenders Association is in the final stages of "publicly naming" an overly aggressive third-party lead generation company which has consistently violated the group's ethics and standards policies. A public naming is the last of six different sanctions that NRMLA can place against its members. The company, which still has the opportunity to appeal, already has been placed on probation, then suspended and finally expelled from the group, according to President Peter Bell, who declined to reveal the identity of the rogue company. "Now we're ready to report (the company) to the authorities and alert our members," he said. Four to six cases a month come before NRMLA's ethics panel, 70% because of problems with their advertising, the NRMLA leader told the conference.

False and misleading advertising was described at the National Reverse Mortgage Lenders Association's annual conference in San Diego as a "cancer" on the reverse lending business. "Even legal is not a high-enough standard, not in the eyes of the people looking over our shoulders," said NRMLA president Peter Bell during a session which covered many of the words, phrases and other come-ons that have attracted the ire of consumer advocates and policy makers. "Bad advertising is a poor reflection on each and every one of us," agreed moderator Jean Noble of Senior Lending Network, Melville, N.Y., a reverse mortgage servicer. Misleading advertising is "a huge liability for everybody in this room," Richard Peters, a direct marketing expert and a consultant to MetLife Bank's Reverse Mortgage Division, told the 650 attendees. "It takes 20 good ads to overcome one bad one." Poorly worded direct mail pieces, many of which are designed to look like they came from a government agency, "have policy makers hopping mad," Mr. Bell said. "Most of the regulatory issues we face are triggered by this kind of stuff." Noting that reverse mortgage lenders are working with a vulnerable population that is a protected class, the NRMLA president said the industry "has a duty to do more than use effective advertising."

Bank of America plans to sell $460 million of mortgage securities backed by commercial real estate loans without relying on a Treasury program to aid lending in that market. According to Bloomberg, the security is backed by mortgages on office and industrial properties in Florida. The bonds are split into four portions, the largest of which is $350 million of top-rated debt. Fortress Investment Group LLC is the sponsor of the transaction.

The House Financial Services Committee has approved an amendment that cuts a 10% risk retention requirement on sales and securitizations of mortgages down to 5%. Industry groups supported the amendment by Rep. Walt Minnick, D-Idaho, that was approved by a voice vote and attached to a regulatory reform bill. The Mortgage Bankers Association and others are disappointed, however, that the amendment does not exempt Federal Housing Administration, Fannie Mae and Freddie Mac eligible loans from the 5% risk retention requirement. "It is a step in the right direction. But we would like them to go further," said MBA senior vice president Steve O'Connor. The Minnick amendment gives regulators the discretion to set the risk retention requirement between zero and 5%, depending on the quality of the loans. But industry groups really wanted a total exemption for FHA, Fannie and Freddie loans that was included in a subprime lending bill (H.R. 1728) the House passed in May. Only loans guaranteed by the Department of Veterans Affairs and the Rural Housing Service are totally exempt under the Minnick amendment.