Originations

Credit scores on FHA single-family loans have risen steadily over the past three years with the average score reaching 689 at the end of September, a 10% improvement from a year ago. Lenders originated a record $328.1 billion in Federal Housing Administration loans in FY 2009 and 44% of the loans have FICO scores above 680. Only 13% have FICO scores below 620, which is generally considered subprime. In FY 2007, when FHA endorsements totaled $55.5 billion, only 19% of the loans had FICO scores above 680 and 47% of the loans had FICO scores below 620. (FICO stands for Fair Isaac & Co., which compiles credit scores on consumers.) "The improved credit quality of FHA's recent originations debunks the myths that FHA is being overrun by subprime loans," said Brian Chappelle, a partner in Potomac Partners of Washington. Mr. Chappelle is basing his beliefs on a recent audit of FHA's single-family portfolio and a FHA report to Congress. He noted that loans with FICO scores above 680 perform four-times better than loans with FICOs below 620.

"Several dozen" of the 1,200 to 1,500 fraud investigations currently underway within the Department of Housing and Urban Development's Inspector General's Office involve home equity conversion mortgages, a group of reverse mortgage specialists meeting in San Diego were told. Some cases involve a single loan; others, hundreds of loans, and they run the gamut of industry practitioners - from single loan officers to big companies, according to Michael Stolworthy, the assistant special agent in charge of mortgage crime investigations in the IG's office, which is the law enforcement arm of HUD. "I'm not saying fraud is widespread, but some of these are not just fly-by-night outfits," Mr. Stolworthy told the National Reverse Mortgage Lenders Conference. "This is not an industry permeated with fraud, but it's not perfect either." The mortgage cop didn't name names, but he said one miscreant's name has popped up on straw buyer cases involving more than 300 properties. In another investigation that involved the well-known Crips gang of street thugs, 25 seniors were sold highly inflated properties using the popular HECM for purchase program. Despite these ongoing investigations, Mr. Stolworthy extolled the virtues of reverse mortgages. "I'm a big supporter; HECM is an excellent product," he said. "But an industry that's often on the defensive doesn't need this kind of black eye."

The Department of Housing and Urban Development will soon publish an advance notice of rule making concerning reverse mortgages that the agency's official who oversees the Home Equity Conversion Mortgage program says "a lot of people may find disconcerting." The notice, which is awaiting approval from the Office of Management and Budget, "asks some very serious questions," Meg Burns, the director of the office of single-family program development at the Federal Housing Administration, said at the National Reverse Mortgage Lenders Association's annual conference in San Diego. One "straight out" question that will be asked is whether borrowers should be allowed to pocket the proceeds of a reverse loan and use the money as the basis of an annuity against falling prices. Another question is whether or not a limit should be placed on how the proceeds are used by the borrower, and a third is whether draws should be limited unless the borrower has an immediate need. "We think it's appropriate to ask these questions because these are the issues the come up all the time with lawmakers," Ms. Burns told the conference. She added HUD would soon publish a proposed regulation that would require all reverse mortgage lenders to determine if the income of a would-be borrower is enough to meet his and/or her current obligations. If so, HUD may place restrictions on how much of the loan proceeds a borrower can draw. Yet another idea on the table at HUD is what's called a "HECM Mini" in which borrowers whose equity in their homes was more than needed would tell the lender what percentage of the value they wanted and the maximum claim limits would be adjusted accordingly.

The average 30-year primary market mortgage rate tracked by Freddie Mac is nearing a record low not seen since April. The average rate for a 30-year fixed-rate mortgage in the company's Primary Mortgage Market Survey for the week ending Nov. 19 was 4.83%, down from 4.91% the previous week and 6.04% a year ago. This is not far from the record low of 4.78% seen earlier this year. Even more favorable than the average 30-year FRM rate in the latest week was the average 15-year FRM rate, which hit a new record low during the period of 4.32%. This was slightly below the previous record low of 4.33% hit the week of Oct. 8 and was down from 4.36% a week ago and 5.73% a year ago. The average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage in the latest week was 4.25%, down from 4.29% a week ago and 5.87% a year ago. The average rate for a one-year Treasury ARM was 4.35%, down from 4.46% a week ago and 5.29% a year ago. Average points were as follows: 0.7 for 30-year FRMs and 0.6 for all the other aforementioned types of loans.

Still bristling from the Federal Housing Administration's decision in late September to cut "principal list factors" by roughly 10% across the board as of Oct. 1, reverse mortgage lenders are now bracing for another haircut, this one probably around Jan. 1. After meeting with FHA Commissioner David Stevens before the start of the National Reverse Mortgage Lenders Association's annual conference in San Diego, NRMLA President Peter Bell seemed resigned to the reality that the FHA would lower the two factors - the borrower's age and the current mortgage rate - that form the matrix used to determine what percentage of the property's value is available to the borrower. But at the same time, he told MortgageWire that his members would not be pleased. "This whole thing with risk management has ruffled a lot of feathers," Mr. Bell said. Changes in the matrix are dictated by the Office of Management and Budget's reading of house prices, which have been falling in most locations. An announcement is expected shortly after the Thanksgiving holiday. "It's really a new day in Washington," he said. "Evidence-based decision making drives the process now." According to a rump survey by the group of the loans booked year-to-date by the three largest portfolio lenders of reverse mortgages, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed on the property.

Triad Guaranty Inc., a mortgage insurer that is in self-liquidation mode, has received a delisting notice from the NASDAQ. The exchange told the nation's smallest MI that it is no longer in compliance with a rule requiring it to maintain a minimum market capitalization (based on common stock value) of $15 million. NASDAQ is giving the Winston-Salem company 90 calendar days, or until Feb. 9, 2010, to regain compliance. Triad, whose shares trade for about 50 cents, lost $102 million in the third quarter. In October Triad agreed to sell its MI platform, including its technology, to Essent Guaranty, a new MI company that hopes to begin writing policies next year. Triad has outstanding coverage on about $57 billion worth of home mortgages, according to the Quarterly Data Report.

Technology Credit Union of San Jose has introduced a new five-year jumbo ARM and is willing to fund mortgages up to $1 million in the high-priced San Francisco Bay Area. Introduction of the new product comes as area homebuyers are having a hard time finding affordable loans over the Fannie Mae/Freddie Mac limit, mainly because the secondary market for these nonconforming mortgages has dried up along with the securitization market. For now, most jumbo loans being funded are held in portfolio at depositories with Bank of America and Wells Fargo being two of the largest players in that market. Technology CU is a $1 billion credit union serving several hundred companies in Silicon Valley. A few months back Kinecta Federal Credit Union of Manhattan Beach, Calif., stepped up its jumbo lending.

Residential originations will decline by almost 30% next year to $1.38 trillion as rising interest rates put a crimp on new originations, according to a new forecast from Fannie Mae. The GSE believes originations will total $1.95 trillion this year. (The Quarterly Data Report, a National Mortgage News publication, is forecasting $2.1 trillion in fundings this year.) Last month the Mortgage Bankers Association reduced its 2010 forecast to about $1.6 trillion. Mortgage lenders had one of their worst years of the decade in 2008 ($1.6 trillion in fundings) when the worldwide credit crisis came to a head in the fourth quarter. Fannie's economists predict the interest rate on 30-year fixed-rate loans will average 5.42% in 2010 compared to 5.07% this year. Refinancings will comprise only 47% of originations, compared to 67% this year. "We continue to expect a 10% increase in home sales in 2010," Fannie chief economist Doug Duncan says in his monthly "Economic Developments" update report. He believes FHA will be the beneficiary due to congressional action to extend the first-time homebuyer tax credit and expand it to buyers in the move-up market. "The tax credit will likely be a boon for the Federal Housing Administration, whose share of purchase mortgages has increased significantly during the past year," he said. FHA insured $170.6 billion in purchase mortgages in fiscal-year 2009 with 78.5% going to first-time homebuyers.

The market share of refinance applications for the week ended Nov. 13 is at its highest level since mid-May, the Mortgage Bankers Association Weekly Mortgage Applications Survey found. Refis made up 72.9% of the applications submitted for the week, up from 71.5% for the previous week. MBA said this is the largest share of refi applications since May 15. However, the Market Composite Index, a measure of loan application volume, decreased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 3.3% compared with the previous week. The Refinance Index decreased 1.4% from the previous week while seasonally adjusted Purchase Index decreased 4.7%. MBA said this is the sixth week in a row the seasonally adjusted Purchase Index has declined bringing it to its lowest level since November 1997.The share of adjustable-rate mortgage applications fell to 5.4% for the week, from 5.5% one week prior. The average contract interest rate for 30-year fixed-rate mortgages fell to 4.83% from 4.9%, with points increasing to 1.17 from 1.03 (including the origination fee) for loans with an 80% loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs declined by 1 basis point, to 4.32%. For the week of Nov. 6, 2009, there was no change in the rate. For one-year adjustable rate loans, rates decreased by 3 bps to 6.82%. The MBA stopped disclosing index values with the July 31 data release. The MBA can be found online at http://www.mortgagebankers.org.

Single-family housing starts dropped 6.8% in October from the previous month while multifamily starts plummeted 33% to the slowest pace on record. The U.S. Census Bureau reported that single-family housing starts fell to a 476,000 seasonally adjusted annual rate in October from a 511,000 rate in September. Builders held back on starting construction of new homes due to the possible expiration of the $8,000 first-time buyer tax credit, according to the National Association of Home Builders. Congress recently extended the tax credit and expanded it to repeat buyers. "We hope and expect that this will have a substantial stimulative effect on home sales and help keep the housing market solidly on the road to recovery," NAHB chairman Joe Robson said. Meanwhile, construction of multifamily units fell to a 48,000 seasonally adjusted annual rate in October from a 72,000 rate in September. Multifamily starts have fallen 78% since October 2008 as vacancy rates rise and lenders tightening lending standards.

Comptroller of the Currency John Dugan said regulators worldwide should prohibit lenders from making payment-option adjustable-rate mortgages and other negative amortizing products. "We should generally prohibit the lowering of monthly payments through so-called negative amortization mortgages, which have performed terribly," Mr. Dugan told an international banking conference in Tokyo. The U.S. national bank supervisor urged regulators to adopt minimum mortgage standards that require verification of borrowers' income and assets, meaningful downpayments and underwriting that takes into account the fully indexed interest rate. The comptroller noted that real estate markets around the world are heating up due to low interest rates and they should be careful. "We in America fundamentally lost our way" and the consequences have been "disastrous," Mr. Dugan said. "It's simply hard to believe how far and how fast mortgage originators strayed from basic, fundamental, common-sense principles of sound underwriting. And perhaps it's even more astounding that lenders, investors and yes, regulators, allowed this to happen," he added. In the U.S., few, if any, are still originating these types of mortgages.

Eighteen months after becoming a Fannie Mae multifamily "DUS" lender, CB Richard Ellis has reached the $1 billion mark in originations. The Boston-based real estate and lending company launched its DUS initiative in April 2008. In 2009, the company has closed $605 million in product to date. Nearly 60% of its volume was generated in collaboration with its investment sales team, financing the acquisition of properties. The group is headed by Peter Donovan, who serves as president.

The first new issue of commercial mortgage-backed securities completed under the government's Term Asset-Backed Securities Lending Facility is a step forward on what may be a long journey toward that market's recovery, according to Moody's Investors Service. The first CMBS deal done under TALF is collateralized by a $400 million loan to subsidiaries of Developers Diversified Realty Corp., a retail real estate investment trust. According to combined news reports, the security came to market this week but Moody's notes in a new report that, "significant issues affecting the broader CMBS securitization sector remain unresolved." The rating agency adds, "not all CMBS loan financings will benefit from the program, which has stringent rules."

The yield on the benchmark 10-year Treasury continued its drop Tuesday, suggesting that the recent downward drift in mortgage rates might continue. At press time, the 10-year was yielding 3.3% compared to 3.5% less than a week ago. Rates began to fall after Federal Reserve chairman Ben Bernanke spoke Monday, reaffirming the government's intervention policies in the mortgage market. The Fed is set to end its MBS liquidity program by the spring but the Fed chairman said the central bank might adjust the program, depending on what market conditions call for.

The nation's homebuilders may have to wait until next year to start reaping the rewards of the recently enacted $6,500 tax credit for repeat buyers, an industry consultant has warned. While builders who work in the move-up market can anticipate a boost in sales, Southern California real estate consultant John Burns says the burning question is: Will the tax break be enough to motivate buyers to enter the market during the normally slow holiday season? Under the rules, buyers must sign contracts by the end of April and must close on their new digs by the end of June. That gives buyers who are looking at newly built homes plenty of time to shop, but not necessarily enough time to get their choices built. The typical construction cycle is 90 days, so buyers who haven't found a model they like by the end of March may be cutting it close, possibly too close. That's why consultants like Mr. Burns and others are advising builders to start a few homes on speculation. Right now, John Burns Real Estate Consulting's November survey of 265 building company executives is finding "cooling traffic and sales in many locations, particularly those with no spec inventory."

Seven individuals have been charged for their roles in a mortgage fraud scheme that involved more than 100 properties in Northern California. The indictment charges Amy Schloemann, Karim Akil, Wonda Louise Kidd, Michelle McGuire, Kaska Clay, James Ross and Darnell Thomas with conspiracy to commit wire fraud, wire fraud and money laundering. According to Joseph P. Russoniello, U.S. attorney for the Eastern District of California, the defendants, who were unavailable for comment, allegedly participated in a fraud scheme involving the fraudulent purchase of more than 100 properties through the use of straw buyers, real estate appraisers, notaries and escrow agents, and the laundering of profits. The defendants allegedly directed straw buyers to sign loan applications containing false information and allegedly hired notary publics to fraudulently notarize documents. The defendants allegedly increased their profits on the purchase of properties by submitting false documents to lenders. Once the properties were purchased, the defendants allegedly split the proceeds and failed to make payments on the properties, causing lenders to foreclose.

Although its portfolio is continuing to perform well, PMC Commercial Trust has seen the weakened economy impact some of its borrowers, according to its third quarter financial results. In addition, the Dallas-based commercial real estate investment trust has taken possession of two properties through foreclosure. "We anticipate the weakness to continue for at least several quarters," said PMC chairman Lance Rosemore in a statement, adding, "our loans are typically real estate secured and, in most cases, the value of the underlying collateral should cover our principal exposure." In response to the current economic conditions, PMC Commercial Trust increased its reserves for loan losses during 2009. Income from continuing operations increased to $1.5 million in 3Q09 from $587,000 during the third quarter of 2008. Net income increased to $1.9 million during the third quarter of 2009 compared to $603,000 for the third quarter of 2008.

The expansion-minded CMG Mortgage of California has opened a new retail branch in Denver, hiring mortgage banker Matt Klaess to run it. Mr. Klaess, the former owner of American Guarantee Mortgage, is "well known" in the Denver market, CMG said in a statement. No further details were available at press time. A few weeks ago CMG bought Northwest Financial Services, Seattle, a loan brokerage firm with 30 retail loan officers, for an undisclosed sum. CMG is a nonbank residential lender that ranks 58th nationwide in terms of loan originations, according to figures compiled by National Mortgage News and the Quarterly Data Report.

The Federal Reserve Board has clarified its new HOEPA lending standard so that lenders can refinance short-term balloon mortgages on farmhouses and other rural residences. Rural lenders make nonconforming 3-year and 5-year balloon mortgages that they hold in portfolio. They raised concerns that the Home Ownership and Equity Protection Act regulations that went into effect Oct. 1 could prohibit such products. The HOEPA rule requires lenders to evaluate the borrower's ability to repay a loan. On higher-cost balloon mortgages with a term of less than seven years, it appeared the borrower must be able to pay off the mortgage in full at the end of the term. FRB director of consumer affairs Sandra Braunstein said there is "no" such pay off requirement since it would effectively ban short-term balloon loans. "If the Board had intended to ban such products it would have done so explicitly," she says in a letter to banking trade groups and bank examiners. In making the loan, the lender should "verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral," Mr. Braunstein says. American Bankers Association regulatory counsel Rod Alba said, "most of our members" are satisfied with this clarification. But some are concerned that they may still be open to possible private litigation or borrowers exercising a right of rescission, he said.

While concerns about low appraisals are legitimate, the problem is not necessarily with the Home Valuation Code of Conduct, a key federal regulator told an angry crowd of real estate professionals in San Diego. "We keep trying to find a provision (in the HVCC) that is causing problems, but we can't," Alfred Pollard of the Federal Housing Finance Agency said at the National Association of Realtors' annual convention. NAR members are hopping mad at delayed closings and lost transactions. In a survey conducted earlier in the year, three our of four agents said it is taking longer to get appraisals and the holdup is affecting their sales. But Mr. Pollard, the FHFA's general counsel, said that a few lost deals may be the price that has to be paid to rid the marketplace of lousy appraisers. Mark Johnson of LSI Title, an appraisal management company, also defended the code. While there are some "bad actors" in the AMC sector, he said, "the reality is that no matter how you look at it," the increase in complaints coincided not only with the "huge decline in prices that took place last year" but also at a time when mortgage rates hit bottom and lenders strained to handle the volume of applications. "There were too many loans in the pipeline," said Mr. Johnson, who manages the appraisal and valuation divisions at LSI, a division of Lender Processing Services. "I'm trying to be humble and confident at the same time," he told a session of hostile Realtors, "but applications tripled in some cases."