Originations

Given the success of the first-time homebuyer tax credit and its extension into next year, the National Association of Realtors is forecasting that existing home sales will jump 13.6% in 2010 after a 2% increase in 2009. First-time buyers will account for a record 47% of homes sales in 2009, according to NAR chief economist Lawrence Yun. "In fact the credit is working better than first projected — it now looks like we'll have 2.3 million to 2.4 million first-time buyers this year," he said. The National Association of Home Builders estimates the tax credit has generated 200,000 extra sales. Mr. Yun expects sales of previous owned homes will hit 5.7 million in 2010, up from 5.0 million in the previous year. Congress recently extended the $8,000 first-time homebuyer tax credit to April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The lawmakers also created a new $6,500 tax credit for repeat or move-up buyers. Bernard Markstein, NAHB director of economic forecasting, expects the extended/expanded tax credit, which goes into effect Dec. 1, will generate 180,000 extra sales, including 40,000 new home sales.

With the extension of the $8,000 first-time homebuyers tax credit and the addition of a smaller $6,500 credit for move-up buyers, the housing sector has gotten a second chance, but a third is unlikely. There will not be a third extension, according to the National Association of Realtors' director of tax policy. Lawmakers "made us promise practically in blood that we would not come back" for another extension, Lindo Goold said at NAR's annual convention in San Diego. Ms. Goold also spoke of "the high drama" involved in persuading Congress to increase the income limits involved with the credits. "You have no idea how nip and tuck it was," she told a convention session. The NAR's chief tax lobbyist also pleaded with realty agents not to allow their clients to "dream up schemes" to get around the rules regarding the credits, warning that the industry's credibility is on the line. Ms. Goold said the group enjoyed unprecedented success and "extraordinary victories" on Capital Hill this year. But she also advised that 2009 probably will be the last year the Realtor lobby will be able to be on the offensive. "We won't have that luxury too much longer," Ms. Goold said, explaining that with the government's coffers all but empty, the highly prized mortgage interest deduction, the capital gains write off and a favorable estate tax all may be on the table next year.

With nobody looking over its shoulder, the Federal Housing Administration has been "very vigilant" in not resetting area median home prices to their current levels, a National Association of Realtors' lobbyist said at the group's convention in San Diego. Noting that the agency is using 2006-level prices to set loan limits for individual markets, Megan Booth, an NAR senior policy representative, told a convention session that the "dramatic drop in house prices" over the last three years would result in lower loan limits in numerous places. With the conforming loan limit remaining at $417,000 for another year — and $729,750 in high-cost areas — the ceilings on loans that can be insured by the FHA also will not change in 2010 unless the agency recalculates the median prices for the nation's 3,300-plus counties. But Ms. Booth indicated the government fears any decline in the limits would rock local housing markets. NAR, meanwhile, will use the next 12 months to push to make the 2010 limits permanent. "No. 1 on our agenda is liquidity," said the group's new president, Vicki Cox Golder, a Tucson land broker. "Without funding, we can't get people into homes."

Effective immediately, the Federal Housing Administration will no longer require two appraisals on higher-balance loans for properties located in declining markets. The two-appraisal mandate — both were required prior to an underwriting decision — was put into place at the peak of the housing crisis. But "we haven't noticed any benefit" from the rule, "and it really slowed down the process," FHA Commissioner David Stevens told Mortgage Wire at the National Association of Realtors' convention in San Diego, where he announced the policy change over the weekend. The move was hailed by NAR officials, who have been seeking the change. But they were disappointed that Mr. Stevens, who headed Long & Foster Realtors, the nation's largest independent brokerage firm, before his appointment and is considered one of the Realtors' own, did not announce a change in policy requiring that condominium reserves be fully funded. He told Mortgage Wire that the problem of unfunded reserves is particularly acute in resort markets where there is an excess supply of new but unsold apartments. "We're all about owner-occupancy," he said. "I'm not sure it is up to the FHA to fill that void." In his remarks to the conference, Mr. Stevens, who also has worked for Freddie Mac and Wells Fargo, said the FHA's share of originations "may be significantly higher" at year-end than the current 25% level. But he also said he is looking forward to the time when FHA originations will shrink back to a more normal level. "We are here to bear witness to the countercyclical role the FHA was created to play," he said. "And we will be here until private capital returns to the housing finance system."

Lenders trying to comply with a new RESPA rule that goes into January 1 will not have to worry about being slapped with an enforcement action if they fall short during the first few months, according to the Department of Housing and Urban Development. HUD has instructed its staff to exercise restraint in taking enforcement actions against Federal Housing Administration-approved lenders during the first 120 days. HUD also is urging other federal and state enforcement agencies to go easy on other lenders that are making a good faith effort to implement the new Real Estate Settlement Procedures Act rule. "We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," said HUD Secretary Shaun Donovan. Lenders and certain other settlement services groups have been urging HUD to delay the implemention date for a few months. But HUD has refused. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices," secretary Donovan said.

Federal Reserve Board chairman Ben Bernanke said Monday that the central bank will continue to support the mortgage market while bank lending remains constrained. "We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitizing through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities," the Fed chief told the Economic Club of New York. The Fed has purchased more than $800 billion in agency MBS and it recently extended its MBS purchase program through March 31. (The effort was originally slated to expire at yearend 2009.) The Fed chairman noted that banks have tightened their lending standards more than the central bank had expected. "Unfortunately, reduced bank lending may well slow the recovery," Mr. Bernanke said. A Fed survey of senior loan officers in October found that 25% of banks had tightened their underwriting standards on prime single-family loans, a slightly higher percentage than reported in the July survey.

Freddie Mac said the conforming loan limits on the mortgages it purchases from lenders will not change in 2010. Moreover, even the $729,750 loan limit for high cost areas will remain the same since Congress extended it for another year. Otherwise, the loan limits for first mortgages are: $417,000 for mortgages secured by one-unit properties, $533,850 for mortgages secured by two-unit properties, $645,300 for mortgages secured by three-unit properties and $801,950 for mortgages secured by four-unit properties. Fannie Mae is expected to make the same pronouncement shortly.

Ashford Hospitality Trust booked a non-cash impairment charge of $19.8 million in the third quarter, setting aside loan reserves on two luxury hotel projects. The Dallas-based real estate investment trust elected to reserve for the remaining $9.1 million of its $18.2 million first mortgage participation in the Four Seasons Nevis due to additional uninsured costs incurred by the borrower and the delayed reopening of the resort until 2010. In addition, Ashford signed an agreement with the borrower on the Ritz Carlton Key Biscayne to allow for a discounted payoff of Ashford's $33.6 million loan that was set to mature in 2017. If closing occurs, Ashford will receive $20 million in cash and a $4 million secured note that matures in 2017. The company will reserve $10.7 million on this loan in anticipation of the discounted payoff.

Genworth Financial is slated to receive an estimated $85 million federal income tax refund that will benefit its mortgage insurance business, the Richmond, Va., company said. The refund is due to changes in federal law expanding the net carry-back period for certain net operating losses from two years out to five years. The estimate is based on Genworth's results for the first three quarters of 2009. The exact amount of the recovery will be based on the company's 2009 full year results and will be calculated early next year. A significant portion of the recovery will benefit Genworth's U.S. mortgage insurance business and could decrease its risk-to-capital ratio by between 0.5 and 1.0 points. At the end of the third quarter, Genworth's U.S. mortgage insurance unit had a risk-to-capital ratio of 15.1 to 1. Some states require mortgage insurers to have 25 to 1 ratio to write new policies. This includes North Carolina, where the Genworth unit is domiciled.

Fannie Mae completed 56,816 loan modifications during the first nine months of the year with 46% involving mortgages with current loan-to-value ratios greater than 100%. "A significant portion of our modifications pertain to loans with a mark-to-market LTV ratio greater than 100%," Fannie said in its third quarter financial report. Fannie notes that 20% of its high LTV single-family mortgages are 90-days or more past due, compared to a serious delinquency rate of 4.72% on its entire $2.8 trillion guaranteed mortgage portfolio. In the third quarter, the GSE completed 28,000 loan modifications, including a "limited number" of borrowers who qualified for the Obama administration's Home Affordable Modification Program. However, the GSE said a "large number" of the third quarter modifications involved borrowers "who did not qualify for modifications under the Home Affordable Modification Program."

Fitch Ratings has downgraded 119 bonds in 85 residential mortgage-backed securities transactions to 'D,' saying the securities have suffered writedowns on the underlying principal. All the bonds affected previously had had 'C' ratings that indicated a default was expected. Eighty of the bonds downgraded were from subprime credit deals and 33 of the bonds downgraded were from alternative-A credit deals. The remaining six bonds were from miscellaneous other RMBS transaction types, according to Fitch.

Senate Banking Committee chairman Christopher Dodd, D-Conn., has scheduled a committee meeting for November 19, giving members a chance to air their opinions on his comprehensive regulatory reform bill. Chairman Dodd wants to use the vetting session to gauge the level of support for his bill and see what changes are needed to forge a consensus. The initial draft of the legislation would consolidate bank supervisory activities into one agency, establish a separate consumer financial protection agency, and create a process for safely shutting down firms that are currently considered "too big to fail." So far, no Republican members have expressed support for the bill and a few Democrats have noted they have problems with some provisions. Sen. Dodd plans to release a revised draft of his bill on November 23. He wants the committee to meet December 2 to start the markup of the bill where senators offer and vote on amendments.

Over the past two months the Federal Housing Administration has suspended or "eliminated" at least eight mortgage banking firms from using its insurance program, according to Assistant Housing Secretary David Stevens. Mr. Stevens told reporters at a press conference that the eight firms — which were not identified — "were originating a poor quality book of business." He noted that mortgage banking firms that were approved to do business with the agency between 2005 to 2009 account for just 5% of its overall business. "A vast majority" of FHA's $685 billion book of business consists of what Mr. Stevens called "long tendered institutions." One mortgage banking source told National Mortgage News that the government is now looking into a large number of early payment defaults at a New Jersey-based FHA lender. No further details were available. On Thursday HUD released an audit showing that at the end of September the FHA's Mutual Mortgage Insurance fund had a razor thin capital cushion of just $3.6 billion, or 0.53% of its entire coverage universe. HUD is considering raising premiums to bolster the fund. HUD officials say that despite the thin capital base of the MMI, the fund is constantly bringing in new cash through premiums and that almost 30% of borrowers using the program in fiscal 2009 had a credit score of 720 or better, an all-time high. Four years ago just 12.6% of FHA borrowers had a credit score that high.

Year-over-year declines in California's new home sales market continued to shrink in September, a signal perhaps that the market is stabilizing. Sales in projects with 10 or more units were 11% below September 2008's total. But that's an improvement from the 13% year-to-year decline reported in August, and stands in stark contrast to much greater declines posted earlier this year, according to the monthly count by the California Building Industry Association and the Hanley Wood Market Intelligence research firm. Overall, just 2,310 new houses and condominiums were sold in September in the subdivisions tracked by the Costa Mesa-based HWMI. Compared with September 2008, the median base price of a new house statewide fell 6%. Jonathan Dienhart, director of published research for HWMI, said the slowdown in the slowdown is a "good sign" that the market is starting to reach a balance. But he also said that given "the dismal conditions" that 2009 figures are being compared with, it is still too early to make the call that a recovery is in the winds. "Broader economic issues, especially job losses, will continue to be a drag on the housing market and prevent it from a return to healthy equilibrium," Mr. Dienhart said. CBIA is pushing California lawmakers to follow the lead on Congress by re-instituting the state's $10,000 homebuyer tax credit.

The Federal Housing Administration has set new standards for housing counselors who want to work with seniors taking out FHA-insured reverse mortgages. To provide these services, counselors have to pass an AARP-approved examination and apply to be on FHA's new roster for Home Equity Conversion Mortgage counselors. "Only those counselors on the HECM roster can provide HECM counseling to potential HECM borrowers," according to FHA mortgagee letter 2009-47. FHA created the HECM roster in response to criticism that some counseling sessions are pro forma — conducted by counselors that are not knowledgeable about the product. The Government Accountability Office identified problems and Congress directed FHA to take corrective action. Darryl Hicks, a spokesman for the National Reverse Mortgage Lenders Association, noted that the new standards and roster have been a work in progress for the past two years. "We think it is great for the industry because it will establish a higher bar for counseling," Mr. Hicks said.

Experian, Costa Mesa, Calif., has created a suite of "ability to pay" products for use by mortgage lenders and brokers, among other credit grantors. Ability for a borrower to repay the mortgage loan is one of the hot button topics coming out of the mortgage crisis. The first product, Income Insight, provides an estimate of a borrower's individual income utilizing verified income data and proprietary credit bureau attributes. This product complies with the Fair Credit Reporting Act and the Equal Credit Opportunity Act, Experian said. The company targets customers while considering the complete financial picture, it improves risk-management efforts by including modeled debt-to-income ratios and it aims to accurately segment defaulted borrowers to maximize collection processes. Income View is a Web-based tax verification service that provides clients with what it said is reliable IRS 4506-T processing and prompt access to applicants' verified income via the Internal Revenue Service.

The average appraiser in most metro markets traveled 13 miles or less to value a property, according to a new survey by the Title Appraisal Vendor Management Association in Pittsburgh. The group is using the results to counter an argument made by the opponents of the Home Valuation Code of Conduct, that appraisal management companies are assigning work to appraisers who have to travel long distances and are not familiar with the neighborhood. One of the reasons AMCs are getting a bad rap is because the whole mortgage industry is changing and more work is going through them, which means there can be pushback from some appraisers and mortgage brokers that may not like how business is business done, says Jeff Schurman, executive director of TAVMA. "We polled our AMC members in light of unsubstantiated statements that AMCs send out-of-market appraisers great distances to value properties," he said. "Based on what our members are reporting to us that's simply not the case." AMCs typically use one of three methods for controlling how far appraisers travel: Geo-coding; ZIP code to ZIP code mapping; and/or order form instructions not to exceed defined distance parameters. The 40 companies in TAVMA represent 85% of the market share in the appraisal management space. That an appraiser services a particular area, how often, and how recently are three critical selection criteria that AMCs use in selecting the most appropriate appraiser for an assignment. "The nature of the business is that appraisers sometimes travel outside of their own neighborhood but that doesn't mean outside of their sphere of professional expertise," said Steve Haslam, CEO, StreetLinks National Appraisal Services.

A pair of real estate investment trusts managed by Vestin Mortgage Inc. saw net losses for the third quarter of 2009 due in large part to their level of nonperforming loans and the increase in properties acquired through foreclosure. Vestin Realty Mortgage I reported a net loss of $4.7 million for the period, compared with a net loss of $6.4 million in the same period in 2008, while Vestin Realty Mortgage II reported a net loss of $17.4 million for the third quarter of this year, compared with a net loss of $40.1 million for the third quarter of 2008. As of Sept. 30, 2009, Vestin I had 21 loans outstanding with an aggregate principal amount of $36.1 million, of which 10 loans with an aggregate principal amount of $24.5 million were considered nonperforming. Vestin II had 28 loans outstanding with an aggregate principal amount of $143 million, of which 11 loans with an aggregate principal amount of $79.5 million were considered nonperforming.

The average rate for a 30-year fixed-rate mortgage has dropped to its lowest level in five weeks, according to the most recent Freddie Mac Primary Mortgage Market Survey. "This comes at a time when house price declines are moderating and consumer demand for prime mortgages at commercial banks has picked up," said Frank Nothaft, Freddie Mac vice president and chief economist. The average 30-year FRM rate during the week ended Nov. 12 was 4.91%, down from 4.98% the week before and from 6.14% a year ago. The average 15-year FRM rate was 4.36%, down from 4.40% last week and 5.81% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 4.29%, down from 4.35% last week and 5.98% a year ago. The average one-year Treasury ARM rate was 4.46%, down from 4.47% a week ago and 5.33% a year ago. Average points were 0.7 for 30-year FRMs and 0.6 for the three other types of loans.

Refinance applications made up more than seven of every 10 mortgage applications submitted for the week ended Nov. 6, the Mortgage Bankers Association Weekly Mortgage Applications Survey found. The market share of refinance applications, according to the survey, rose to 71.5% from 66.1% for the previous week. MBA said this is the largest share of refi applications since this past May, when 30-year fixed rates were near an historical low. The Market Composite Index, a measure of loan application volume, increased 3.2% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 2.8% compared with the previous week. The Refinance Index increased 11.3% from the previous week but lower rates have not yet contributed to an increase in purchase applications. The seasonally adjusted Purchase Index decreased 11.7% from one week earlier. The share of adjustable rate mortgage applications fell to 5.5% for the week, from 6.1% one week prior. The average contract interest rate for 30-year fixed-rate mortgages fell to 4.90% from 4.97%, with points increasing to 1.03 from 1.01 (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 was unchanged from the previous week, at 4.33%, while for one-year adjustable rate loans, rates increased by 2 BP to 6.85%. The MBA stopped disclosing index values with the July 31 data release. The group released this information a day later than normal because Wednesday this week was Veterans' Day. The MBA can be found online at http://www.mortgagebankers.org.