Originations

The crisis in the mortgage industry has made mortgage originators more cautious, resulting in longer loan origination times with tighter underwriting standards and a new survey finds all this affects borrower perceptions. Such scrutiny is having a negative effect on customer satisfaction standards, the J.D. Power and Associates 2009 Primary Mortgage Origination Satisfaction Study found. Overall satisfaction among mortgage customers has declined to 739 on a 1,000-point scale, down 18 index points from 757 in 2008. The average time required to approve and close a loan has increased to nearly 47 days, compared with approximately 30 days in 2008, primarily due to increased scrutiny of loan applications and higher origination volumes driven by increases in refinancing. This increase in turnaround time has a considerable impact on satisfaction, as satisfaction averages only 723 when the time from application to approval takes six or more days, compared with 798 when the process takes less than six days. Similarly, satisfaction drops from 772 to 736 when the time from approval to closing takes 14 or more days. David Lo, director of financial services at J.D. Power, said, "Good underwriting and delivering a satisfying customer experience are not mutually exclusive, and some of the negative effects of a tightened lending environment can be mitigated by simply improving communication between lenders and customers." For example, satisfaction averages 793 among customers whose lender provided and met a time frame for the application/approval process, compared with 632 among those whose lender did not. In addition, satisfaction declines from 781 to 643 when customers were asked to provide the same information more than once. The lender with the highest score was BB&T at 783, followed closely by Wachovia (now part of Wells Fargo) at 781 and then National City Mortgage (just rebranded as PNC Mortgage) and SunTrust tied at 769. Fifth was Wells Fargo at 754. At the other end of the scale is the now-defunct Taylor, Bean & Whitaker at 704, followed by CitiMortgage/Citibank at 711, Chase at 713, U.S. Bank at 715 and Countrywide (now merged into Bank of America and no longer a standalone brand) at 720.

The Department of Housing and Urban Development believes the Federal Housing Administration mortgage insurance program has enough cash reserves to stay in the black during the housing downturn — even though its capital ratio is near zero — but is not ruling out a hike in mortgage insurance premiums charged to consumers. In response to a question from National Mortgage News, HUD secretary Shaun Donovan said the agency is "actively looking at its options" to bolster the FHA reserve fund but is "not ready to make an announcement" regarding mortgage insurance premiums. Lenders fear that a hike in the MIP would raise costs for consumers and slow the housing recovery. A much-anticipated actuarial study on the FHA's "Mutual Mortgage Insurance" fund found that the agency had a 0.53% capital ratio at the end of September to cover a $685 billion book of business. In a two-hour public presentation, HUD secretary Donovan stressed that the MMI has $30.7 billion in cash but it has had to set aside $27.1 billion to cover anticipated losses on FHA-backed mortgages, leaving it with a cash cushion of just $3.6 billion. (The FHA reserve fund is required to have a capital base north of 2%.) The new study believes the MMI will stay in the black unless the housing recession deepens. If that happens, the fund will have a negative capital ratio of 0.46%. But if the mortgage market suffers what FHA calls a "downward interest rate shock" the fund could go negative by as much as 2.33%. But Mr. Donovan and FHA commissioner David Stevens said they do not anticipate that happening.

Commercial and multifamily mortgage loan originations for the third quarter of 2009 were 12% lower than during the second quarter of 2009 and 54% lower than during the same period last year, according to the Mortgage Bankers Association's quarterly survey of commercial/multifamily mortgage bankers originations. The 54% overall decrease in commercial/multifamily lending activity during the third quarter was driven by year-over-year decreases in originations for all property types. When compared to the third quarter of 2008, the total decrease included a 62% drop in loans for retail properties, a 59% decline in loans for health care properties, a 58% reduction in loans for industrial properties, a 56% fall-off in loans for office properties, a 46% drop in hotel property loans and a 40% decline in multifamily property loans. "Every investor group and property type saw year-over-year declines in origination volume," said Jamie Woodwell, MBA's vice president of commercial real estate research. However, third-quarter originations for office properties saw a 65% increase in third quarter from the second quarter. There was also a 49% increase for industrial properties, but a 32% decrease for hotel properties, an 18% decrease for health care properties, a 17% decrease for multifamily properties and a 14% decrease for retail properties.

Six special-purpose property-owning subsidiaries of Los Angeles-based Maguire Properties went into default on their mortgages during the real estate investment trust's third quarter, directly impacting its earnings. The defaults occurred as a result of Maguire's board approving a plan to cease funding cash shortfalls at these properties. The properties are Stadium Towers in Central Orange County, Park Place II in Irvine, 2600 Michelson in Irvine, Pacific Arts Plaza in Costa Mesa, 550 South Hope in downtown Los Angeles and 500 Orange Tower in central Orange County. During the quarter, Maguire accrued default interest totaling $4.6 million as well as regular scheduled interest totaling $7.3 million related to properties currently in default, both of which were unpaid. The net loss for the third quarter of 2009 was $46.8 million, compared to a net loss of $72.5 million for the same period the year prior.

U.S. District Judge Lynn N. Hughes sentenced Clarence Lewis III, a licensed mortgage and real estate broker from Houston, to 15 years in federal prison without parole, followed by three years of supervised release, for running a mortgage fraud scheme. Judge Hughes also ordered Lewis to pay restitution, the amount of which will be determined early next year. According to Tim Johnson, U.S. attorney for the Southern District of Texas, Lewis operated Motown Mortgage Group and Lewis and Associates Realtors and used an assumed name business, Astro Construction, to extract loan proceeds from the real estate closings. The loans on the majority of the properties obtained by fraud fell into default and the properties were foreclosed. Lewis obtained more than $12 million in fraudulent residential mortgage loans during the course of his five-year mortgage fraud scheme beginning in 2002.

U.S. subprime residential mortgage-backed securities from 2004 are seeing notable deterioration in performance while other recent vintages continue to show signs of stabilization, according to Fitch Solutions indices. "As the good quality loans are refinanced, the remaining pools are on average of lower credit quality, a factor that largely caused the drop in price for the 2004 Subprime Price Index," said Fitch Solutions managing director Thomas Aubrey in a report based on the company's credit default swaps of RMBS indices. "Credit quality among the pools will continue to converge over time as better quality borrowers take advantage of refinancing opportunities, thus leaving the pool with more consistent weaker borrowers." The 2004 vintage Subprime RMBS Price Index dropped by 16.7% to 11.57 in the latest month from 13.91 in the previous month, while the Fitch Total Market Subprime RMBS Price Index dropped more marginally to 8.02 from 8.40 and vintages from 2005 through 2007 experienced slight increases during the same time period. While refinancing affected the 2004 vintage, 2005-2007 vintages were less affected because their loan-to-value ratios precluded refis in many cases, according to Fitch Solutions.

Senate Banking Committee chairman Christopher Dodd, D-Conn., has produced a "discussion draft" of a comprehensive regulatory reform bill that requires sellers of mortgage-backed securities to retain 10% of the credit risk. However, the draft provides a risk retention exemption for government-guaranteed mortgages as well as mortgages purchased and securitized by Fannie Mae and Freddie Mac. In addition, regulators can approve a "total or partial" risk retention exemption for other MBS and allocate risk retention between securitizers and the lenders. The House Financial Services Committee is moving toward approving a similar bill to address systemic risk that also requires 10% risk retention, a mandate that the mortgage industry opposes. "To restore confidence in our markets and encourage investment, we will require companies that sell products such as mortgage-backed securities to keep 'skin in the game' so that they won't sell worthless securities to investors," Sen. Dodd said. His bill also creates an independent Consumer Financial Protection Agency to protect consumers from "hidden fees and abusive terms" so they know they are being offered "safe" mortgages and other products, he said. Sen. Dodd said he would seek input on his draft bill and reach out to Republicans in an attempt to mark up and approve a bill by the first week of December. Dodd's CFPA plan focuses on companies that "pose the greatest risk to consumers — mortgage bankers, brokers, finance companies and the largest institutions," according to a legislative summary.

The PMI Group Inc., Walnut Creek, Calif., will still need to raise additional capital, even after it was able to reduce its risk-to-capital ratio from 18.5-to-1 to 16.9-to-1 by contributing all of the common capital shares of its wholly owned subsidiary, PMI Insurance Co., to its primary operating company, PMI Mortgage Insurance Co. There are concerns that not only would PMI breach the 25-to-1 risk-to-capital ratio in place in a number of states, but that it would also breach the 23-to-1 risk-to-capital standard established in its Allstate runoff support agreement, the company said in its most recent 10-Q filing as well as during a conference call. This could occur as early as the fourth quarter of this year. However, analysts at FBR Capital Markets forecast the 23-to-1 level to be breached by the second quarter of 2010. PMI is in the process of readying an existing subsidiary, Commercial Loan Insurance Corp. to start writing business if PMI Mortgage Insurance Co. must cease activities. CLIC is to be renamed PMI Mortgage Assurance Co. PMAC is currently licensed to write insurance in all states except Connecticut, Michigan and New York. The FBR analysts commented, "We expect the risk-to-capital levels to increase from here, unless reinsurance becomes available, outside capital is raised or on the off chance that losses abate." Besides reducing the risk-to-capital ratio, the shift increases the mortgage insurance underwriter's capital by $92.2 million and increases its excess minimum policyholders' position to $307.7 million.

Two former managers in charge of Bear Stearns hedge funds that invested in subprime bonds and derivatives were found not guilty of fraud charges Tuesday afternoon in New York. A jury in Federal District Court in Brooklyn acquitted former Bear executives Ralph Cioffi and Matthew Tannin, believing the two men did not lie to investors by presenting an upbeat picture without disclosing that the two funds they managed were plummeting in value. In particular, Mr. Cioffi was found not guilty of insider trading charges on accusations that he moved $2 million he had invested in one of the failing subprime hedge funds to another less risky fund while telling investors he was adding to his position. The government accused them of defrauding at least 300 investors out of $1.6 billion. The two had been charged with three counts of securities fraud and two counts of wire fraud. They still face civil damages in regard to the hedge funds. Massachusetts sued Bear Stearns Asset Management, accusing Mr. Cioffi of making hundreds of trades on behalf of the hedge fund with the approval of the fund's independent directors. In late 2007 Bear disclosed in an SEC filing that the funds were the subject of a criminal investigation. Bear, which collapsed in early 2008, was a major player in the subprime mortgage market. Previous to its collapse, Bear operated a trading desk and a warehouse unit, and also owned a mortgage banking firm called Encore Credit. (Photos: Bloomberg News)

Kawana Latrell Melvin of Atlanta pleaded guilty in Superior Court of Clayton County in Georgia to felony charges that she operated a mortgage banking business without a license. She also admitted to making a false statement with respect to her eligibility to work in the state's residential mortgage industry. The Georgia Department of Banking and Finance referred this matter to the State Attorney General's Office after learning she continued to work a as mortgage loan processor for a residential mortgage licensee in violation of a final cease and desist order. Melvin used a false document purportedly written by the Commissioner of the Department that provided that she was not prohibited from engaging in residential mortgage activities. Melvin has been placed on probation for a period of three years and must pay a fine in the amount of $2,000. While on probation, she is prohibited from obtaining employment in any real estate or mortgage business and cannot apply for or obtain professional licenses in either of these industries.

Paladin Strategic Partners has acquired a controlling interest in HomeSaver Mortgage Management LLC, an asset management company that uses private capital to acquire bank owned portfolios of troubled mortgages. "HomeSaver employs an aggressive and 'socially responsible' workout approach toward loan remediation," said Carl Webb, managing partner of Paladin. "We feel that HomeSaver has demonstrated what the nonbank private sector, unburdened by legacy assets, can do to achieve ultimate resolution of the residential mortgage nightmare." HomeSaver and its partners believe that the number of borrowers facing foreclosure will increase considerably over the next 12 months.

Commercial banks are extending the maturities of a significant portion of their commercial real estate mortgages and construction loans, according to a Federal Reserve Board survey of senior loan officers. More than 75% of the respondent banks extended more than 25% of their maturing construction and development loans. Only 16% of the banks refinanced more than a quarter of their maturing construction and development loans. Meanwhile, 70% of the banks extended more than 25% of their CRE mortgages that were on their books at the beginning of the year and scheduled to mature by September. Only 20% of respondents refinanced more than a quarter of those maturing CRE loans. The October survey revealed weaker demand for CRE loans but "stronger" demand for prime residential mortgages. However, 25% of the banks said they tightened their underwriting standards on prime single-family loans over the past three months, which is a slightly higher percentage than reported in the July loan officer survey.

The Peter Cooper Village/Stuyvesant Town $3 billion A-Note loan has been transferred to CWCapital, a specialty servicer, due to the sponsors' request for relief. Details of the request for relief by Tishman Speyer Properties, LP and Blackrock Realty have not been disclosed. New York-based Fitch Ratings expect debt service reserves to be depleted by the end of December. In addition, Fitch expected the transfer of the loan to special servicing as cash flow generated by the property remains insufficient to service the debt. Peter Cooper Village/Stuy Town comprises 56 multi-story buildings situated on 80 acres and includes a total of 11,227 apartments. The loan sponsors Tishman Speyer Properties and BlackRock Realty acquired the property with the intent of converting rent-stabilized units to market rents as tenants vacated the property. However, the conversion of units has since been determined to be illegal by the New York State Court of Appeals. In addition to the $3 billion securitized balance, there is an additional $1.5 billion of mezzanine debt held outside the trust.

The Government National Mortgage Association guaranteed a record $418 billion in mortgage-backed securities in fiscal year 2009, but it turned out to be less profitable than in previous years. Net income totaled $509.6 million in FY 2009, down from $1 billion in FY 2008 when Ginnie MBS issuance totaled only $277 billion. Low interest rates appear to be the culprit, according to an audit of Ginnie Mae's financial status and internal controls by the accounting firm Carmichael, Brasher, Tuvell & Co. The annual audit shows that Ginnie's interest income fell to $109.5 million in FY 2009 from $633.5 million in FY 2008. MBS program revenue totaled $547.8 million, up from $373 billion in the previous year. The audit also shows that defaulted Ginnie Mae issuers have left the agency with $26.2 billion in single-family loans, up from $400 million in FY 2008. Ginnie Mae also could suffer losses due to the recent bankruptcy filing of Capmark Financial, which has issued $7.5 billion in Ginnie Mae multifamily MBS. "Estimated losses on this default are not readily determinable," the auditors said. However, Ginnie Mae has $560 billion in a loan loss reserve that "management believes ... is adequate to cover any losses" related to Capmark's MBS.

Fannie Mae has given more than three-dozen credit unions until next week to accept an offer of pennies on the dollar for some $125 million of their mortgages that defunct U.S. Mortgage/CU National Mortgage fraudulently sold to Fannie. So far, only two of the credit unions have accepted the offer, detailed this afternoon in a letter to Fannie Mae's federal regulator from National Credit Union Administration chairman Deborah Matz, who expressed concern at the losses faced by affected credit unions. "I appreciate Fannie Mae is also a victim of this crime," said Mr. Matz in a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency. "However, the financial impact of CU National's fraud on these member-owned cooperatives is significant. Indeed, for some of the credit unions, their losses will be so great as to force our agency to take drastic action under the prompt corrective action rules." Neither Fannie nor the FHFA returned telephone calls. Both the credit unions and Fannie were victims of a massive fraud perpetrated by Michael McGrath, the president of U.S. Mortgage and its CU National subsidiary which sold $140 million of mortgages held on behalf of credit unions to the GSE without authorization and kept the money. McGrath has pleaded guilty to the huge fraud, agreeing to forfeit almost $15 million in assets, leaving a $125 million loss for the CUs. Fannie has given the credit unions until Nov. 16 to accept the offer but so far only two have agreed. Fannie, which has rejected requests to give the mortgages back, has offered to settle with the credit unions for what would amount to less than 20% of the value of the mortgages. If those credit unions realize the 80% of losses it could push several of them into insolvency.

Short sale listings, all 10,383 of them, outnumber foreclosures two-to-one in the Las Vegas area, but take-backs are outselling short-sales by a ratio of four to one, according to local broker Robert Jenson of the Jenson Group. And together, distressed properties of both varieties accounted for 79% of the 3,235 Sin City properties which changed hands in October. That's down two percentage points from 81% last month, Mr. Jenson reports, and it's the lowest share of the market since September a year ago. Overall, the luxury broker says in his monthly report, inventory, sales and prices have remained relatively flat. The total number of properties on the local MLS is 19,891, including 626 manses and 30 condos offered at $1 million or more, and the average price paid in October was $159,959. That's $24 more than in September, but $83,000 lower than the average in September 2008.

Fannie Mae's $180 billion multifamily loan portfolio appears to be in decent shape, suffering little in the way of serious delinquencies, according to a new public filing. In a supplementary report with the Securities and Exchange Commission, Fannie says its MF holdings have a seriously delinquent rate of just 0.62%. It notes that a small percentage of the portfolio has a loan-to-value ratio north of 80%. Moreover, much of the portfolio ($123 billion) matures in 2014 and beyond. Meanwhile, Freddie Mac, in its recent earnings statement said it is facing additional risk on its MF portfolio because certain MF seller/servicers "are coming under financial pressure." The GSE cites Capmark Finance, which recently filed for bankruptcy protection, and Centerline Holding Co., which is in the process of restructuring its debt. However, Freddie, notes that its "counterparty risk" to these companies is minimal, adding "we have not incurred any losses."

NetMore of Walla Walla, Wash., is giving a $100 price break on administrative fees to any loan broker that brings a mortgage to the company — but only if that sales associate is a member of the National Association of Mortgage Brokers. NetMore said it will extend the offer to any non-NAMB broker who joins within 30 days. A privately held nonbank, NetMore said it is providing the discount as a way to support both NAMB and "the broker community." The $100 will be deducted from fees which can average about $750. The fees are deducted from the points the broker receives on loans that actually close. NAMB lost money in is last two fiscal years.

Lend America, which won its court battle against federal regulators, is moving ahead with plans to begin table funding mortgages through loan brokers. Late last week the Long Island-based nonbank began sending out email solicitations to loan brokers in Massachusetts, even though it was recently hit with a cease and desist order in nearby Connecticut. An email sent out by Brad Pollack, a wholesale account representative for Lend America, notes that the company has "officially" launched its broker outreach effort and is even waiving the registration fee that it normally charges brokers. The email — provided to National Mortgage News by a broker in the state — says the company is offering "aggressive loan programs." Mr. Pollack did not return a telephone call about the email. A spokesman for Lend America said "it's business as usual" at the company. The company called the recent Connecticut C&D "an unfortunate development," adding that it is "in talks" with the state to resolve the matter quickly.

Chase — which shuttered its residential wholesale network in January — is going full bore into retail lending, announcing new plans to hire 1,200 additional loan officers by the end of 2010. Chase currently employs 1,925 LOs in its 5,200 branches. According to the Quarterly Data Report, Chase currently ranks third among all retail lenders, trailing Wells Fargo and Bank of America. Asked about the expansion, a spokesman for the Iselin, N.J.-based lender told National Mortgage News that, "We see the mortgage business as core to our relationship with consumers and expect to be a major leader in the industry for many years to come." He added that the company, a subsidiary of financial services giant JPMorgan Chase, has invested in "new systems, grown our capacity, and now we're looking to increase our sales force." Chase, he noted, is looking to improve access to mortgage expertise at the local level. "We think it's important to have a mortgage officer located at the branches that our customers can go and talk to." In addition, he said the company would hire LOs to work out of their homes or central offices in areas where branches are not present, such as Boston, St. Louis and Washington, D.C. He said these LOs would receive the same professional support as those working in the branches.