Originations

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. 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, the chairman told reporters. Sen. Dodd said he will 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 plans focuses on companies that "pose the greatest risk to consumers — mortgage bankers, brokers, finance companies and the largest institutions," according to a legislative summary.

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. Over 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 C&D 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.

An increase in nonperforming loans in its portfolio helped cause iStar Financial to see a drop in its third-quarter revenue. Revenue for the New York-based commercial real estate finance company was $210.2 million for the third quarter of 2009, compared to the $337.3 million for the same period the year prior. According to iStar, the year-over-year decrease is primarily due to a reduction of interest income resulting from an increase in nonperforming loans, an overall smaller asset base and lower interest rates. At Sept. 30, first mortgages, participations in first mortgages, senior loans and corporate tenant lease investments collectively comprised 87% of iStar's asset base vs. 91% in the prior quarter. The company's loan portfolio consisted of 78.3% floating rate loans and 21.7% fixed-rate loans, with a weighted average maturity of two years.

William Everett Nichols of Alexandria, La., president and sole shareholder of First Fidelity Mortgage, pleaded guilty to defrauding Sabine State Bank out of $2.9 million. Sentencing is scheduled for Feb. 4, 2010. According to Donald W. Washington, U.S. attorney for the Western District of Louisiana, Sabine State Bank provided a line of credit to First Fidelity Mortgage, monies that were in turn used by First Fidelity to fund mortgages for its customers. The customer notes pledged by First Fidelity secured this line of credit at Sabine State Bank. Nichols devised a scheme by which he prepared fraudulent notes by forging signatures of borrowers and notaries public, and would then deliver them to Sabine State Bank as collateral in order to cause the bank to deposit more money into First Fidelity Mortgage's account. When the bank would deposit funds into the account to fund these loans, Nichols just kept the money for himself. In total, Nichols defrauded the bank out of $2.9 million. Nichols has been detained without bond since his arrest in July.

The seasonally adjusted annual rate of single-family housing starts in Canada softened slightly in the latest month but the volatile multifamily segment surged. "Despite a small decline in single-home starts in October, the level of single-home starts remains at its second highest level since October 2008," said Bob Dugan, chief economist, Canada Mortgage and Housing Corp. In total, the seasonally adjusted annual rate of single-family and multifamily starts combined was 157,300 during the month, up from 149,300 the previous month, according to CMHC.

The Wright-Patt Credit Union, Fairborn, Ohio, has acquired Select Mortgage Group Ltd., a nondepository mortgage banking firm, for an undisclosed sum. Based in Centerville, Ohio, Select Mortgage receives customer referrals from credit unions that cannot or do not want to fund loans. Select will retain its name, its 12 employees and its executive management team of Rodger Merkel, president, and David Mills, vice president of sales. The acquisition allows Wright-Patt to expand its mortgage operations, said Tim Mislansky, vice president of the credit union and president of its myCUmortgage operation. "SMG's infrastructure and credit union client base offers us the opportunity to expand," Mr. Mislansky. SMG was established in 1996.

After several false starts, the Federal Housing Administration has finally issued new condominium lending policies that go into effect Dec. 7. But the agency is making several temporary exceptions to the new rules due to the "volatility" in the condo market. The new FHA lending policies spelled out in Mortgagee Letter 2009-46 B limit the number of condo units in one complex that can be financed with FHA-insured loans at 30%. And 50% of the units must be owner-occupied before FHA financing can be used. However, Mortgagee Letter 2009-46 A allows exceptions to the FHA concentration and owner-occupancy requirements until Dec. 31, 2010. One exception allows FHA lenders to ignore foreclosed units in calculating the owner-occupancy rate until the end of next year. Meanwhile, the Department of Housing and Urban Development will allow FHA lenders to use a "Spot Loan Approval Process" for condominium units until Feb. 1, 2010. Spot approvals allow FHA lenders to finance one condominium unit in a building that has not been approved by HUD. The new condo lending policies gives FHA direct endorsement lenders the authority to approve condominium projects for the first time ever. The new streamlined lender approval process eliminates the "need" for spot approvals, HUD says.

Over the past nine months Freddie Mac has received $658 million from mortgage insurance firms to cover losses on delinquent loans, but in a new public filing the GSE reveals that if the MI industry collapses its risk exposure would be $63.4 billion. Eight different MI firms have written policies on Freddie Mac loans with MGIC and Radian being the two largest in terms of outstanding coverage, $15.5 billion and $12.1 billion, respectively. Despite the shaky state of the housing market not one MI has failed, though one company, Triad Guaranty, is in self-liquidation mode. In a filing with the Securities and Exchange Commission, Freddie notes that it has "institutional credit risk" relating to "the potential insolvency or nonperformance of mortgage insurers" that cover its loans. But the GSE also says that based on "currently available information" it expects that all of its MI counterparties will continue to pay claims even though many have received "credit watch negative" ratings. The $63.4 billion figure represents the "remaining aggregate contractual limit for reimbursement of losses" of principal, Freddie says.

Freddie Mac had credit-related expenses of $7.5 billion for the third quarter, which was the leading driver of its $6.3 billion net loss to common stockholders. Without a $1.3 billion dividend payment to the U.S. Treasury, the loss would have been $5 billion. During the quarter, Freddie Mac had further deterioration in its single-family guarantee portfolio. The delinquency rate went from 2.78% at the end of the second quarter to 3.33% at the end of the third quarter. The company blamed the increase on weak economic conditions and, in part, to extended foreclosure timelines and to a high volume of seriously delinquent loans that are remaining in trial periods under the Home Affordable Modification Program that might have otherwise completed modification or proceeded to foreclosure. Single-family net charge-offs increased to $2.2 billion in the third quarter of 2009, compared with $1.9 billion in the second quarter of 2009, while nonperforming assets increased to $91.6 billion from $76.9 billion during the same period. Freddie Mac had positive net worth of $10.4 billion at Sept. 30. As a result of the positive net worth, no additional funding from Treasury was required for the third quarter. The positive net worth reflects an $8.5 billion gain in accumulated other comprehensive income primarily driven by improved values on the company's available-for-sale securities.

While a macroeconomic recovery has set in and will continue in 2010, Freddie Mac's chief economist Frank Nothaft said at the SourceMedia Loan Modification Conference in Dallas more bad news is coming for the mortgage market going forward. "We haven't seen the peak of the mortgage delinquency rates." Currently, he said, the serious delinquency rate — or number of loans 90 days plus late in mortgage payments among Freddie Mac loans — is the highest it has been since the 1930s. Compared to 0.5% in 2006, it spiked up to 5.4% in 2009, showing how the mortgage crisis has moved from the subprime to the conventional arena. Also, in 2005 the share of subprime loans serviced in the U.S. that defaulted represented 46%, or almost half, during the first half of 2009 that percentage dropped to 11%, with most defaulted loans being prime or alt-A. The economist noted, nonetheless, that there will be a recovery, however modest. The most recent unemployment data are not heartening and will continue next year at least during the first quarter, he said. However, Mr. Nothaft theorized that the aggressive monetary policy, the fiscal policy and the stimulus package benefits will lead to sustained recovery over time.

The Treasury Department has turned down Fannie Mae's request to sell roughly $2.6 billion in low-income housing tax credits to Goldman Sachs. The denial letter came late in the day Friday. The Federal Housing Finance Agency had cleared Fannie to sell the LIHTCs but the ultimate decision rested with Treasury. (Berkshire Hathaway had also expressed an interest in buying the tax credits.) In a filing with the Securities and Exchange Commission, Fannie — without mentioning Goldman — said it had an offer to sell the credits for "a price that exceeds their current carrying value." According to combined press reports, Treasury nixed the sale because it was not in the best interests of taxpayers. Over the past five quarters Fannie has lost $85 billion. Goldman could have used the LIHTCs to reduce its tax burden to the government.

Apartment Investment & Management Co. has decided to focus on reducing refunding risk by accelerating refinancing of property loans maturing prior to 2012, based on the results of its recently released third-quarter activity. According to the Denver-based real estate investment manager's earnings statement, AIMCO's share of property debt maturing during 2009 through 2011 was $221.3 million at the start of the quarter. During thev third quarter, through refinancing, repayment and property sales, AIMCO reduced these maturities by $36.8 million. As of Sept. 30, the balance of property debt maturing through 2011 totaled $184.5 million in nine loans. Of these loans, refunding risk has since been eliminated on all but four loans totaling $164 million, which the company expects to be refinanced at their maturity in 2011.

The Department of Housing and Urban Development's Mortgagee Review Board is imposing civil money penalties totaling $27,000 on two Federal Housing Administration-approved lenders in Wisconsin and Connecticut for a variety of violations of FHA lending and marketing standards. In the first action, HUD imposed $20,000 in penalties against Green Bay, Wis.-based 1st Rate Mortgage Corp. for allegedly violating HUD/FHA's third-party origination restrictions, making false certifications concerning the compliance with these restrictions and failing to maintain a quality control plan in accordance with HUD/FHA requirements. In the second action, HUD imposed $7,000 in penalties against New Haven, Conn.-based Access Mortgage Corp. for allegedly violating HUD/FHA requirements by improperly using the official FHA logo and failing to notify HUD of a change in its "doing business as" name. Each lender, neither of which responded to requests for comment, will have an opportunity to challenge the imposition of civil money penalties and seek a hearing before an administrative law judge. In addition, HUD reached tentative settlements with four other lenders — Irvine, Calif.-based Nations Direct Mortgage, Grand Rapids, Mich.-based VanDyk Mortgage Corp., Minneapolis-based U.S. Bank NA and Cerritos, Calif.-based Sun West Mortgage Co. — and issued a letter of reprimand to Community Lender Inc. of Boise, Idaho, for allegedly violating HUD regulations.

The Federal Housing Finance Agency has cleared Fannie Mae to sell roughly $2.6 billion in low-income housing tax credits to unidentified third-party investors believed to include Goldman Sachs & Co. and Berkshire Hathaway. In a new SEC filing, Fannie notes that it has a "nonbinding letter of intent" to transfer its equity interests in the LIHTCs for an undisclosed amount. Fannie says it will sell them for "a price that exceeds their current carrying value. Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time." Fannie says its regulator told it that it would not object to the sale. The FHFA is now asking for Treasury's approval on the deal. Fannie says that if it cannot sell the tax credits it will take an other-than-temporary impairment charge "to reduce" their carrying value to zero.

Fannie Mae posted yet another stunning loss in the third quarter, $18.8 billion, noting that it now owns or guarantees close to $200 billion in nonperforming assets. The steep loss resulted in the government-controlled GSE having a net worth deficit of $15 billion at the end of September. In tandem with the loss, its regulator has asked the Treasury Department for $15 billion to bring the GSE's net worth above zero. Over the past five quarters Fannie has lost $85 billion. In a new filing with the Securities and Exchange Commission, Fannie offered a slight glimmer of hope for the future: its guarantee fee income rose 12% in the quarter to $1.9 billion (compared to the second quarter). It also predicts that "absent further economic deterioration" its credit-related expenses will be less in 2010 than this year. With 3Q under its belt, Fannie now has combined credit loss reserves of $65.9 billion. Its credit book of business now stands at $3.23 trillion. Fannie Mae and its sister company, Freddie Mac, were taken over by the government in September 2008 and placed into separate conservatorships.

Driven by charges and adjustment expenses in its domestic mortgage insurance business, The PMI Group Inc., Walnut Creek, Calif., posted a net loss of $93 million for the third quarter, a marked improvement over the same period last year when it lost $229 million. The MI suffered $337 million of consolidated losses and loss-adjusted expenses in the quarter, compared to $383 million one year prior. Net premiums written came in at $167 million for the third quarter, down from $176 million during the same quarter last year. The decrease was from a lower volume of new insurance written and higher refunded premiums from rescissions of insurance previously written. PMI disclosed it is in negotiations with one state — which it did not name — over an interpretation it is in violation of that state's financially hazardous condition regulation. If the state prevails the company indicated it could be forced to stop underwriting policies in that state. PMI has a risk to capital ratio of 18.5-to-1. It took steps which resulted in an additional $139 million in surplus capital for the company. There are 14 states that have some form of risk-to-capital standard. In California and Arizona (where PMI is domiciled), as well as North Carolina, steps have been taken to relax the risk to capital ratio requirement of 25-to-1. Meanwhile, PMI is in discussions to write new insurance policies should it fail the risk to capital standard through a recapitalized existing subsidiary.

PennyMac Mortgage Investment Trust, a mortgage vulture fund created by a former Countrywide executive to profit from the mortgage crisis, posted a $730,000 loss for the period ending Sept. 30. Meanwhile, the company confirmed recent market rumors that it is working on a conduit to provide small mortgage lenders "an outlet for their newly originated mortgage loans." PennyMac founder and CEO Stanford Kurland said in a statement that the company has reviewed $6.9 billion in potential acquisitions of nonperforming mortgage assets but refuses to overpay for product. "While some market participants have been willing to accept lower yields and bid more aggressively, we still believe that it is in the best interest of our shareholders over the long term to remain patient in order to maximize the returns from our long-term investment opportunities," Mr. Kurland said in a statement. A publicly traded REIT, PennyMac manages and services about $324 million in assets. Since going public in August, its stock has been thinly traded. On Friday its shares were trading just above their 52-week low of $17.72. Its high is $20.

With the nation's unemployment rate busting through the 10% mark in October, President Obama on Friday signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up. Passed overwhelmingly by Congress, the bill would provide a $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1. The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous eight. But there are caps on the tax credits. They only apply to individual buyers who make no more than $125,000 and $250,000 for couples. There is also an anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money. The FTHB was extended to cover consumers signing a contract by April 30 and closing by June 30. Meanwhile, the Department of Labor reported Friday that the nation's unemployment rate rose above 10% for the first time since 1983 in October, a much worse jump than expected. The increase in joblessness will lead to an upswing in residential mortgage delinquencies. In October the unemployment rate spiked to 10.2%, compared to 9.8% in September. Economists had forecast an increase to 9.9%.

Even though residential originations swelled in the third quarter, the mortgage banking and brokerage sectors continued to shed jobs in September, according to new government figures. The mortgage banking industry employed 192,400 full-timers during the period, a loss of 1,800 positions from the previous month. (The mortgage numbers trail the national figures by one month.) Broker-related positions dropped 1% to 66,900 positions. (The numbers are exclusive of each other.) According to figures compiled by National Mortgage News and the Quarterly Data Report, residential lenders are on track to fund $2.1 trillion in loans this year, compared to $1.6 trillion last year. The Mortgage Bankers Association believes lenders will fund just $1.5 trillion in 2010, setting the stage for layoffs. Jay Brinkmann, chief economist for MBA, said lenders are holding off on making any personnel decisions until they have a clearer picture of what next year will look like in terms of production. If MBA's forecast proves correct, fundings will fall by 29% next year. However, firms are increasing their staff levels in servicing, loan modifications and compliance, which could buffer the layoff picture for mortgage professionals. During the height of the origination boom three years ago bankers and brokers employed more than 500,000 full time workers.

Los Angeles-based real estate company Thomas Properties Group postponed its previously announced public offering of 22 million shares of common stock blaming unfavorable market conditions. The offering was originally announced earlier this week. According to the company's president and CEO James A. Thomas, the reason for postponing the offering is because of the unfavorable current market conditions. "The company's management team and board of directors do not consider the current market price of the company's common stock to be reflective of its inherent value," he said. Thomas Properties Group owns, acquires, develops and manages primarily office, as well as mixed-use and residential properties.