Originations

FBR Capital Markets increased its projected net loss for this year at The Radian Group, Philadelphia, as it believes credit losses will have a more significant near-term impact on the mortgage insurer. "While we expect Radian to benefit from the same loss mitigation efforts (rescissions, denials and modifications) that will also benefit MGIC, the outlook for credit losses and the associated capital relief coming from the financial guaranty subsidiary remains an open question for us," said analysts Steve Stelmach and Amy DeBone. FBR maintained its "outperform" rating on MGIC even after the large loss it reported. It rates Radian at "market perform." FBR increased its projected loss estimate for this year at Radian from $1 per share to $1.87 per share and its 2010 EPS estimate from a profit of $0.50 to a loss of $0.52. It is the financial guaranty business at Radian that concerns the analysts, who said their view of Radian's MI business is fairly consistent with the positive outlook they have for MGIC. Radian's fourth-quarter results will be negatively impacted by losses associated with trust preferred CDO exposure at the company's financial guaranty unit. "Until we gain some comfort that the financial guaranty book has avoided significant losses, we'll likely remain on the sidelines. Debt maturities are also a near-term hurdle," FBR added.

A slight drop in the average weekly rate for 30-year conforming mortgages to a point slightly below the key 5% level could spur more interest in housing loans. During the week ended Nov. 5 the rate inched down to 4.98% from 5.03% the previous week, according to Freddie Mac's Primary Mortgage Market Survey. A year ago the 30-year rate averaged 6.20%. The average rate for a15-year fixed-rate mortgage fell to 4.4% from 4.46% a week ago and from 5.88% a year ago. The average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage slid to 4.35% from 4.42% a week ago and from 6.19% a year ago. The average one-year Treasury ARM rate declined to 4.47% from 4.57% the previous week and 5.25% a year ago. Average points were 0.7 for 30-year mortgages, 0.6 for 15-year mortgages and five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.

Analysts at FBR Capital Markets state they are worried about capital adequacy at Flagstar Bancorp Inc., Troy, Mich., as the company's tangible common equity ratio decreased to 2.75% from 4.01% at the end of the third quarter. "We would encourage FBC to boost capital levels, as we expect credit headwinds to persist and remain elevated for some time. We are lowering our fiscal-year 2009 and fiscal-year 2010 earnings per share estimates to $1.85 and $0.30 from $1.25 and $0.20, respectively," said the report, written by Paul Miller, William Wallace and Jessica Halenda. FBR cut its price target by half to $0.50 per share from $1. Flagstar had missed the consensus estimate of $0.04 for its third-quarter loss and FBR's $0.10 estimate primarily driven by a $172 million deferred tax asset writedown in the quarter, which FBR estimated impacted EPS by about $0.38. The analysts added that they expect nonperforming assets at Flagstar to continue increasing over the next several quarters and are likely peak in mid 2010. FBR thinks Flagstar will start breaking even in late 2010 and begin posting positive EPS in 2011. In a section titled "The Other Side of the Story," the FBR analysts wrote. "If the economy recovers more quickly than expected and charge-offs do not continue to accelerate, lower credit costs could result in upside to our earnings estimates. With the government's support for the housing and mortgage markets, mortgage origination volumes could increase and benefit earnings. Higher earnings from mortgage originations could provide a cushion for higher credit costs."

GMAC Financial Services said during its third-quarter conference call that it would no longer provide separate quarterly or annual reports for Residential Capital Corp., its troubled residential mortgage division. The decision angered analysts that follow the company, which is 35% owned by the government. "It just doesn't send a very good signal to people on our side of the market," Sarah Thompson, a bond analyst at Barclays Capital, said on the call. Craig Emrick, a vice president and senior credit officer at Moody's Investor Service, lamented that there would be a "significant decline in the level of information provided publicly." Because only 300 investors hold ResCap's $4 billion of debt, Securities and Exchange Commission rules do not require it to file financials with the agency. GMAC's chief financial officer, Robert Hull, said the change would save it a "tremendous" amount of money, though he did not specify how much. The row with analysts comes as the $178-billion-asset GMAC has been trying to become less reliant on the capital markets for its funding by expanding the deposit gathering ability of its depository, Ally Bank. ResCap lost $747 million in the third quarter - thanks in part to loan repurchase liabilities - but its performance was a marked improvement over a $2 billion loss in the same period last year. It ranks fifth nationwide in originations.

A loss of $139 million in its mortgage servicing segment was the primary reason for a third-quarter net loss of $52 million at PHH Corp., Mount Laurel, N.J. The mortgage servicing loss was driven by a negative valuation adjustment on mortgage servicing rights of $186 million. Prepayments and portfolio decay were responsible for a $97 million reduction in the value of MSRs while lower rates forced the company to take an $89 million valuation adjustment. Prepayments of the MSRs' underlying mortgages went from $33 million in the third quarter of 2008 to $50 million for the most recent period. Sandra Bell, executive vice president and chief financial officer, noted, "We expect higher delinquency rates to continue to impact credit-related charges through the balance of the year and into 2010, which will likely negatively impact our mortgage servicing segment." Delinquencies at the end of the third quarter by percentage of unpaid balance were 2.28% for loans 30 days late, 0.79% for 60 days late and 1.47% for 90 days or more late. A year ago, those numbers were 2.03%, 0.55% and 0.53%, respectively. The mortgage production segment had a profit of $46 million for the quarter. PHH had origination volume of $9 billion for the period, with 50% coming from purchase loans. Jerry Selitto, PHH's new president and chief executive, said the improved results in the mortgage origination and fleet services businesses were more than cancelled out by the MSR issue. "PHH has been making steady progress in recent quarters, including the signing of a major new private-label account with $1.5 billion in annualized potential origination volume, but we are not satisfied with our financial performance - and we need to move quickly and aggressively to make PHH as competitive as possible for the long term, while staying true to our core, client-focused values," he said.

Fitch Ratings has placed 58 classes from 13 commercial real estate collateralized debt obligations containing a concentration of 2005 vintage commercial mortgage-backed securities on Rating Watch Negative. The affected transactions have greater than 10% exposure to 2005 vintage CMBS that are currently on Rating Watch Negative by Fitch. According to Fitch, the magnitude of the negative rating actions on the 2005 vintage CMBS is expected to be less significant than the 2006-2008 vintage CMBS rating downgrades. Nevertheless, the expected CMBS downgrades still exceed Fitch's expectation when the downgrade actions were taken on these CRE CDO bonds earlier this year following the implementation of revised criteria. On Oct. 22, Fitch placed 247 classes from 22 fixed-rate CMBS conduit transactions from the 2005 vintage on Rating Watch Negative, with the expectation that the majority of the classes will be downgraded one category when the Rating Watch Negative is resolved.

Mission Capital Advisors LLC is marketing a portfolio of commercial mortgages with an outstanding balance of approximately $120 million. The portfolio consists of a mix of performing, subperforming and nonperforming loans secured primarily by multifamily, retail, office and industrial collateral located in New York and northern New Jersey. Will Sledge, managing director at Mission Capital Advisors, said, "Offerings of this type in the New York/New Jersey market have been few and far between. We believe the transaction will be well received." Mission Capital is soliciting indicative bids on Nov. 18 and final bids on Dec. 10. Mission Capital, in conjunction with the seller, has prepared a comprehensive array of due diligence materials that is available to prospective bidders who execute confidentiality agreements. A detailed offering memorandum and confidentiality agreement can be found at www.missioncap.com/deals.

Old Republic International Corp., Chicago, is in a dispute with its auditors, PricewaterhouseCoopers LLC, over the reporting of reinsurance transactions undertaken by its mortgage guaranty business. In the third quarter, Republic Mortgage Insurance Co. recaptured business that was ceded to several captive reinsurers. ORI recorded proceeds of $149 million on the deal but established claim reserves of $68.4 million and premium reserves of $82.5 million. ORI had planned to shift the premium reserves to earned premiums in future quarters based on an amortization schedule. However, PwC said based on its analysis of the recapture transactions and its interpretation of generally accepted accounting principles, the $82.5 million should have been recognized in the third quarter 2009 results. ORI said its management believes recognition of that amount in the current quarter would create the appearance of much improved results where none existed or occurred. ORI said it would petition the Securities and Exchange Commission to resolve the matter. If PwC's position prevails, ORI's net operating loss of $66 million in the third quarter would be reduced to a net operating loss of $12.5 million. RMIC's net operating loss would be reduced from $103 million down to $49.3 million for the quarter, while the pretax operating loss would be whittled from $160.4 million down to $77.9 million.

Treasury Department officials are warning state and local housing finance agencies that the Obama administration's recently unveiled temporary bond purchase program is oversubscribed and that agencies will likely receive less assistance than they requested as a result. The officials issued the warning late last week and asked the HFAs to identify their peak years of issuance from 2004 to 2008 for both single-family and multifamily issues to help determine how much they should receive under the relief program. The agencies had to provide that information to the Treasury by noon on Monday, including CUSIP numbers or other ways to verify the information. The scale-back comes after Michael Barr, Treasury assistant secretary for financial institutions, last month declined to put a dollar amount on the program and instead told reporters it would be sized to meet demand. "We felt it is important to build estimates for the program from the ground up," he said during an Oct. 19 press conference when the temporary New Issue Bond Program was announced. Mr. Barr said at the time that there would be some form of ceiling on the size of the programs, but did not give any specifics. Program participants said yesterday that they do not know the total amount of allocations requested by the HFAs under the program and federal regulators could not be reached for comment.

Radian Group Inc., Philadelphia, lost $70.5 million ($0.86 per share) for the third quarter, driven by a mortgage insurance provision of $376.5 million as a result of higher delinquencies. The company said it expects delinquencies to continue to rise in the fourth quarter. It paid claims of $243.2 million, but said this was lower than what the company forecast. In its second-quarter release it predicted paid claims for the third quarter of between $275 million and $300 million. For the fourth quarter, it is now projecting paid claims of $290 million. Primary new mortgage insurance written for the third quarter was $3.4 billion. This total does not include $300 million of insurance for loans originated in the Home Affordable Refinance Program. HARP loans are treated by Radian as a modification of existing coverage, so they are not added into the total. In the same quarter in 2008, Radian wrote $7.5 billion of primary new insurance. The company's risk-to-capital ratio was 16.1-to-1 at the end of the third quarter, up from 15.9-to-1 at the end of the second quarter. This is still well within the 25-to-1 limit some states have to be able to write new policies. Radian added it expects to have sufficient capital to write mortgage insurance business into next year.

The mortgage division of GMAC Financial Services lost $747 million in the third quarter — thanks in part to loan repurchase liabilities — but its performance was a marked improvement over a $2 billion loss in the same period last year. GMAC's residential unit, Residential Capital Corp., is still grappling with a large portfolio of nonperforming mortgages, $7 billion compared to $8.5 billion a year ago. ResCap originated $15.8 billion in the third quarter, a 33% gain from the third quarter of 2008. Year-to-date, its fundings are almost on par with last year. According to the earnings statement, GMAC took a $515 million charge because of mortgage repurchase requests. No details were provided. ResCap is the nation's fifth largest player in mortgages, according to National Mortgage News and the Quarterly Data Report.

With long-term mortgage rates once again slipping under 5%, the Market Composite Index increased as refinance applications increased for the week of Oct. 30, the Mortgage Bankers Association Weekly Mortgage Applications Survey found. The MCI, a measure of loan application volume, increased 8.2% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index increased 7.9% compared with the previous week. The refinance index increased 14.5% from the previous week but the seasonally adjusted purchase index decreased 1.8% from one week earlier. The market share of refinance applications, according to the survey, rose to 66.1% from 62.3% for the previous week. The share of adjustable-rate mortgage applications fell to 6.1% for the week, up from 6.9% one week prior. The average contract interest rate for 30-year fixed-rate mortgages fell to 4.97% from 5.04%, with points decreasing from 1.25 to 1.01 (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 a rather large 20 basis points from the previous week, to 4.33%, while for one-year adjustable-rate loans, it increased by 4 bps to 6.79%. The MBA stopped disclosing index values with the July 31 data release. The group said because of Veterans Day on Nov. 11, the release of next week's survey results would be delayed a day. The MBA can be found online at http://www.mortgagebankers.org.

The Department of Housing and Urban Development late Tuesday unexpectedly delayed the release of a much-anticipated audit of the FHA's capital reserves, raising questions about the accuracy of some of the findings. The delay fueled industry speculation that the government insurance fund is perilously close to reaching the zero mark. In a statement, FHA commissioner David Stevens said the government asked its outside auditor, IFE Group of Rockville, Md., "to run additional economic scenario testing above and beyond what was going to be included in the actuarial study to better understand a broader range of risk scenarios." Based on what it saw of the results, FHA raised questions about the accuracy of IFE's modeling. The auditor then told FHA that it should not treat the report as final. IFE is now running additional tests to ensure that the final report is accurate, FHA said. FHA insures just over $700 billion in mortgages. At midyear its reserves stood at just under $8 billion. But with claims rising that number may have fallen below $5 billion, according to industry sources. Ed Pinto, an industry consultant and FHA critic, said Tuesday that he believes the audit results will be based on "overly optimistic" assumptions relative to the fund's delinquencies, cure rate on defaulted loans and success rate on loan modifications. Mr. Pinto told National Mortgage News that if the FHA's reserves do in fact go negative, "however small that number is, it will be ominous." HUD officials could not be reached for comment.

Bank of America said is now giving its home equity borrowers the same "Clarity Commitment" summary it gives to its first lien customers. The document was introduced last April as a one-page summary of loan terms that was written in plain language. Now, the company will be giving a similar document for all stand-alone home equity lines of credit and any home equity loan whose term is longer than 36 months. The borrower will receive a copy at the point of sale, as a redisclosure in the event of a loan product change and with the closing package. However, consumers who apply through the company's website will get their copy only in their closing package. Reverse mortgage customers with closed-end, fixed rate, full draw loans already receive a copy of this document.

Early Wednesday morning the Federal Housing Administration will release a much anticipated audit of its finances, including details about how much capital is left in its single-family reserve fund which covers losses on its massive book-of-business. To date, FHA commissioner David Stevens has vowed that the government's single family insurer will not need tax payment money to weather the recession and housing crisis. "I have read so many stories attacking FHA without relevant data," he told National Mortgage News last month. A spokesman for the agency said it does not anticipate releasing any results that will vary widely from "what we've already signaled." In recent weeks FHA has tightened its underwriting guidelines and taken administrative action against certain lenders that it believes were violating its guidelines.

Flagstar Bancorp, the largest thrift player in mortgages, posted a $299 million loss in the third quarter, but vowed to continue investing in what it called its "position as one of the leading residential mortgage originators in the country." Its new CEO Joseph Campanelli added, "We anticipate a significant level of industry consolidation and want to be active in that process. But in the near term, we will have to bring expenses into better alignment and make prudent operating decisions as we seek to broaden our earnings streams beyond our traditional mortgage activity." Its third quarter loss was almost triple the loss it suffered in the same period a year ago. The company stressed that its thrift unit remained "well-capitalized" for regulatory purposes, with capital ratios of 6.39% for Tier 1 capital. According to its earnings statement, the Michigan-based Flagstar funded $6.6 billion in residential loans during the quarter, a slight drop from the same period last year, but a 29% decline from the second quarter. Despite the loss, there was some good news in the numbers: its gain-on-sale of loans grew to 137 basis points compared to just 33 bps a year ago. At the end of September Flagstar serviced $53.2 billion in loans, which paid a weighted average service fee of 32.6 basis points. Non-performing residential real estate loans grew to $606 million at the end of the third quarter, up from $588 million at the end of the second quarter. A year ago it held $305 million of delinquent loans. Its non-performing commercial real estate loans climbed to $420 million. According to the Quarterly Data Report, Flagstar is the nation's 11th largest residential funder and ranks 18th among servicers.

Hudson Valley FCU of New York has filed a lawsuit, challenging the state's mortgage tax, arguing that federally chartered credit unions should be exempt from the levy. The credit union claims that federally chartered credit unions, which are defined as instrumentalities of the federal government under the Federal CU Act, should be exempt from all federal and state taxes, according to Paul Quartararo, Hudson Valley's attorney in the case. However, John McDermott, a real estate attorney who has closed loans in New York for 20 years, said he is unsure of the CU's case. "New York does not collect the lender's portion of mortgage tax from credit unions. It does collect the borrower's portion of New York's mortgage tax from credit union mortgagors (loan borrowers) because those borrowers are individuals not credit unions." (Mr. McDermott, who has worked for Citibank, is also a columnist for Origination News, a SourceMedia publication.) The tax varies from county to county, but is $1.30 per $1,000 of a new mortgage when the deed is recorded, and is as high as $2 per $1,000 in New York City, Manhattan County. An exemption from the four-decade-old tax could save credit unions millions of dollars a year. Hudson Valley FCU is a $2.8 billion Poughkeepsie, N.Y., credit union that was one of more than two dozen credit unions chartered in the 1960's to serve employees of IBM Corp. The credit union claims that the tax is unconstitutional as applied to federal credit unions because federally chartered credit unions are instrumentalities of the federal government and the U.S. Constitution bars taxation of those entities without the express consent of the Congress.

Tree Inc., which operates the LendingTree.com website, saw its third quarter revenues fall 17% sequentially but was able to add a $75 million warehouse line of credit. The publicly traded mortgage bank/lead generator lost $7.4 million in the third quarter, compared to a slight profit in 2Q. In the year ago quarter it lost $22.6 million. According to its earnings statement, the company was hurt by what it called "unanticipated items" including $4.2 million in loan loss settlement requests and additional legal costs associated with a lawsuit. Even though the company lost money in the period, revenue at its lending operation — its largest segment by that measure — increased 21% from a year earlier, but fell 34% from the previous quarter to $24.1 million. The company said the decrease was primarily driven by higher interest rates, which led to a 31% drop in loan production, to $620.2 million. Its new warehouse lender is JPMorgan Chase & Co.

The apartment market is showing signs of improvement, according to the National Multi Housing Council's latest quarterly survey of apartment market conditions. The survey showed increased sales activity and improvements in the availability of debt and equity capital compared with three months ago. The survey's sales volume index hit its highest level in four years, while the equity and debt financing indices were the highest in three years. Although the report showed that market tightness (vacancies and rent levels) remained substandard, it also showed improvement over the previous quarter. "The broad improvements in sales volume and debt and equity financing suggest the transactions market may finally be thawing," said NMHC chief economist Mark Obrinsky. He added that nearly half of respondents (45%) indicated that the gap between what sellers are asking for and what buyers are offering has narrowed.

CMG Mortgage of California has purchased Northwest Financial Services, Seattle, a loan brokerage firm with 30 retail loan officers. No purchase price was disclosed. CMG president Chris George said his company has already converted NFS into a mortgage banker. It will remain a retail lender and supplement CMG's presence in the state. Mr. George said prior to the purchase NFS was originating between $15 million and $25 million a month in residential loans. It has one office. According to figures compiled by National Mortgage News and the Quarterly Data Report, CMG — a non-depository retail/wholesale funder — ranks 58th nationwide in terms of loan originations.