Originations

The benchmark 10-year Treasury bond has risen notably over the past week and may be putting upward pressure on mortgage rates. The yield of noon Monday was above 3.5%. Last Tuesday it was a little above 3.3%, according to Yahoo Finance.

Freddie Mac veteran Bob Ryan starts this Monday as the Federal Housing Administration's first senior risk officer ever. Mr. Ryan has worked at Freddie for nearly 26 years and most recently served as vice president of portfolio management and pricing in Freddie's single family credit guarantee division. FHA commissioner David Stevens pledged to install an experienced risk manager to review all FHA programs. "FHA will never be able to fulfill its mission long term or short term if it is under scrutiny for not being well managed from a risk management standpoint," Mr. Stevens said.

The Mortgage Bankers Association has created The Council on the Future of FHA, a 25-member committee to make policy recommendations for the government-run mortgage insurance program's future. In a statement, MBA said it believes it is essential that the Federal Housing Administration must have up-to-date resources, risk management tools, and business practices to meet current and future challenges. Daniel Crockett, president, chief executive and chairman of Franklin American Mortgage Co., Franklin, Tenn., will chair the council. MBA has also retained the consulting services of the Collingwood Group to assist in this project. Managing directors of the Collingwood Group include former Ginnie Mae president Joe Murin and former FHA Commissioner Brian Montgomery. "During the recent run up in business, the folks at FHA have done an incredible job given the limited resources at their disposal," said Mr. Crockett in a statement issued by MBA. "Our members want to help ensure that FHA can effectively manage the risks that come with the increased business the agency is seeing. MBA wants to take proactive steps to ensure the safety and soundness of the agency today and in the future."

Over 100 banks have failed this year and Federal Deposit Insurance Corp. officials expect the failure rate will remain at the current pace for the rest of this year and 2010. Seven small FDIC-insurance institutions were closed over the weekend, including Partners Bank, Naples, Fla. "Partners Bank is the 100th FDIC-insured institution to fail this year, and the seventh in Florida," FDIC said. In six of the seven resolutions, the acquiring banks purchased all or a good portion of the failed bank's assets. Four of the resolutions involved loss-sharing agreements where the acquiring bank agrees to purchase most of the assets and FDIC agrees to cover 80% of the losses. "We have been having very good success in having the acquiring institutions take over all of the assets," said FDIC spokesman David Barr. Overall, FDIC estimates that mounting failures will cost the deposit insurance fund $100 billion from 2009 through 2013, including the $27.3 billion it has already incurred from the 106 failures so far this year.

The Senate is slated to take up a bill this week that extends unemployment benefits and it might include an extension of the $8,000 homebuyer tax credit. Proponents of the first-time homebuyer tax credit that is due to expire Nov. 30 were planning to offer amendments to unemployment benefits bill that would extend and possibly expand the tax credit. But now it appears Senate lenders are working on a compromise that could be tucked into the bill as a manager's amendment. Such an approach would increase the chances that the first-time homebuyer tax credit would be extended by at least six months. And depending on the costs, it might include features of a proposal sponsored by Senators Christopher Dodd, D-Conn., Johnny Isakson, R-Ga., and Joseph Lieberman, D-Conn., that extends the tax credit through June 30. The Dodd-Isakson-Lieberman proposal expands the tax credit to all buyers and raises the income limits to $150,000 for individuals and $300,000 for joint returns.

Three years after being sold to an investor group led by Goldman Sachs & Co., Capmark Financial Group — the nation's third largest commercial mortgage servicer — filed for bankruptcy protection, though it has vowed to continue making new loans. The Horsham, Pa.-based company, formerly known as GMAC Commercial Mortgage, services $288 billion of commercial real estate loans. In the first-half it funded just $1.94 billion of product compared to $10.39 billion for all of last year. In its filing, the nonbank lender listed $21 billon in debts and consolidated assets of $20.1 billion. Its other owners include KKR & Co., and Five Mile Capital Partners, Greenwich, Conn. Three years ago General Motors sold 78% of GMAC Commercial to the group for $1.5 billion in cash. At the time it looked like a good deal for Goldman and its partners — until commercial loan delinquencies began to rise and the U.S. economy collapsed in 2008. Capmark has struggled as the default rate on commercial mortgages held by financial institutions more than doubled to the highest rate since 1994. A spokeswoman for Capmark said the company plans to restructure it balance sheet. "We intend to keep making loans," she added.

Saying all vintages are now susceptible to the severe economic conditions, Fitch Ratings has placed 247 commercial mortgage-backed securities bonds with a balance of $9.3 billion in 22 fixed-rate 2005 transactions on Rating Watch Negative. It did even though these loans are currently performing better than those recently reviewed from the 2006 through 2008 vintages. The 2005 transactions have 4.3% of loans in special servicing and 13.1% loans of concern, compared with 7.2% and 18.3% for the 2006 vintage, 7.1% and 25.9% for the 2007 vintage and 9.6% and 23.7% for the 2008 vintage. The Rating Watch Negative placements will be resolved when Fitch performs an in-depth review of the each of the transactions involved.

U.S. residential mortgage-backed securities investors believe home prices will hit bottom while default rates will improve in the next 12 months, according to a survey conducted by a unit of Standard & Poor's. The Valuation Inputs Consensus survey tracks valuation projections of 64 institutions active in the U.S. and European structured finance markets. Expectations for default rates for loans included in 2007-vintage RMBS are down to 12% from 30% in the second quarter 2009 survey for alt-A and to 23% from 30% for subprime loans. However, prime fixed rate loan delinquencies for 2007-vintage RMBS trended up from 2% for the second quarter survey to 4%. "Because the majority of poorly performing securitized U.S. mortgage loans have already defaulted or paid down, default rate forecasts for underlying collateral on U.S. alt-A and subprime RMBS are stabilizing versus expectations for U.S. prime RMBS," says Peter Jones, global head of S&P's Valuation Scenario Services business. "Furthermore, default rate expectations for U.S. mortgage loans — although improving across most asset classes — remain significantly higher than U.K. loans, which are expected to deteriorate across all classes. Clearly, respondents see the U.K. and U.S. assets in two very distinct ways." Investors in RMBS secured by properties in the United Kingdom believe the default rates on non-conforming loans will climb from 8.2% over the next six month to 9.8% for the period covering 12-to-18 months from now. They expect home prices there to fall 7% in the next 12 months; in the second quarter survey, they expected a 10% decline.

Federal Reserve Chairman Ben Bernanke believes that home buyers need more counseling on the mortgage process including home purchase and refinancing information. Speaking at a Fed conference in Chatham, Mass., he said having consumers educated about the mortgage process would not be a "major bullet" to preventing another crisis but said counseling is a "large issue" for mortgages and other products. He said "too many households" do not have a basic understanding of financial services. The Fed chairman also once again called for higher capital requirements for financial firms that are "systemically critical firms." However, he did not single out any particular institutions.

A top executive at the embattled Lend America says the government is taking action against his firm because an employee in the Inspector General's office at the Department of Housing and Urban Development has a "vendetta" against him. Lend America executive vice president and chief business strategist Michael Ashley made his comments to Newsday, a Long Island newspaper on Thursday night. Mr. Ashley, a defendant in a civil injunction case against the company, declined to name the employee. The injunction was denied on Wednesday, though HUD still has a notice of charges against Lend America, which the firm must respond to within 30 days. Lend America is a nonbank that depends on warehouse lines of credit. It ranks 18th nationwide in terms of GNMA issuance.

The mortgage industry is still pressing forward with its lobbying efforts to extend the first time home buyer tax credit, despite new allegations from the Treasury Department that the program is being abused by some mortgagors. Industry lobbyist Howard Glaser who works with the Lenders One Alliance said Friday that FTHB fraud is "inexcusable" and "the IRS must do a better job" but noted that extending the tax credit for several more months is critical to the nation's economic recovery. A former Housing and Urban Development attorney, Mr. Glaser told CNBC that "if we pull the plug now we pull the plug on the recovery." The Treasury inspector general for tax administration found that 19,300 people claimed $139 million in deductions on their tax returns before actually purchasing a home. (The FTHB law requires that the home purchase must take place before the deduction can be granted.) Also, $500 million in credits may have been granted to home buyers who already owned a house at least once.

In passing a Consumer Financial Protection Agency bill, the House Financial Services Committee decided to shield mortgage and title insurers from the reach of the proposed consumer regulatory agency. The committee adopted an amendment by Reps. Gwen Moore, D-Wisc., and Erik Paulsen, R-Minn., that excludes insurance products from the CFPA's authority. The Mortgage Insurance Companies of America and the American Land Title Association welcomed this change and thanked the amendment sponsors for recognizing that insurers are already well regulated at the state level. "We are hopeful the Senate will concur with the House action," said MICA spokesman Jeff Lubar. ALTA chief executive Kurt Pfotenhauer noted the authority to regulate title insurance under the Real Estate Settlement Procedures Act will be transferred from HUD to the CFPA. "Excluding title insurance from the CFPA definition of 'financial activities' means that the title industry will not be subject to the new regulatory regimes intended for banks and other financial institutions," Mr. Pfotenhauer said.

For the first time in decades, Ginnie Mae is outpacing Freddie Mac in the issuance of mortgage-backed securities. For the year ending September 30, Ginnie Mae guaranteed $418.1 billion in residential MBS. During the same 12-month period Freddie issued $382 billion. Freddie's MBS issuance rose 22% over the past 12 months, while Ginnie Mae issuance jumped 55% — due mostly to a dramatic increase in the origination of Federal Housing Administration and Department of Veterans Affairs guaranteed loans. (VA loans backed nearly 20% of Ginnie Mae securities.) According to newly released figures, Freddie issued $31.8 billion in MBS during September. The GSE said it purchased $21.4 billion in refinanced loans during the month, down from $35.6 billion in August. The government sponsored enterprise also reported a 20 basis point monthly increase in its single-family delinquency rate. The percentage of Freddie loans 90 days or more past due and in foreclosure rose to 3.33% in September.

The number of default notices filed against California homeowners fell in the third quarter of 2009 compared with the prior three-month period, the result of lenders' evolving foreclosure policies and an uptick in the number of mortgages being renegotiated, according to San Diego-based MDA DataQuick, which monitors real estate activity nationwide. A total of 111,689 default notices were sent out during the July-through-September period. That was down 10.3% from 124,562 for the second quarter, and up 18.5% from 94,240 in third quarter 2008. "It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it's not out of the goodness of their hearts. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses," said John Walsh, DataQuick president. The lenders that originated the most loans that went into default in the third quarter were Countrywide (7,583), Washington Mutual (5,146) and Wells Fargo (4,425). Along with Bank of America (1,979) and World Savings (4,237), they were also the most active lenders in the second half of 2006. The quarter's default rate on loans originated in the second half of 2006 ranged from 1.7% or Bank of America to 11.9% for World Savings. Smaller subprime lenders had far higher default rates for the period: ResMAE Mortgage was at 73.9%, OwnIt Mortgage 69.5%, BNC Mortgage 61.4%, Argent Mortgage 59.9% and First Franklin 59.4%. While these and most other subprime lenders are long gone, their loans were bundled, resold and now live on as "troubled assets," Mr. Walsh said. "There's a batch of truly nasty loans that were made in mid 2006. There's another batch made in late 2006. These are worse than the mortgages before and after, and it's taking a long time to process them."

Mortgage rates rose slightly this week, to 5% with 0.7 points paid by the consumer, according to Freddie Mac's latest primary market survey. A year ago mortgages rates were 100 basis points higher. The reading reflects the average interest rate on a 30-year fixed-rate loan. Freddie also found that the average rate on a 15-year loan was 4.43% (0.6 points paid) compared to last week's rate of 4.37%. The one-year ARM rate, however, fell to 4.54% from 4.60% last week. Mortgage and housing economists fear that rates could rise dramatically next year when the Federal Reserve reduces its MBS purchases.

Tim Mankus, a 22-year veteran of Wells Fargo & Co., who ran the mega-bank's mortgage trading desk, is out in the cold after a shakeup at the company. Gary Westphal, who reported to Mr. Mankus, was appointed to a new role where (according to one company official) he will oversee an array of mortgage activities that includes trading and "spans the full length of asset sales from pricing through pooling and delivery." As part of this shakeup the bank named Mohan Chellaswami to head its global market risk effort. Mr. Westphal will carry the title senior vice president of capital markets, the same title he held prior to Mr. Mankus' departure. A spokesman for Wells' mortgage group gave no reason for the reorganization. Mr. Mankus, who was based in St. Louis, could not be reached for comment on his cell phone.

The mortgage division of PNC Financial Services saw its residential originations fall by 44% to $3.6 billion in the third quarter with the company blaming the decline on a slowing refinancing market for government-backed loans. The unit includes National City Mortgage of Ohio which PNC bought (along with the bank's parent) late last year. Despite declining loan production — and a slight drop in the bank's mortgage servicing portfolio — PNC's residential mortgage banking division earned $91 million in the quarter, flat compared to the second quarter. The entire bank (including the mortgage group) earned $559 million in the third quarter, a 170% jump from the same period last year.

While Old Republic International Corp., Chicago, saw a slight improvement in its third quarter net results, the company's operating loss worsened by nearly 46% over the same period last year. ORI had a net loss of $46.2 million ($0.20 per share), compared with a net loss of $48.0 million ($0.21 per share) for the third quarter 2008. The most recent results benefited from deferred income tax credits of $20.5 million. Otherwise, ORI had an operating loss of $66.1 million for the most recent period, compared with an operating loss of $45.3 million in the prior year quarter. The mortgage guaranty segment at ORI saw its pretax operating loss deepen by 5%, to $160.4 million from $152.8 million in the third quarter of 2008. The claims ratio during the period increased to 214% from 203%. However, ORI's title insurance business had a pretax operating profit of $4.0 million, compared with a loss of $9.7 million in the third quarter 2008. There was growth in title premiums because of high refinancing activity earlier this year and because of shifts in market share resulting from LandAmerica exiting the title business. But ORI added claim costs also rose at a quicker pace as it added moderately to reserves to address emerging claims trends.

The House Financial Services Committee has approved a bill that would create a new Consumer Financial Protection Agency and revise the appraisal standards across the entire mortgage lending industry. By a 39-29 vote, the committee passed a bill which would give the newly-created CFPA director the authority to set and enforce the rules for mortgage and credit card lending. The new agency would take over the consumer lending rulemaking authority from the federal banking agencies. During the markup, the committee agreed to an amendment that would call on the CFPA director to work with the industry to establish one set of appraisal independence standards that would replace the Home Evaluation Code of Conduct adopted by Fannie Mae and Freddie Mac.

The Federal Housing Administration has delayed for a second time the effective date of new rules to tighten its condominium lending policies. The effective date is now Dec. 7, the agency said in a new notice. Until the new guidance takes effect, FHA said, "lenders may continue to use the Spot Loan Approval guidance issued on Mortgagee Letter 2009-19." The new FHA condo rules that were originally slated to go into effect Oct. 1 would have eliminated "Spot Loan Approval" that allows lenders to finance one condominium sale in a building that is not FHA approved. FHA subsequently delayed the effective date of the condo rules until Nov. 2 to make several modifications.