Originations

Moody's Investors Service is divulging some of the criteria in its originator assessments, which are used in conjunction with rating residential mortgage-backed securities transactions in Europe, the Middle East and Asia. Moody's said it primarily is focusing on each originator's origination, underwriting and closing practices and whether they are in line with good loan quality, as well as whether the originator is acting within its stated risk/reward strategy. Shivani Kak, a Moody's assistant vice president, further noted that the OAs focus only "on the originator's policies and practices on the loan performance as opposed to other factors such as the macro-economic environment and servicer performance."

Kroll Factual Data has released an Independent Verification Solution, which helps lenders comply with the proposed FHA credit policy changes announced on Sept. 18, 2009. Under the proposed guidelines, mortgage brokers will no longer receive independent FHA approval for origination eligibility, but will instead be required to originate through an FHA approved lender. Since FHA approved lenders will carry the liability for broker-originated loans, they need to bolster their verification process to support the additional volume that will come from the correspondent channel, said Loveland, Colo.-based Kroll Factual Data in a prepared statement. Adding to this new strain on scarce underwriting and quality control resources is a new rule for FHA streamlined refinances which requires lender certification of the borrower's capacity to pay at the time of application. Kroll Factual Data will deliver capacity-to-pay verifications. According to Kroll Factual Data, the detailed billing and reporting that is included with the service increases traceability and transparency for Real Estate Settlement Procedures Act compliance. To give lenders an extra measure of protection against the risk of errors, Kroll Factual Data's verifications are backed by representations and warrantees of accuracy. Lenders can customize the solution to include additional types of verifications and risk assessment analytics as required for their specific risk management program.

The Department of Veterans Affairs guaranteed $68.2 billion of single-family loans for the fiscal year ending Sept. 30, an 80% spike from last year. Refinancings drove most of the increase with VA guaranteeing 144,800 transactions. A year ago it backed just 37,300 refis. Purchase mortgage transactions rose 27% to 180,900 loans in FY 2009. Despite these impressive volumes, VA officials seem most pleased with the performance of the new loans. "VA is performing extremely very well," said Mark Bologna, the director of the VA home loan guarantee program. "We outperform every other product on the market including prime loans," he told National Mortgage News Online. The VA's seriously delinquent rate is 4.69%, compared to 5.44% for prime loans, according to the latest delinquency figures compiled by the Mortgage Bankers Association. VA officials contend that one of the reasons for the performance is that the agency did not bend to industry pressure during the housing boom to allow loan officers and mortgage brokers to select their own appraisers. VA approves, monitors and selects appraisers for property evaluations. This has resulted in "good solid values," he said. "It has proven to be a good decision."

Ginnie Mae issuers securitized a record $418.1 billion in residential mortgages in fiscal year 2009 as lenders flocked to loan programs tied to the Federal Housing Administration and Veterans Administration. Overall, GNMA issuance rose by 55% compared to the prior fiscal year. (By comparison, Fannie Mae issued $612 billion in MBS through the first eight months of the year.) The Government National Mortgage Association ended fiscal 2009 (Sept. 30) guaranteeing $39.7 billion in mortgage-backed securities during the month. In August its volume was a bit higher at $44.2 billion. In the last two quarters alone the agency backed $247.7 billion in mortgage securities. Fannie and Freddie Mac securitize conventional mortgages. Ginnie Mae MBS are backed by FHA, VA and Rural Housing Service loans. FHA, which is in danger of falling below its minimum capital requirement, accounts for by far the largest portion of GNMA collateral.

The stock of Fannie Mae and Freddie Mac is worthless and any hope of recapitalizing the two lies with their seller/servicers, according to a new research report from Keefe, Bruyette & Woods. "In our view, in order for Fannie Mae and Freddie Mac to survive going forward, they need to be recapitalized through investments by the banks that benefit from their guarantee," KBR writes. The firm says that seller/servicers should be required to retain 5% of the loan balance on mortgages sold to the GSEs, adding that the "new agencies" would be capitalized at a "solid 5% level of the new expanded balance sheets" under Financial Accounting Standards Board rules 166 and 167. It says that even under a "bad bank" approach to restructuring them the government would be owed $100 billion. The Federal Housing Finance Agency placed the two into a conservatorship 13 months ago. To date, the Treasury has invested $98 billion in capital into them. Both continue to trade on the New York Stock Exchange -- Fannie for $1.25, Freddie at $1.40.

The Mortgage Bankers Association and other trade groups are stepping up their pleas to the White House, imploring the administration to extend the $8,000 first time homebuyer tax credit by at least 12 more months while allowing consumers to use the money for closing costs. In a new letter to officials at the White House, Treasury and the Department of Housing and Urban Development, MBA and two other industry groups contend the tax credit has dramatically reduced the inventory of new homes for sale to seven months from 12.4 months back in January. MBA, the National Association of Home Builders, and the National Association of Realtors, also want the credit expanded to all types of homebuyers. They contend that buyers of new homes spend an additional $12,000 on goods and services while buyers of existing homes spend almost $9,000. The White House has recognized the value of the tax credit but has not commented either way on extending it.

Reversing the trend that began last year, average home prices in New York edged upward in the third quarter of 2009 compared to the previous quarter, which could be a sign that the market is leveling off, according to a new report by ResidentialNYC.com, a public real estate listings website of The Real Estate Board of New York. Average home sales prices for cooperatives, condominiums and one-to-three family dwellings increased by 6% in Brooklyn to $534,000 and by 3% in the Bronx to $367,000 compared to the second quarter of 2009. Average prices in Queens increased by 1% to $406,000 and Staten Island home prices declined by 1% to $382,000 compared to last quarter. The report found that citywide sales volume increased 35% to 9,734 compared to last quarter. Manhattan sales volume increased 59% to 2,840 while sales volume in Brooklyn increased 27% to 2,102. "The residential real estate market came back to life in the third quarter. The trend needs to continue for at least two more quarters before we can say with confidence that a recovery is underway," said Steven Spinola, REBNY president.

First Horizon National Corp. — once a large player in mortgages — saw its third-quarter loss narrow as loan-loss provisions continued to fall. Last year it sold part of its mortgage division to Metropolitan Life, a life insurance company. The parent of First Tennessee Bank, Memphis, lost $52.9 million in the period compared to a loss of $125 million in the third quarter of 2008. Revenue dropped 5% to $494.7 million. Results beat analysts' expectations. FNC has trimmed its mortgage banking operations over the past 18 months and sold branches outside its Tennessee footprint. Loan-loss provisions fell 29% to $185 million from the prior quarter and dropped 46% from a year earlier. Last fall, First Horizon received $866 million from the Treasury Department's Troubled Asset Relief Program.

Mortgage delinquencies in the financial services division of General Electric are high and continuing to climb but the rate of increase appears to be slowing. The 13.38% 30-plus-day mortgage delinquency rate seen in the GE Capital Finance unit's managed assets during the third quarter is only slightly higher when compared to 13.23% in the second quarter. But it is up notably from 9.22% during the third quarter last year. GE Capital is a key concern for GE given that the company said falling revenue from that unit was "primarily" behind a year-to-year reduction in the company's total revenue and earnings. Every segment at GE Capital except real estate was profitable during the quarter. GE chairman and chief executive officer Jeff Immelt described the real estate concern as the result of a "tough environment but [one] where we believe the risks are well understood and manageable." The company said it is "preparing GE Capital to be a smaller, more focused franchise." Overall, GE's earnings in the third quarter dropped to $2.4 billion from $4.3 billion during the same period a year ago.

Wells Fargo Home Mortgage says it is ready to implement the new RESPA disclosure rule and urged the Department of Housing and Urban Development to stay with the Jan. 1 effective date. "We have already programmed the mandated RESPA changes into over 40 computer systems and have no choice but to proceed with implementation of the new forms on the Jan. 1 effective date," WFHM co-president Michael Heid says in a letter to HUD. As previously reported, HUD has decided to stay with original effective date despite pressure from Congress and major trade groups to postpone the change. "We fully appreciate that there are challenges involved in transitioning to the new RESPA rule, but I want to personally assure all mortgage professionals that we will continue to make every effort to assist them throughout this process," said HUD assistant secretary David Stevens. "Even after Jan. 1, HUD will continue to help lenders, brokers and other settlement service providers in complying with the rule," he added.

Department of Housing and Urban Department officials are moving ahead with the Jan. 1 effective date for the new RESPA rule, despite warnings from industry groups that it could lead to a compliance train wreck. Six industry groups urged HUD to postpone the effective date of the Real Estate Settlement Procedures Act rule that requires lenders to use a new standardized good-faith estimate disclosure and a revised HUD-1 settlement sheet. "HUD, particularly the Office of Housing, is acutely aware of the procedural concerns, timing constraints and ancillary costs attributable to the implementation of these new requirements and the issues they raise for your members," HUD assistant secretary David Stevens says in a letter to industry executives. Mr. Stevens pledged that HUD would continue to work with lenders, title underwriters, escrow agents and others to make implementation as smooth as possible.

Bank of America's home loans and insurance division lost $1.6 billion in the third quarter — compared to a slight loss last year — citing weakening home prices and "further deterioration" in the mortgage portfolio it inherited when it bought Countrywide Financial Corp. in July 2008. Most of the CFC portfolio acquired includes payment-option ARMs, subprime mortgages and HELOCs. Overall, the company lost $1 billion in the quarter compared to earnings of $1.2 billion in the third quarter of 2008. The home loans and insurance division had credit losses of $2.9 billion during the period. (Companywide, BoA had $11.7 billion in credit losses, $1.7 billion lower than the second quarter and $5.3 billion higher than the same period last year.) In the mortgage group, the firm's noninterest expense rose to $3 billion "mostly due to increased compensation costs and other expenses related to higher production volume and higher delinquencies," it said. The bank's residential division funded $95.7 billion in first mortgages. In the second quarter it originated $114 billion in residential loans, but some of that figure includes second liens. No HELOC figure was immediately available for the third quarter.

The House Financial Services Committee has approved an amendment to the Consumer Financial Protection Agency bill that eases some of the regulatory burden on community banks and makes the measure easier for midsize and small banks to accept. For banks with $10 billion in assets or less, consumer compliance examinations and enforcement authority would be delegated to the banks' primary regulator. CFPA examiners would still examine larger banks. The amendment, sponsored by Reps. Brad Miller, D-N.C., and Dennis Moore, D-Kan., also applies to credit unions with less than $1.5 billion in assets. The Independent Community Bankers of America welcomed the Miller/Moore amendment. It "recognizes that community banks are responsible lenders that didn't cause the financial crisis," ICBA president Camden Fine said. However, ICBA has concerns about the new regulatory agency's broad rulemaking authority to ban abusive lending products and practices. The bill only gives the federal banking regulators an advisory role in the process. ICBA wants the banking regulators to have more authority in approving consumer protection regulations, possibly joint rulemaking authority, according to ICBA's top lobbyist Steve Verdier. "The rulemaking authority ought to be cut back to where the agency [CFPA] is implementing statutes written by Congress or the rulemaking should be assisted by the prudential regulators. They would understand the safety and soundness implications," Mr. Verdier said. The committee's markup of the CFPA bill resumes on Tuesday (Oct. 20) afternoon.

The California Senate has cleared a measure that would reinstate the popular $10,000 tax credit for new homebuyers. The measure, which would re-authorize the use of $30 million in credits not awarded during the first program, is expected to be taken up by the General Assembly next week. The state set aside $100 million for the original program, and more than 10,600 buyers were approved for the original credit before the Franchise Tax Board stopped taking applications July 2. But the FTB has since determined that the average credit would be $7,000, not the full $10,000, freeing up $30 million to cover the tax credit extension. Under the bill, only buyers who close after the extension is approved will be eligible. Those who closed after July 2 but before the bill's effective date would not be eligible. On the federal level, lobbyists from the Mortgage Bankers Association and other trade groups are trying to persuade the White House and Congress to extend the $8,000 first-time homebuyer tax credit at least for a few more months.

MGIC Investment Corp., the nation's largest mortgage insurer outside the federal government, posted a massive $518 million loss in the third quarter, sending its share price plunging. Its net loss for the first nine months was $1.04 billion, compared to $249.8 million for the same period last year. Company chairman and CEO Curt Culver blamed the results on a weak economy, higher unemployment and lower home prices. In tandem with the poor results, MGIC said Fannie Mae has approved its insurance unit MGIC Indemnity Corp. (MIC) as an eligible mortgage insurer through the end of 2011. (Mr. Culver said MGIC is seeking similar approval from Freddie Mac.) Loan delinquencies (not including bulk loans) in its book of business were just under 14% for the quarter; one year prior, the delinquency rate was 7.54%. Under the agreement with Fannie, MGIC cannot contribute more than $200 million to MIC, which limits the amount of business it can write going forward. For MIC to start writing new policies, Wisconsin's Office of the Commissioner of Insurance must sanction the unit. In addition, MIC would need a waiver from OCI regarding Wisconsin's capital requirements. There are 16 states, including Wisconsin, that have specific mortgage insurer capital requirements. Under the plan MIC could do business in those states because MGIC would no longer meet minimum capital requirements.

Saddled with delinquent home mortgages, Citigroup reported net credit losses of $9.4 billion in the third quarter, a slight decline from the previous period. Citigroup, which controls the nation's fourth largest residential funder, said its credit losses showed some improvement because of a "higher volume of trial modifications" under the government's Home Affordable Modification Program (HAMP). In total Citi had roughly 63,000 loans in the trial program. The bank said because the modifications are considered "trial" it does not have to charge them off — though the mortgages are considered delinquent. (The bank deferred the recognition of $100 million of net credit losses during the quarter because of the trial designation.) According to its earnings statement, the banking giant completed more than 24,000 mortgage loan modifications during the period. The impact of the HAMP also contributed to the $2 billion sequential increase in loans 90-plus days past due in its North America residential lending business. Citigroup reported net income of $101 million for 3Q09, compared to net income of $4.3 billion in the previous quarter and a net loss of $2.8 billion the same time last year. It posted third quarter revenues of $20.4 billion. Results included $8 billion in net credit losses and an $802 million net loan loss reserve build.

A federal grand jury in West Palm Beach, Fla., returned a 15-count indictment against eight individuals who have been allegedly involved in making false statements to banks to obtain mortgage money to purchase five properties in Wellington, Fla. . The defendants include licensed mortgage brokers, title agents and straw buyers. According to Jeffrey H. Sloman, acting U.S. attorney for the Southern District of Florida, the indictment alleges that the defendants and straw buyers engaged in a scheme which resulted in property being sold twice in one day and nearly doubling the value of that property during that one day. A total of more than $8.5 million in mortgage money was obtained through this alleged scheme. The defendants charged in this alleged scheme are Rony Alberto Aguilar-Hecker, Reinaldo Perez-Sanchez, Pablo Atouro Aponte-Torres, Fabio Salazar, Roger Omar Nunez-Murillo, Idalmis C. Arias, Ericson Perez and Juan Carlos Lopez. At press time, they could not be reached for comment.

Despite a slight increase in mortgage rates during the week, the average rate for the 30-year fixed-rate product that dominates the market remained below 5%, according to Freddie Mac. This makes three consecutive weeks of sub-5% rates, said Frank Nothaft, Freddie Mac's vice president and chief economist. During the week ending Oct. 15, the average rate for a 30-year fixed-rate mortgage inched up to 4.92% from 4.87% but remained far below where it was a year ago when it was 6.46%. The average 15-year FRM rate also increased slightly week-to-week, edging up to 4.37% from 4.33%, but it was still much lower than a year ago when it was 6.14%. Five-year hybrid Treasury-indexed adjustable-rate mortgages saw their average rate during the week increase a little bit to 4.38% from 4.35% and a year ago, but they also continued to be priced much lower than a year ago when they carried a rate of 6.14% on average. The average rate for one-year Treasury adjustable-rate mortgages climbed to 4.60% from 4.53% but that rate was down from 5.16% a year ago. Average points were as follows: 0.7 for 30- and 15-year FRMs, 0.6 for five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.

Mortgages and other credit products are producing significantly higher year-to-year revenues for Goldman Sachs. The firm said in its third quarter earnings that this boosted its net revenues fixed income, currency and commodities to almost $6 billion in the third quarter, compared to $1.6 billion during its "difficult" third quarter a year ago. The company as a whole earned $3.19 billion for the quarter, up from $845 million during 2008. However, quarterly investment banking revenues were down 31% year-to-year.

Residential lenders in California have seven new mortgage laws to deal with this week — including legislation that allows homebuyers to question their loan modifications through a court monitor, and a bill that bans negative amortization loans. Gov. Arnold Schwarzenegger signed the legislation earlier in the week. The "anti-steering" measure prohibits loan brokers from putting their clients into high interest rate loans when they qualify for lower rate notes. It also limits prepayment penalties to 2% of the loan balance.