Originations

Even though residential lenders are enjoying a decent year when it comes to originations, the next two are looking dicey, according to a new economic forecast by the Mortgage Bankers Association. MBA chief economist Jay Brinkmann estimates that fundings will fall to $1.556 trillion next year and just $1.482 trillion the year after before rebounding slightly. Up until recently, Mr. Brinkmann's forecast for the next two years stood at $1.62 trillion and $1.608 trillion, respectively. According to figures compiled by National Mortgage News and the Quarterly Data Report, the industry is on track to fund roughly $2.1 trillion this year, a handsome 32% gain from 2008 when the mortgage and credit markets swooned. In a recent interview with NMN Mr. Brinkmann cited uncertainty over the first time home buyer tax credit and the Federal Reserve's impending withdrawal from the MBS market as chief concerns.

An amendment that would delay mortgage disclosure changes under the Real Estate Settlement and Procedures Act is slated to be introduced Thursday afternoon. According to the National Association of Mortgage Brokers, Rep. Judy Biggert, R., Ill., will introduce an amendment to pending consumer protection legislation allowing for a more gradual implementation of RESPA changes. In particular, brokers are concerned that come January 1 the "good faith estimate" form is going to four pages from one, causing headaches throughout the industry. The Biggert amendment would allow "both new and old forms" to be allowed during the transition period, according to a memo issued by NAMB.

Fitch Ratings has found that 60% of borrowers with performing loans in 2006 and 2007 U.S. mortgage securitizations are in negative equity positions and hundreds of seasoned deals are stressed as well, albeit to a lesser extent. Fitch said it has taken various rating actions on 649 seasoned, prime residential mortgage-backed securities transactions issued prior to 2005, citing pressure from negative home-equity positions and unemployment. However, it noted that in seasoned deals, while it has downgraded a significant number of mezzanine and subordinate classes, less than 5% of senior classes with top AAA ratings were negatively affected. Despite positive home price figures over the summer, Fitch projects over the next year a further home price decline of approximately 10% nationally. Even with the modifications and the first-time homebuyer tax credit helping home prices to some extent, the growing distressed inventory expected to result from continuing borrower stresses will cause prices to continue falling, according to Fitch senior director Grant Bailey. This means performing-to-delinquency roll-rates could stay high in prime as well as alternative-A and subprime credit RMBS from 2006/2007 into next year, Fitch said. The rating agency forecast in a recent global economic outlook report that unemployment would continue to rise and peak at 10.3% in the middle of 2010. It noted that this is a particular concern in California, where the greatest percentage of 2006/2007 RMBS borrowers is located. In California, unemployment is at 12.2% as compared to 9.8% nationally.

New Financial Accounting Standard Board rules that go into effect Jan. 1 could force bank issuers and servicers to consolidate "hundreds of billions of dollars" of private-label residential and commercial mortgage securities on their balance sheets, according to industry trade groups. The Mortgage Bankers Association and Commercial Mortgage Securities Association warn that such a consolidation of securitized assets would "artificially increase" bank risk-based capital and loan loss reserve requirements at the worst time - forcing some to raise additional capital. Anything regulators can do to delay implementation "will serve to postpone the pro-cyclical, anti-consumer, anti-affordable housing impacts" of the FAS rules 166 and 167, MBA and CMSA say in a joint comment letter to the federal banking agencies. The groups say FASB is reacting to credit card issuers that provided credit support for their securities to shield investors from losses and prevent rating agency downgrades. They argue, "There is no business case for sponsors to provide credit support" for static pools of securitized mortgages. "MBA and CMSA recommend that the agencies take the time to study the risks inherent in each of the major securitization structures so that the regulatory capital treatment is more precisely aligned with the risk of the reporting bank." Capital One Financial Corp., McLean, Va., is urging the regulators to delay the capital impact of consolidation for six months. The American Bankers Association wants a one-year delay. The banking agencies have suggested a phase-in over four quarters would reduce the costs and burdens.

Even though JPMorgan Chase posted strong third quarter earnings, the mega bank set aside $4 billion in mortgage-related credit charges, including $1.1 billion tied to Washington Mutual, which it bought a year ago. It also posted a $1 billion loss in its consumer lending division, which includes mortgage banking, a business center that it is scaling back. The charge related to WaMu reflects "deterioration" in its "purchased credit-impared portfolio," JPM said. The bank said it took credit hits on subprime loans ($422 million), prime ($525 million) and home-equity loans ($1.1 billion). All were easily more than double the dollar amount of charge-offs in 3Q 2008. In an analyst report, Credit Suisse notes, "We had expected only nominal reserve increases on the consumer side this quarter." CS analyst Moshe Orenbuch called the WaMu charge a "catch-up" noting that "while there may be one more of these marks" it should not be recurring. Overall, JPM earned $3.6 billion in the quarter, a 583% jump from the same period last year.

Loan applications as measured by the Mortgage Bankers Association's weekly survey inched down from one week earlier. The MBA's Market Composite Index, a measure of mortgage application volume, fell 1.8% on a seasonally adjusted basis and 1.7% on an unadjusted basis during the week ended Oct. 9. The Refinance Index fell by just 0.1% from the previous week, but the percentage of refinances in the market as a whole increased to 67.4% from 66.3% and the Refinance Index's four-week moving average rose 8%. The four-week moving average for the Market Index rose by 5.6%. This average was up 1.6% for the Purchase Index. On a seasonally adjusted week-to-week basis, the Purchase Index was down 5% and on an unadjusted basis it is down 4.8%. On a year-to-year basis for the week, the unadjusted Purchase Index was down 6.8%. Adjustable-rate mortgage applications increased slightly to 6.2% of total applications from 6.1% the week before. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages during the week rose to 5.02% from 4.89%, with points (including the origination fee) dropping to 1.11 from 1.13 for mortgages with 80% loan-to-value ratios. The average contract interest rate for 15-year FRMs during the period rose to 4.44% from 4.32% with points remaining unchanged at 1.04 for 80% LTV loans. The average contract interest rate for one-year adjustable-rate mortgages rose to 6.71% from 6.56% with points rising to 0.32 from 0.30 for 80% LTV loans. The MBA at one time provided index values with its weekly survey but no longer does.

Lenders originated nearly $300 billion in Federal Housing Administration single-family loans through August with one more month to go in fiscal year 2009. In August, FHA endorsed $31.8 billion in loans bringing the 11-month total up to $298.6 billion, a 94% increase from the same period in FY 2008. As of Aug. 31, FHA's year-to-date portfolio of insured loans totaled $675.6 billion, an amount greater than what was seen during the full fiscal year ending Sept. 30, 2008 when it was $474.4 billion. Meanwhile, FHA defaults are up, too. The federal mortgage insurance agency had an 8.1% serious delinquency rate as of Aug. 31, compared to 6.9% on Sept. 30, 2008. At the end of August, 430,300 FHA loans were 90 days or more past due or in foreclosure. The agency has managed to keep its inventory of foreclosed houses relatively flat. But sales of real estate-owned totaled 61,900 for the first 11 months of FY 2009, up 48% from the same period in FY 2008. FHA currently has 39,000 in REO with an estimated value of $4.7 billion.

Mortgage industry groups are warning Department of Housing and Urban Department officials that they have to postpone the Jan. 1 effective date of a new Real Estate Settlement Procedures Act rule to avoid a compliance train wreck. "Despite the best motivations of HUD and the sincerest efforts of the industry, we are headed for a mortgage market train wreck on the tracks of RESPA compliance," according to six industry groups. The American Bankers Association, American Escrow Association, American Financial Services Association, Consumer Mortgage Coalition, Housing Policy Council and Mortgage Bankers Association contend that there is not enough time left to implement the new RESPA disclosure regime by yearend. "HUD has not provided clear and needed guidance on a timely basis to enable the industry to be fully RESPA-compliant by the first of the year," the Oct. 12 letter says. A spokesman said HUD secretary Shaun Donovan just received the letter and declined to comment at this time.

Short-sale listings passed the 10,000 mark in the struggling Las Vegas-Henderson housing market in September, even as underwater deals that closed during the month were up 22%, broker Robert Jenson of the Jenson Group reports. There are now almost twice the number of short sales on the market as there are bank-owned listings, the luxury Re/Max broker reports, but REO properties outsell short sales, four-to-one. Short sale offerings account for more than half the 19,366 houses currently listed for sale at $1 million or less with the local multiple listing service. By Mr. Jenson's count, 3,217 houses sold in the Vegas-Henderson market in September. That's an increase of 5.3% from August. But it pales in comparison to the nearly 20,000 houses listed with the MLS. In the $1-million-plus category, 17 properties sold in September, leaving 649 desert palaces still up for grabs. Forty-two of those listings are short sales, 21 are foreclosures. Overall, distressed sales account for four out of every five sales in the region, the broker said.

New home sales in California in August rebounded somewhat from July's low levels, but they were still 13% below the same month last year, according to the California Building Industry Association. The monthly CBIA/Hanley Wood Market Intelligence sales and pricing report counted 2,617 house and condominiums sales in the subdivisions with 10 or more units in August compared to 3,001 in August 2008. Single-family sales were down 20% and sales of townhouses and multiplex units were off 35%. Condo sales, on the other hand, were inexplicably 26% higher than a year ago. CBIA president Liz Snow blamed the decline on the end of the state's $10,000 homebuyer tax credit, which she said came "too soon." Said Ms. Snow: "The best thing you can say about California's experience with the state homebuyer tax credit is that it worked. It did everything it was supposed to do: restore buyer confidence, stimulate activity in dormant housing markets and put people back to work." She added that the latest dismal sales figures "should encourage lawmakers to revive the program."

Lend America, a nonbank mortgage originator, is launching a new correspondent program to buy closed Federal Housing Administration loans from certain lenders on a flow and bulk basis. The Melville, N.Y.-based firm said it hopes to buy its first pool of loans by this Thursday. The mortgage banker will buy pools as small as $1 million. It is calling the new channel its "Mini Ginnie Correspondent" program and the company is a Government National Mortgage Association servicer. However, the program is not related to nor done in conjunction with Ginnie Mae. The effort is part of Lend America's strategy to build servicing volume. The company estimates that by the second quarter of 2010 it will be purchasing $500 million per month in product. Lend America is aiming to compete in the space by offering to small to midsized mortgage bankers what chief business strategist Michael Ashley said will be stronger servicing, fewer credit overlays and more considerate business relationships.

eLynx, Cincinnati, has launched an electronic closing network (eCN) service that lenders can integrate into their closing process to increase loan quality and provide more control in order to meet the government's new demands for more accurate closings. The launch, which came at the annual MBA show, is designed to help lenders ensure that borrowers and settlement agents have a better experience at the closing table. The technology firm said a top five U.S. lender/servicer is now using the eCN but did not name the company.

Global DMS, Lansdale, Pa., has unveiled a new technology tool that allows lenders to transfer and receive Home Valuation Code of Conduct compliant appraisals. Announced at the Mortgage Bankers Association convention in San Diego, the tool, AppraisalTransfer.com, is an online portal that hopes to solve the "portability issue" of appraisals, said Global DMS chief operations officer Matt McHale. While it is permissible to transfer appraisals, lenders are reluctant to do so, he said. Even if there is portability it is usually just a transfer between users of the same appraisal management company. With AppraisalTransfer.com the goal, said Mr. McHale, is to allow any lender to have access to the appraisal. (There is no charge to the lender.)

Pointing to a significant rise in income fraud, Rapid Reporting has launched AccountChek, an electronic verification of deposit service that helps lenders, brokers and servicers detect financial account misrepresentations. Unveiled at the MBA show, AccountChek leverages direct access to more than 10,000 financial institutions, including insurance and investment firms, to confirm the accuracy of borrower-provided account information. The company says AccountChek automatically analyzes each account for suspicious activities that could indicate potential mortgage fraud.

Stewart Lender Services, Houston, has reorganized its operations, removing all of the silos customers had to go through to access its services. The company announced the reorganization at the Mortgage Bankers Association convention in San Diego. Jason Nadeau, president and chief executive of SLS, said in an interview that up until now SLS was organized in such a way that a customer had to contact a different person every time they wanted to use a different service. The new system creates a single point of contact. Given the consolidation in the mortgage industry, it was necessary for SLS to reorganize its approach to match the direction the market is going, he explained. Mr. Nadeau also spoke about the recent growth of SLS, whose revenues have increased 20-fold. The company started with a center in Houston and then added one in Tampa with others following in Dallas, San Diego, Irvine and Phoenix. SLS also has been aggressively recruiting new employees.

Freddie Mac said it will give a boost to the struggling warehouse lending market by providing standby commitments to purchase qualifying loans in the event a seller/servicer cannot meet its funding obligations or fails. A source close to the situation told National Mortgage News that the GSE has been operating a version of this pilot program since June. The participating warehouse provider in that program is Natty Mac of Florida. (The lender is Provident Funding Associates of Burlingame, Calif.) Freddie said pre-funding reviews are required. Fannie Mae is working on a similar program. "The warehouse lending industry has nearly exited the market making it increasingly difficult for lenders to fund loans," said Freddie CEO Charles E. Haldeman. "We're proud to help bring much-needed additional liquidity to the residential and apartment financing community." The GSE noted that seller/servicers interested and that qualify for the program will need to enter into a separate agreement directly with the participating warehouse lender. The credit line from the warehouse lender that is supported by the standby commitment will fund only the loans the participating seller/servicer intends to sell to Freddie. Fannie's pilot program is expected to be slightly different.

Housing starts will jump 38% next year and finally contribute to economic growth as the housing sector breaks out of a three-year spiral, according to a new National Association of Business Economists survey. In the consensus opinion of 44 NABE members, housing starts will hit 800,000 in 2010 compared to 580,000 this year. House prices will rise too. Based on the Federal Housing Finance house price index, prices will increase 2% next year, after falling 3.4% in 2009. "The nascent housing recovery will gather momentum and deliver robust growth in 2010, albeit from a depressed level," NABE said in a summary. The survey results show wide disagreement on the outlook for housing, however. The five most optimistic economists see housing starts hitting 920,000 in 2010 and prices jumping 6.2%. The most pessimistic five see prices falling 5.1% with housing starts essentially flat at 600,000.

The House Financial Services Committee will start a marathon markup session this Wednesday (Oct. 14), voting on two contentious measures that would create the much talked about Consumer Financial Protection Agency and impose a new regulatory regime on derivatives. The committee is expected to take up the derivative bill first. The markup of the CFPA bill (H.R. 3126) could extend into the following week. Committee chairman Barney Frank, D-Mass., has been working with community banks to address their concerns about the new agency. Despite strong opposition from the America Bankers Association, Financial Services Roundtable, American Financial Services Association and Chamber of Commerce, Rep. Frank is expected to have the votes to pass the CFPA bill out of committee. Late last week President Obama said the CFPA will have the power to set "clear rules" for mortgage and credit card lenders and enforce them. The president said the Chamber of Commerce and financial firms are lobbying against the CFPA bill to "maintain the status quo and maximize their profits at the expense of American consumers." He stressed that the new agency will not restrict consumer choice and financial innovation as opponents have claimed.

The MBA put out a 'request for proposal' to build a national fraud database only to later shelve the idea, but MERSCORP Inc. and Interthinx have moved ahead, deciding the issue is too important to ignore. At the Mortgage Bankers Association's annual convention the pair launched a national fraud prevention database that will allow lenders to seek, identify, and share suspected fraudulent activity on loan applications from the point of origination. The companies said MERS FraudALERT will help identify and prevent fraud through the sharing and reporting of key data among the more than 62 million loans currently registered on the MERS system. Lenders can submit loan application data and incident reports with suspected or confirmed fraudulent activity to a centralized database. The system will then notify other lenders who have connections to the loans, alerting them of possible problems.

Franklin American Mortgage Co. of Tennessee has received the green light on $500 million worth of new warehouse lines -- additional facilities that the firm says will allow it to double its anticipated 2009 originations to $40 billion within two years. Over the weekend the nonbank finalized a new $300 million agreement with Credit Suisse and a $200 million commitment from Bank of America. Combined with its existing warehouse facilities, FAMC expects a major boost in originations. Company president Dan Crockett told National Mortgage News Online that the firm will use the new facilities to continue expanding its three lending channels: retail, correspondent, and wholesale. Asked about the prospects for wholesale -- a channel that many firms have exited in the past 18 months -- Mr. Crockett said he anticipates maintaining 30% to 40% of FAMC's total production there. However, he noted that Washington policies in regard to wholesale could be a concern if brokers continue to be driven from the business. Like the wholesale niche, warehouse lending has come under extreme pressure but Mr. Crockett said lines are becoming more available and stable of late. He speculated that the lower risk produced by today's tight underwriting standards has reached the point where it is encouraging new involvement. While one of FAMC's warehouse providers, BB&T, may not remain committed long term to providing the warehouse facilities it acquired from failed line provider Colonial Bank, Mr. Crockett is confident his company can replace the funding through transactions with other providers. In addition to its new lines with Credit Suisse and BoA, FAMC has been in discussions with Freddie Mac and Natty Mac about their warehouse lending pilot program. The lender also has been in "heavy negotiations" with Citigroup in regard to a line.