Originations

Although new FHA Commissioner David Stevens denies doomsday predictions that his will be the next mortgage giant to fall, two longtime industry consultants told National Mortgage News at the MBA convention they believe the agency is in big trouble -- bigger even than what a former Fannie Mae executive warned of last week before a House subcommittee. Scott Cooley and Thomas LaMalfa said it is almost a foregone conclusion that the Federal Housing Administration will go under. The agency will be "the next Fannie Mae" and will cave "within two or three years," predicted Mr. LaMalfa, who began saying in 1996 that Fannie Mae and Freddie Mac were accidents waiting to happen. By the agency's own admission, one of four borrowers who took out FHA-insured loans in 2007 are currently behind on their payments, as are one in every five borrowers who obtained their mortgages last year. Mr. Stevens has said the FHA is currently recording its best book of business in years. Both Mr. LaMalfa and Mr. Cooley (a pioneer in mortgage software) also said the mortgage market has much further to tumble before it begins a long, slow climb back from the depths of the housing depression.

Freddie Mac late Friday announced a warehouse lending pilot program where it will provide participating firms with 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 the pilot since June. The participating warehouse provider in that program is Natty Mac of Florida. 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.

Simply extending the $8,000 first-time homebuyer tax credit will not provide much stimulus for the economy, according an IHS Global Insight economist. "The first time buyers who were going to use it would have used it already," said Global Insight economist Patrick Newport. Congress has to "expand it in some way to have any impact," he said. The Obama administration and congressional Democrats are discussing ways to create more jobs and stimulate the economy and a homebuyer tax credit extension is in the mix. The first-time homebuyer tax credit is due to expire November 30 and the National Association of Home Builders and others are pushing for an extension that expands the tax credit to all home buyers. NAHB president and CEO Jerry Howard says it would kick start the move-up market, generate more sales and construction, and create 350,000 jobs. But it would cost the government $30 billion to $35 billion for a full year. "To get the most bang for the buck, it is has to be in effect throughout the spring and summer home buying season," Mr. Howard said.

In 2008 the top customer of Fannie Mae was, by far, the combined mortgage operation of Bank of America and Countrywide Financial Corp., accounting for almost 18% of all loans sold to the mortgage giant, according to an analysis done by National Mortgage News. Overall, BoA/CFC sold $112 billion of home mortgages to Fannie, which purchased $631 billion in product from all its seller/servicers last year. Countrywide itself, which was purchased by BoA, on July 1, 2008, sold $86 billion in mortgages to Fannie Mae. For years Countrywide had a "strategic alliance" agreement with Fannie whereby it received discounts on the guarantee fee charged to it in exchange for selling most of its originations to the GSE. As Countrywide's credit quality deteriorated its problem loans translated into trouble for Fannie Mae, which was placed into a federal conservatorship in September 2008. Fannie's second largest customer last year was Wells Fargo & Co., with loan sales of $68.9 billion. When Wachovia is factored into Wells' sales, the figure rises slightly to $70.9 billion. (Wells bought Wachovia last fall.)

Even though the Federal Reserve plans to wean itself from buying mortgage-backed securities from Fannie Mae and Freddie Mac some time next Spring, the government still accounts for most GSE MBS purchases, according to the Mortgage Bankers Association. Basing its figures on August MBS sales, MBA said the Federal Reserve accounted for 79.5% of all GSE issuances, with the Treasury gobbling up another 9% for a total of 88.5%. MBA chief economist Jay Brinkmann told National Mortgage News that he thinks one explanation for the government buying so much of the product is that they might be overpaying for it, causing other investors to sit on the sidelines and stick to their pricing models. He said private equity money is chasing higher yield returns on such things as distressed assets and commercial properties. "There is no desire to get in at these prices," he said of the GSE MBS market.

Wells Fargo & Co., and Bank of America dominated the residential production market in the first-half, originating $231 billion in loans, and achieving a combined market share of almost 45%, according to figures compiled by National Mortgage News and the Quarterly Data Report. The nation's number three ranked funder, Chase, a subsidiary of JPMorgan Chase, ranked a distant third with $30.8 billion in originations and a market share of just 5.97%. Wells had a first-half market share of 24.77% and BoA 19.87%, NMN/QDR found. Year over year, Wells grew its fundings by 63%, BoA 40%. Both benefitted, in part, by purchasing other originators. (BoA bought Countrywide and Merrill Lynch. Wells bought Wachovia.) The two mega lenders continue to use three origination channels through which they gather loans: retail, wholesale and correspondent. Chase stopped funding mortgages through loan brokers earlier this year. (The complete half-year results appear in NMN's Mid Year Data Report.)

NetMore America, Inc., Walla Walla, Wash., a fast growing mortgage banking firm, has named David Shirk chief information/compliance officer. According to the company, Mr. Shirk brings 20 years of experience to the newly created position. For the fiscal year ending Sept. 30, NetMore originated more than $1 billion in new home mortgages - a 300% increase compared to the same period in 2008. For fiscal year 2010, the mortgage banker is projecting loan production of $1.3 billion to $1.5 billion. According to the Quarterly Data Report, NetMore ranks 75th among all home funders.

Pockets of housing market improvement have been seen regionally and locally but overall there is some concern that prices could soften as the market moves toward the challenging winter months, according to the October Clear Capital Home Data Index Market Report. "As anticipated, the strong gains we've been experiencing this summer are showing signs of softening," said Clear Capital president Kevin Marshall. "But growth remains sufficiently strong, providing hope as we head into a winter that will test the strength of the recovery." As of Sept. 25, on a quarterly basis, prices had appreciated by 6.3% and the saturation rate of national real estate owned properties had fallen to 28.6%. During the 12-month period between Aug. 27, 2008 and Sept. 25, prices fell by -9.9%. This marks the first return of the year-over-year national price decline to a single-digit number since the summer of 2007. "Prices remain low, driving investor activity into the non-REO marketplace across the nation. This is a good sign that the recovery is reaching beyond the distressed segment," said Mr. Marshall. "Historically, investors move in at the bottom which creates confidence for the bargain hunting fair-market buyers to enter the market as well." Regionally, housing prices continue to improve in the West, where they posted a 2.9% gain quarterly and a 1.6% six-month gain. Clear Capital's Metropolitan Statistical Area drilldown and micro market analysis also showed some positive quarterly developments as Riverside, Calif., and Orlando, Fla., generated quarterly gains for the first time in three years, while Baltimore, Md. featured a quarterly price gain of 0.1% after seven consecutive quarters of decline.

Fitch Ratings has downgraded 748 bonds in 479 residential mortgage-backed securities transactions to D, indicating that the bonds have taken principal writedowns. All the bonds in question had ratings of CCC, CC or C, indicating that a default was expected. Three hundred and seventy-five of the bonds downgraded are backed by subprime credit mortgages, 177 are backed by alternative A credit mortgages, 123 are backed by second-lien loans, 72 are scratch and dent transactions and the balance are other types of transactions.

Peter Graves will be the new celebrity spokesman for reverse mortgage lender American Advisors Group, Irvine, Calif. The television campaign will launch on Oct. 12, 2009 and coincides with the reverse mortgage originator's release of a new informational DVD, brochure and website launch. Mr. Graves is best known for his role as Jim Phelps, the team leader on the television show "Mission Impossible." His new role might be just as difficult as some of Mr. Phelps' activities. Consumer advocates such as the National Consumer Law Center are decrying marketing tactics used by reverse mortgage lenders such as the use of celebrity spokespeople. In the past, Senior Lending Network used the late Jerry Orbach and Robert Wagner; Generation Mortgage used the late Jack Kemp, former pro football player, member of the House of Representatives, vice presidential candidate and Housing and Urban Development secretary; while James Garner was a spokesman for Financial Freedom.

Essent Guaranty, a new mortgage insurance company, has agreed to buy the operating platform and technology systems of Triad Guaranty, the nation's smallest MI, which is in the process of self liquidating. Based in Radnor, Pa., Essent will pay $30 million in cash and assume what it calls "certain software contractual obligations" that the publicly traded Triad is on the hook for. Essent said it would establish its operational and software center in Winston-Salem where Triad is headquartered. Essent CEO Mark Casale said the purchase of the assets from Triad "is the next major step in the formation" of the young company's MI business. Essent has yet to write any coverage but has received $500 million in financial backing from a group of investors that includes Goldman Sachs & Co. In after hours trading Wednesday, after the deal was announced, Triad's share price shot up 11% to $1.37.

While it appears the balance between a buyers market and a sellers market is creeping back towards equilibrium, there is a likelihood of a trend back towards the buyers as the summer home purchase season ends, the chief economist of Zillow.com said. The August Zillow Real Estate Market Reports found purchasers paid 3% less than the last listing price on homes sold in the month. However, this is down from 3.3% in July and 4.5% at the start of the year. In dollar terms, the median difference between the last listing price and the sales price is $6,535 for August, compared with $7,018 in July and $10,096 in January. "Negotiating power is a clear reflection of inventory levels, which dropped nationally in August. Tighter supply in some markets is translating into less of a discount off listing price," said Zillow chief economist Stan Humphries. "Unfortunately, the brisk spring and summer home shopping season is drawing to a close now, and with foreclosures on the rise again, inventory levels will likely head back up in the coming months, leading buyers' negotiating power to regain the ground it lost in August." Florida markets are having the biggest negative gap between listing price and what the consumer is actually paying. However, in two California markets, El Centro and Stockton, buyers are paying more than the last list price.

The average rate for a 30-year fixed-rate mortgage has dropped further below 5% to a point not seen since mid-May, and average 15- and five-year mortgage rates have fallen to survey-record lows, according to Freddie Mac's most recent Primary Mortgage Market Survey. The average 30-year FRM rate slid to 4.87% from 4.94% a week ago and 5.94% a year ago; the average 15-year FRM rate descended to 4.33% from 4.36% a week ago and 5.63% a year ago; and the average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage decreased to 4.35% from 4.42% a week ago and 5.90% a year ago. "Fifteen-year FRMs were at a record low since data were first collected in 1991 and five-year ARMs also hit an all-time record starting in 2005," said Frank Nothaft, Freddie Mac vice president and chief economist. "Compared to a year ago, consumers could shave almost $134 off their monthly mortgage payments on a 30-year fixed-rate loan for $200,000 by refinancing." While other rates fell week-to-week, the average one-year Treasury ARM rate rose to 4.53% from 4.49%. However, it is still lower than it was a year ago when it was 5.15%. Average points for the week ending Oct. 8 were as follows: 0.7 for 30- and 15-year FRMs and 0.5 for five-year Treasury hybrids and one-year Treasury ARMs.

The Department of Housing and Urban Department is going ahead with the implementation of a RESPA disclosure rule despite pleas by some industry groups to delay the effective date, according to a top HUD official. "We are absolutely moving forward on RESPA," HUD assistant secretary David Stevens told MortgageWire. "Jan. 1 is the implementation date." Some industry groups are complaining that the new Real Estate Settlement Procedures Act rule is complex and HUD is still providing guidance on implementation issues. The RESPA rule requires lenders and mortgage brokers to disclose their fees upfront on a standardized good faith estimate. The originator's fees cannot be increased before closing. The layout of the GFE and the revised HUD-1 settlement sheet also provides a clearer disclosure of the closing costs and how much the consumer will pay. "I think the new disclosures are going to have a very positive impact on consumers," Mr. Stevens said.

The Federal Housing Administration's single-family mortgage insurance fund could be sitting on a deficit of at least $40 billion, according to a former Fannie Mae executive who now bills himself as an expert on affordable housing. Testifying before a House subcommittee Thursday morning, Ed Pinto, who served as Fannie's chief credit officer two decades ago, said FHA has $30 billion in reserve funds but at the end of September probably had $70 billion in losses on its $725 billion book of business. Mr. Pinto called the current $30 billion cash cushion at the government's mortgage insurance agency a "bookkeeping entry" that has already been spent by the government to reduce the federal deficit. Today, FHA originations account for about 25% of the market — and growing. According to figures compiled by National Mortgage News, FHA had a market share of just 2.5% back in 2006. (Some of that includes VA-backed loans.) FHA commissioner David Stevens has said repeatedly that the insurance fund would not need a taxpayer bail out. Mr. Stevens told NMN recently that, "I have read so many stories attacking FHA without relevant data." He added that, "We are insuring the best quality book of business we have ever seen in history — bringing in a lot of fresh MI premiums." Mr. Pinto worked at Fannie Mae from 1987 to 1989.

Griff Straw, a veteran of 30 years in the mortgage banking industry, has joined appraisal management company Solidifi U.S., Chicago, as the company's president. Most recently he was a regional vice president for United Guaranty and prior to joining that company worked for Freddie Mac where he held management roles on several technology-related initiatives. In his new job, Mr. Straw will lead Solidifi as it looks to expand on its valuation services offerings in this country. Solidifi U.S.'s parent company is headquartered in Toronto and has been in business since 2004; in October 2008 it entered the U.S. market.

Robert Grosser, former chief executive of Cityscape Financial, an early high flyer of the subprime business of 1990s, has been named president of Luxury Mortgage, Stamford, Conn. Luxury is buying Homestar Direct, a mortgage firm that Mr. Grosser formed in 1999 after the publicly traded Cityscape filed for bankruptcy protection. Homestar's origination platform focused on consumer direct marketing utilizing diverse channels to reach target borrowers. Homestar is becoming part of Luxury in an asset acquisition transaction. Mr. Grosser will work with Luxury's CEO David Adamo on the overall day-to-day management of the firm with a focus on the following areas: new business opportunities, regulatory/compliance, accounting, human resources, vendor management, facilities management, capital planning, capital raising, strategic planning and risk management. Cityscape was based in Elmsford, N.Y.

Joshua Gervolstad, a former mortgage broker from Redding, Calif., pleaded guilty to mail fraud in connection with a mortgage fraud scheme. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Gervolstad, who was a mortgage broker, submitted inflated appraisals and false lien documents for use in closing purchase transactions involving five different real properties located in Redding and Lodi. The closing statement for each property contained fraudulent papers requiring the payoff of a lien to an entity called TPG Investments. In each case, the lien did not exist. In reality, Gervolstad controlled TPG Investments and used its bank account to divert mortgage loan funds to himself and others. His scheme caused $1.8 million in fraudulent payouts for liens that didn't exist, affecting mortgages with a total value of $5.4 million. At least three properties were foreclosed on. Gervolstad is scheduled for sentencing on Dec. 14.

Existing home sales in the Golden State will slow somewhat "to a more sustainable pace" in 2010, according to the latest forecast from the California Association of Realtors. Thanks to a strong market for distressed properties, sales in the Golden State rebounded this year from double-digit declines in 2007 and 2008. But next year will be "the new normal," said CAR president James Liptak, with a steady stream of sales driven by distressed properties at the low end and moderate price appreciation. The group, the country's largest state organization of realty professionals, expects the median price to rise 3.3% next year, from $271,000 to $280,000. But it is calling for sales to dip 2.3%, from a projected 540,000 units in 2009 to 527,500 in 2010. About a third of the projected sales will be foreclosures or short sales. "Housing in California has become a tale of two markets," Mr. Liptak said at CAR's annual convention in San Jose. "The low-end continues to attract first-time buyers and investors, with a resulting shortage in the number of homes for sale. But sellers at the high end continue to be challenged by the ability of homebuyers to secure financing as well as their concerns about where prices are headed." Chief economist Leslie Appleton-Young listed several "wild cards" that could impact the forecast, with distressed properties being paramount. "Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year," she said.

Housing prices have finally bottomed out in most parts of the country and a year from now prices could be up by 5%, according to Allen Sinai, chief economist at Decision Economics. "The bursting of the housing price bubble is over now," Mr. Sinai told MortgageWire. The founder of Decision Economics expects prices could be 5% to 7% higher by the end of the third quarter of 2010, based on the Standard & Poor's/Case Shiller house price index. "Despite big inventories, despite foreclosures in lots of areas, generally speaking housing prices are headed up," Mr. Sinai said.