Originations

States that adopted tough anti-predatory lending laws have lower foreclosure rates than states that did not, according to University of North Carolina researchers. A new UNC Center for Community Capital study found that national banks that did not comply with tough state laws due to federal preemption made riskier loans than the state-regulated lenders. "It appears that state laws did a better job of ensuring home loan quality than federal regulation, but their impact was diminished by preemption after 2004," said Robert Quercia, director of the UNC research center. After the Comptroller of the Currency invoked preemption, subprime lending by national banks increased in those states with strict predatory lending laws and their share of the subprime market jumped from 9% to 20% by 2007, according to the UNC Center study. North Carolina was one of the first states to enact a predatory lending law and it became a model for other states.

Securitization and yield spread premiums are incentives for bad loans to be made in a volume-driven reverse mortgage market, according to a new study by the National Consumer Law Center. The group issued a report saying that many of the ingredients behind the subprime crisis are now being seen in the reverse mortgage business. During a conference call, Rick Jurgens of NCLC said "arrangers get paid when deals get done and they don't get paid when no deal is done and that's a problem. The lesson from the subprime debacle is even stronger in this market." The approach to allow market forces to drive out the bad players was tried during the subprime crisis and didn't work, he said. When asked whether it made a difference that almost all of the reverse mortgages being securitized today are through government channels (unlike subprime loans which went through Wall Street firms), Mr. Jurgens said "I don't think we can take too much comfort that the capital markets are in bad shape right now to think that we won't see some of that same drive to do deals coming out the other side." NCLC believes reverse mortgage customers need strong consumer protections and "the tiger of securitization has to be harnessed before we go for a ride on that one again," he said.

Thirty-year mortgage-backed securities prepayments generally came in slower than expected in September, Wall Street research reports show. Aggregate speeds on 30-year Fannie Mae MBS during the month were 11% slower than in September while 15-year product saw smaller declines, according to two firms' reports. A Credit Suisse research report said the slowdown in 15-year product was in line with its expectations and the slowdowns in respective prepayment speeds for different coupons in all products "were similar across the two agencies." Thirty-year 5s, 5.5s and 6s slowed by 9%, 13% and 10%, respectively, and were "significantly slower than expectations," according to a Deutsche Bank report. "September's slow speeds indicate that mortgage originators are not engaging in the aggressive outreach to in-the-money borrowers as they did in 2003 and other recent refi waves, and that borrowers who refi on their own mostly already refinanced last spring," Deutsche Bank said. Speeds could slow going forward due to lower rates, but "any October speedup should be modest," according to the Deutsche Bank report.

For the third consecutive week, the Mortgage Bankers Association's Weekly Mortgage Applications Survey found the average rate for the 30-year fixed rate loan to be under 5%, benefiting not only refinance applications but loan purchase applications as well. The Market Composite Index, a measure of loan application volume, increased 16.4% both on a seasonally adjusted basis and on an unadjusted basis for the week ended Oct. 2. MBA noted that the seasonally adjusted Purchase Index increased 13.2% from one week earlier, which puts the index at its highest level since January. Additionally, the seasonally adjusted Government Purchase index is at a record level in the survey after a 14.4% increase from the week before. The Refinance Index increased 18.2% from the previous week. The market share of refinance applications increased to 66.3% of total applications received, up from 65.3% for the previous week. The share of adjustable rate mortgage applications declined to 6.1% for the week, down from 6.2% one week prior. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.89% from 4.94%, with points increasing from 0.94 to 1.13 (including the origination fee) for loans with an 80% percent loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs fell 2 basis points from the previous week, to 4.32%, while for one-year adjustable rate loans, it increased by 16 BP to 6.56%.

Fannie Mae and Freddie Mac have been given the green light by their regulator to aid the warehouse lending market by issuing guaranteed purchase agreements on residential loans that are in the process of being funded, according to industry officials familiar with the plan. At deadline, the GSEs and their regulator had not returned telephone calls about the matter. It's believed that if Fannie and Freddie issue a commitment to purchase a loan (a loan that is in the process of being funded) the warehouse lender of record will have to hold little or no capital against it, said one observer. This would make warehouse lending - which is already a profitable niche - even more so. Until now, the capital banks must hold against these credits has been one of the stumbling blocks to new entrants coming into the business. Over the past few months two of the largest players in warehouse lending - Colonial Bank of Alabama and National City of Cleveland - have either exited the sector or announced plans to do so. NatCity's warehouse group may be sold by its current owner, PNC Financial Services. Colonial failed this summer. Some of its clients are still being served by it acquirer, BB&T.

States that adopted tough anti- predatory lending laws have lower foreclosure rates than states that did not, according to University of North Carolina researchers. A new UNC Center for Community Capital study found that national banks that did not comply with tough state laws due to federal preemption made riskier loans than the state-regulated lenders. "It appears that state laws did a better job of ensuring home loan quality than federal regulation, but their impact was diminished by preemption after 2004," said Robert Quercia, director of the UNC research center. After the Comptroller of the Currency invoked preemption, subprime lending by national banks increased in those states with strict predatory lending laws and their share of the subprime market jumped from 9% to 20% by 2007, according to the UNC Center study. North Carolina was one of the first states to enact a predatory lending law and it became a model for other states.

Apartment vacancies recently hit their highest level since 1986, surging in cities across the nation, according to research conducted by Reis Inc., New York. The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis which tracks vacancies and rents in the top 79 U.S. markets. The rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its analysis in 1980. Weak apartment rentals could spell trouble for multifamily owners that need to refinance or sell their properties in the year ahead. Reis said some markets were still chugging along last year but the surge in unemployment has dampened the sector's outlook.

U.S. subprime residential mortgage-backed securities prices are continuing to stabilize but there is little sign of any increase in value, according to a Fitch Solutions index. The index, which tracks credit default swaps of RMBS, as of Sept. 1 had fallen just slightly from the previous month, dropping three basis points to 8.31 from 8.34. The index also showed improvement in some vintages' default rates. The 2007 vintage's default rates were 18% less than they were in May while the 2006 vintage's default rates were 14% less than they were in May. Despite this, "asset values have not shown any sign of recovery," the company said.

It could take up to four years before the jumbo securitization market returns, according to research conducted by Bridge Capital Advantage of San Diego. Bridge Capital president Lucy Malone said the firm's belief is based on -- among other things -- conversations the company has had with the nation's top three lenders, Wells Fargo & Co., Bank of America, and JPMorgan Chase. Ms. Malone says she has been in the business for almost 30 years. "This was once a market that was over-served," she said. "Now it's under-served." Up until mid-year, Ms. Malone's firm was making jumbo and super-jumbo mortgages. Today, it makes what she calls "asset-based" loans that are collateralized not by a high-price home but a borrower's stock portfolio. She noted that only portfolio lenders are making jumbos and most require down payments of at least 40% and 12 months of reserves.

Evolution Partners of Cleveland has made an equity investment in American Eagle Mortgage, a non-bank retail funder that bills itself as the "fastest growing" home mortgage lender in Ohio. "It's our first investment in mortgage banking," said Brendan Anderson, a managing partner in Evolution. He declined to say how large of a stake his venture capital firm obtained but said its plan is to keep the investment for "five or six years, but we're prepared to go longer if we have to." American Eagle is a small non-depository that is currently originating $150 million a year in home mortgages. "With our capital we see them doubling or tripling their business," said Mr. Anderson. He noted that American Eagle has plans to expand its sales team. "This is a firm that stuck to its knitting during the subprime boom and stayed in conventional and FHA. They didn't go crazy like everyone else did." American Eagle was formed by John Schrenkel and Dave Berry in 2001. They serve as president/CEO, and senior vice president, respectively. Both men have an ownership stake as well.

Housing trade groups are urging Senate appropriators to go along with a House-passed provision that extends the GSE $729,750 loan limit, which is due to expire Dec. 31, for another nine months. "We believe continuing the current higher temporary loan limit is necessary to complete the recovery of the nation's housing market," the nine trade groups say in a joint letter. The House has passed a Department of Housing and Urban Development appropriations bill that extends the $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans for the rest of the 2010 fiscal year, which ends Sept. 30, 2010. The Senate did not include an extension because raising Fannie and Freddie's loan limit raises budget costs. The Senate is expected to accept the loan limit extension when House and Senate appropriators meet in conference to agree on a final HUD FY 2010 budget bill. Congress raised the loan limit to $729,750 in Feb. 2008 as part of the Bush administration's stimulus bill. It was extended again in Feb. 2009 with the passage of President Obama's stimulus bill. "Although the economy is showing signs of recovery, current conditions require those limits to stay at the higher level," the trade groups say.

The combined Treasury and Federal Reserve investment in the U.S. mortgage market was above the $1.2 trillion level when the government's fiscal year ended earlier this week, according to the latest figures from the Federal Housing Finance Agency. But even at that, some $768 billion in liquidity is still available if needed, FHFA Acting Director Edward DeMarco said at the New England Mortgage Bankers Conference in Providence. As of Sept. 30, Fannie Mae and Freddie Mac had drawn $96 billion under the Treasury Department's $400 billion senior preferred stock purchase agreement. Treasury also has purchased $181 billion of the enterprise's mortgage-backed securities. In addition to DoT's support, the Fed has purchased $885 billion worth of MBS securities, $813 billion of which was issued by Fannie and Freddie. The Fed also has bought $131 billion in Fannie, Freddie and Federal Home Loan Bank debt obligations out of the $200 billion for which it is committed. "This considerable backstop" has allowed enterprises to play a "critical role in bringing some measure of liquidity to the mortgage market," Mr. DeMarco told the conference. In particular, the government support has assured lenders that they will have an outlet for loan originations and kept mortgage rates at or around the 5% level.

The SAFE Act is putting nondepository mortgage lenders at a disadvantage to banks when it comes to hiring new loan officers, according to Scott Stern, chief executive of mortgage cooperative Lenders One. The Secure and Fair Enforcement for Mortgage Licensing Act passed by Congress in July 2008 requires LOs joining an independent mortgage company to go through prelicensing and continuing education requirements mandated by the states. "It is a huge barrier to hiring new loan officers," Mr. Stern said, because LOs hired by banks don't face prelicensing and continuing education requirements and don't pay licensing fees. Like stockbrokers, he said there should be one nationally recognized prelicensing course and one nationally recognized continuing education course for all loan officers. "We believe all lenders that meet with consumers should be licensed," the Lenders One CEO said. Mr. Stern is forming an advocacy group called the Community Mortgage Lenders of America that has membership commitments from 140 mortgage banking companies and community banks. He has lined up BuckleySandler LLP to serve as regulatory counsel for the new trade group and the Glaser Group to be its Washington lobbying arm.

The Mortgage Bankers Association will update its origination forecast for 2010 at next week's annual convention but isn't giving any hints on whether the forecast will change much. MBA chief economist Jay Brinkmann told National Mortgage News that he is weighing such key factors as the possibility that the government might extend the first-time homebuyer tax credit and what effect the Federal Reserve's plan to reduce its mortgage purchases will have on the market. In its latest forecast MBA estimates $1.62 trillion in new single-family originations for next year, which is what the industry funded in 2008, the year the subprime sector collapsed and credit markets ground to a halt. The forecast is set for next Wednesday at the trade group's annual convention in San Diego. According to figures compiled by NMN and its Quarterly Data Report product, mortgage bankers funded $1.06 trillion during the first half of this year and could wind up funding $2 trillion by the time 2009 ends. MBA's forecast for this year is $1.89 trillion.

Detecting a change in attitude among both buyers and sellers — not to mention what is now a three-month increase in the benchmark price indices that bear his name — economist Karl Case believes the housing market has hit bottom. Not that housing is ready to bounce back with a vengeance, but at least it is no longer in a free-fall, the co-founder of the S&P Case Shiller indices said at the New England Mortgage Bankers Conference in Providence, R.I. "We're not going to come roaring out of this," said Mr. Case, who has been teaching economics at Wellesley College for more than 30 years. "We'll come out of this slowly. There will be some bad days and good days, but the mood began changing in March." The economics professor cited several signs that a recovery has begun, including a 25% increase in housing starts since April and "the best number of all," a sharp drop in unsold inventory of new homes. The huge number of completed but unsold houses has "been a real drag" on the market, he said. "The building industry has been getting killed like it's never been killed before," he said. But Mr. Case also warned that if he is reading the tealeaves incorrectly, the mortgage market could take another hit. If housing continues to falter, the economist said, "then we are writing bad paper now." To illustrate just how far the housing sector has fallen, the economics professor pointed to housing starts, which nosedived from 2.273 million units at the peak of the cycle in January 2006 to 598,000 units in August. That decline cost the economy roughly $588 billion, or 4.2% of GDP, he said.

Steve Abreu is the new president of GMAC's mortgage operations, working out of the company's Fort Washington, Pa., office. His most recent position was president and chief executive of GreenPoint Mortgage Funding of California. (GreenPoint, a subsidiary of a bank, closed two years ago.) Mr. Abreu is a 20-year veteran of the mortgage banking industry. He will report to Thomas Marano, chairman and CEO of GMAC's mortgage operations. Mr. Marano recently assumed additional responsibilities as GMAC's chief capital markets officer, coordinating the firm's capital commitments, risk analytics and broker/dealers. The hiring of Mr. Abreu will provide ongoing, strategic focus for the firm's mortgage operations, GMAC said. Mr. Abreu will be representing the company at the upcoming Mortgage Bankers Association convention in San Diego.

Mortgage companies cut their payrolls by 6,100 full-time workers in August as employment in the residential finance industry hit a new low. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 261,200 positions in August from 267,300 in July. Jay Brinkmann, chief economist for the Mortgage Bankers Association, said servicers are hiring workers to deal with rising delinquencies and loan modifications. However, that hiring has been offset by reductions in staff due to bank mergers, back-office consolidation and a reliance on temporary workers and contractors, Mr. Brinkman said. He noted that the bankruptcy of Taylor, Bean & Whitaker, Ocala, Fla., will not show up in the BLS mortgage jobs data until next month's report. (Some of TBW's West Coast AEs were recently hired by CMG Mortgage, San Ramon, Calif.) Meanwhile, Friday's national employment report shows a higher-than-expected 263,000 U.S. workers lost their jobs in September. The unemployment rate edged up to 9.8% from 9.7% in August. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Bank of America chief executive Kenneth Lewis — the man responsible for the bank buying both Countrywide Financial and Merrill Lynch — is stepping down at yearend. Late Wednesday BoA said its board is evaluating successors, with expectations of having the new CEO named by the time Mr. Lewis departs. Thanks to the Countrywide purchase, which closed last summer, BoA is the nation's largest servicer of home mortgages and second largest originator. His departure ends what has been a stormy 12 months for the handpicked successor to Hugh McColl Jr. In regard to the Merrill deal, Mr. Lewis tussled with regulators over the purchase (the bank almost backed out), and drew ire from shareholders and others over disclosure decisions over bonuses and losses at the investment bank late last year. (Merrill was a large player in the subprime ABS, CDO and warehouse lending market.) Mr. Lewis, 62, in his most recent pubic appearance, gave no indication that he might step down, instead using a Sept. 14 speech in Japan to sound a positive tone about the company and the global economy.

Melville, N.Y.-based Lend America on Thursday said it hopes its new wholesale lending platform will be accepting its first loan in mid-October. The company said the channel would have 25 geographically focused teams as part of its centralized operations. It also will have more than 30 Federal Housing Administration direct endorsed underwriters. "We think there's an opportunity now to revisit the wholesale market," said chief business strategist Michael Ashley in the Sept. 30 special edition of National Mortgage News.

The average rates for 15-year fixed-rate and five-year Treasury-indexed hybrid adjustable-rate mortgages have fallen to record lows and the average 30-year rate has slipped below 5%, according to the most recent Freddie Mac weekly Primary Mortgage Market Survey. The falling 10-year Treasury yield has put downward pressure on long-term rates in the past week. Federal Treasury purchases that have played a role in keeping yields low are slated to end in October and federal agency mortgage-backed securities purchases that play an even greater role in lowering primary market mortgage rates are slated to be phased out in the first quarter of next year. But the Fed has said it may keep short-term rates low for some time, which could keep ARM rates low. Freddie Mac said average rates in the most recent week were as follows: the 30-year dropped to 4.94% from 5.04% the previous week and from 6.10% a year ago, the 15-year fell to 4.36% from 4.46% the previous week and 5.78% a year ago, the five-year slid to 4.42% from 4.51% the previous week and 6% a year ago, and the one-year Treasury ARM declined to 4.49% from 4.52% the previous week and 5.12% a year ago. Average points were 0.7 for 30-year FRMs, 0.6 for 15-year FRMs and five-year hybrids, and 0.5 for one-year ARMs. The 15-year and five-year rates are the lowest they have been since Freddie began tracking them.