Originations

Private commercial mortgages held by life companies gave them a 2.25% total return for the second quarter of 2009, the best performance since the fourth quarter of 2007, according to the LifeComps Commercial Mortgage Index. This makes two consecutive quarters of positive returns for these loans. In the first quarter of this year, life insurers got a 1.63% return. In the fourth quarter of last year, these loans had a loss of 3.16%, and in the third quarter, they had a loss of 2.08%. Of the total return for the most recent period, 1.68% was from income and 0.57% was from price. LifeComps said this was the first price gain since the fourth quarter of 2007. Over a 12-month period, however, private commercial mortgages had a loss of 1.46%. The income return was 6.74% but the price loss was 8.2%. By property type, for the second quarter, mortgages secured by office buildings had a 2.67% return, apartment building mortgages had a 2.47% return, industrial property loans had a 1.81% return and retail property loans had a 1.75% return. There are 6,400 active loans in the LifeComps database with an aggregate principal balance of approximately $85 billion.

Republican congressmen are becoming more concerned about the Federal Housing Administration's financial plight and they want to increase FHA's downpayment requirement to 5%. Rep. Ed Royce, R-Calif., said FHA is operating at the same dangerous leverage ratios that led to the takeover of Fannie Mae and Freddie Mac. Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level. "There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring," Rep. Garrett said at a House Financial Services Committee hearing. The Garrett bill also calls for a General Accountability Office study to determine the appropriate leverage ratio for FHA. In the early 1990s, Congress mandated that FHA maintain a minimum 2% capital ratio. A recent audit shows that the federal mortgage insurance fund has fallen below the 2% minimum. But FHA officials say the insurance fund should be able to maintain a positive capital position and FHA will not need taxpayer assistance.

The seasonally adjusted delinquency rate on closed-end home-equity loans jumped 43 basis points to a record high of 4% in the second quarter, according to an American Bankers Association survey. At the same time, the survey shows that 1.92% of home-equity lines of credit are 30 days or more past due, up 3 bps from the first quarter. "Six consecutive quarters of job losses have taken their toll" on the performance of home-equity loans, ABA chief economist James Chessen said. The Federal Deposit Insurance Corp. reported that 1.73% of home-equity lines of credit are 90 days or more pass due or considered uncollectible, down 25 bps from the previous quarter. However, FDIC-insured institutions charged-off $5.1 billion in HELOCs, up from $4 billion in the first quarter.

In August the Government National Mortgage Association had one of its best months ever — while the private mortgage insurance industry continued to see its new policy business skid. According to figures compiled by the Mortgage Insurance Cos. of America, the nation's six active MIs wrote $5.76 billion in new policies, a 43% decline from the same month last year. Actually, the decline could be worse as the August 2008 data did not include Radian Guaranty, which had not yet rejoined MICA. Its book of business (primary insurance in force) fell to $900.7 billion from $906.1 billion in July. However, compared to the same month in 2008, its book of business rose 12% (this comparison is also affected by Radian rejoining MICA). Most of MI firms are capital restrained and have been tightening up their underwriting guidelines the past year. GNMAs are backed by FHA and VA insured mortgages.

The 2008 Home Mortgage Disclosure Act data show that Federal Housing Administration lending surged in the second half of 2008 and by December FHA had a 38% share of the home purchase market and 25% share of the refinancing market. "By the end of 2008, nearly one-half of home-purchase loans and one-quarter of refinanced loans were backed by either FHA or the VA," according the Federal Reserve Board analysis of the HMDA data. Fed researchers noted that Fannie Mae and Freddie Mac were losing ground to FHA and VA because the GSEs raised their underwriting fees in 2008 and the private mortgage insurance companies raised their prices and limited coverage. "Fannie Mae and Freddie increased their market share in 2007 but relinquished much of those gains during 2008," the report says. Overall, FHA, VA and Rural Housing Service combined had a 25.7% share of the mortgage market in 2008, up from 7.5% in 2007.

The Mortgage Bankers Association's Market Composite Index, a measure of loan application volume, declined 2.8% on a seasonally adjusted basis for the week ended Sept. 25, even though the average rate for the 30-year fixed rate mortgage remained under 5%. The Refinance Index showed only a slight 0.8% decline from the previous week, while the seasonally adjusted Purchase Index fell 6.2% from one week earlier. On an unadjusted basis, the index decreased 3.1% compared with the previous week and 44.3% compared with the same week one year earlier. But even as the number of refinancing applications declined, their market share increased to 65.3% of total applications, up from 63.8% the previous week. The share of adjustable-rate mortgage applications declined to 6.2% for the week, down from 6.7% one week prior. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.94% from 4.97%, with points falling to 0.94 from 1.12 (including the origination fee) for loans with an 80% loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs remained fell 7 basis points from the previous week, to 4.34% from 4.41%, while for one-year adjustable-rate loans, it decreased by 12 bps to 6.4%. The index is calculated from MBA's Weekly Mortgage Applications Survey and the organization stopped disclosing index values with the July 31 data release. The MBA can be found online at http://www.mortgagebankers.org.

The benchmark 10-year Treasury yield slid below 3.30% Tuesday afternoon, putting downward pressure on longer-term rates. A little less than a week ago, the 10-year yield was as high as 3.50%. Some analysts believe long-term mortgage rates could hit record lows again this year but others say the Federal Reserve's phasing out of its rate-lowering MBS purchases will gradually put upward pressure on mortgage rates.

Mortgage technology vendor Fiserv Inc., has signed a definitive agreement to sell its Loan Fulfillment Solutions business to ISGN Solutions Inc., Bensalem, Pa., for an undisclosed sum. The transaction is subject to customary closing conditions and is expected to close within 30 days. Fiserv said it does not expect the transaction to have a material impact on its financial results. LFS provides financial institutions outsourced home equity loan fulfillment services, including broker price opinions, closing and settlement services, valuation services, flood and title certification, home retention and loan modification solutions, portfolio and vendor management solutions, and related services. Despite recent mortgage technology divestitures, Fiserv contends that it is still "committed to providing best-in-class lending solutions." On the other hand, ISGN continues to acquire added mortgage technology applications and services. ISGN specializes in mortgage lending technology and solutions, including fulfillment services, title and default management.

Home prices rose 1.6% in July following a 1.4% increase in June as the Standard & Poor's/Case-Shiller 20-city house price index registered its third monthly increase — the first such increase since mid-2006. The chairman of S&P's index committee David Blitzer noted that prices increased in 18 of the 20 cities in July. Prices declined in Seattle and Las Vegas. In addition, 13 of the cities have seen price increases for least three consecutive months. "These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the federal first-time homebuyer tax credit in November, anticipated higher unemployment rates and a possible increase in foreclosures," Mr. Blitzer said. Overall, prices are down 13.3% from a year ago and down 32.6% from the second quarter 2006 peak in home prices. Economists at Moody's Economy.com expect house prices won't bottom out until the second quarter of 2010. By then the peak-to-trough decline in the S&P/Case-Shiller HPI will be 40%.

The serious delinquency rate on Fannie Mae guaranteed single-family loans topped 4% in July, according to mortgage giant's monthly summary report. The percentage of Freddie loans 90 days or more past due and in foreclosure hit 4.17% in July, up 23 basis points from June. A year ago, the government sponsored enterprise had a 1.45% serious delinquency rate. Freddie Mac recently reported that it has a 3.13% serious delinquency rate. In its second quarter financial report, Fannie said default rates are increasing across its entire guaranty book of business and the serious delinquency rate on its $270 billion Alt-A portfolio hit 11.9% as of June 30. The Alt-A portfolio includes $195.9 billion interest-only loans and $15.4 billion of payment option ARMs. Fannie's monthly report also shows that the GSE issued $62.1 billion in mortgage-backed securities in August, down 22% from July. Fannie has a one-month lag in reporting its delinquency rate. Freddie's 3.13% delinquency rate is for August.

Wholesale Access chief David Olson, who has made his living studying the loan brokerage sector, believes there will be just 15,000 firms left by yearend, a stunning 72% decline from the sector's peak back in 2005. "I know of brokers selling car insurance and doing loss mitigation work," said Mr. Olson in an interview. "A lot of them are looking for something to do." He said upcoming regulatory changes -- including yield spread premium constraints, and loan officer registry requirements -- are making it more difficult for these third-party independent salesmen to survive. He said some of the nation's top lenders including Bank of America, Chase, and Wells Fargo, show a decreasing interest in broker-related research. Still, he believes that in time the sector could revive to some degree. "They'll come back because it eventually will become too expensive for banks to keep loan officer-related employees on their payroll," he said, adding that brokers "are a form of outsourcing. It's always cheaper to outsource." Wholesale Access is based in Columbia, Md.

CitiMortgage, in yet another reorganization move, has terminated its residential production chief, Brad Bunts, a 13-year veteran of the company. Also let go was Jeffrey Walker, head of national sales. A memo provided to National Mortgage News confirmed the dismissals which were described by CitiMortgage CEO Sanjiv Das as a way for the lender to simplify its "reporting structure." In the memo both men were described as valuable members of the CitiMortgage team. Mr. Brunts oversaw CitiMortgage's entire origination business. In their place, the bank-owned mortgage company named Ed Abufaris to lead its correspondent channel and Fred Bolstad to manage the consumer mortgage channel. Both will report directly to Mr. Das. According to the Quarterly Data Report, CitiMortgage ranked fourth nationwide in residential fundings in the second quarter with $31 billion, a 2% decline from the same period last year. It also is the nation's fourth largest servicer of home mortgages.

Jamilah Al-Bari of District Heights, Md., pleaded guilty to mail fraud arising from the fraudulent purchase of properties in Maryland and Virginia. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland. Jamilah Al-Bari participated in a scheme with her brother, Osman Sharrief Al-Bari, and others to pay straw purchasers to purchase houses for them using false loan documents. While employed at M&T Bank, Jamilah Al-Bari created false documents purporting to verify assets for the straw buyers. She also sent false verification letters concerning the buyers' income and assets on M&T Bank letterhead to banks and mortgage lenders. She created a fictitious M&T Bank employee and used the fictitious name to sign some of the verification letters. Jamilah Al-Bari prepared false M&T Bank verification forms for straw buyers who purchased five properties in Baltimore and two properties in Virginia. She admitted her involvement in the scheme to M&T Bank investigators before her termination. The loss amount attributable to Jamilah Al-Bari was between $400,000 and $1 million. Most of the purchased properties have now gone into foreclosure. Sentencing is scheduled for Nov. 13. Osman Sharrief Al-Bari, a leader of the scheme, pleaded guilty in August and is scheduled for sentencing on Oct. 5. Co-defendants Timothy Reed, Terrence White, Sabrina Weinberg and Kara McIntosh have all pleaded guilty and await sentencing.

Wolters Kluwer Financial Services and LoanSifter have integrated to offer lenders the ability to customize disclosures. The new integration will enable users of LoanSifter's integrated 1003 mortgage application to generate standard and customized initial disclosure documents through Wolters Kluwer Financial Services' Disclosure Manager, and then electronically deliver them to borrowers for e-signature. The platform also gives financial institutions the option of completely and securely outsourcing the printing and mailing of paper disclosures when needed or requested by the borrower through Wolters Kluwer Financial Services' mail fulfillment center. Because Wolters Kluwer Financial Services' Disclosure Manager platform automatically generates compliance documentation for LoanSifter's lenders, they can eliminate the regulatory requirement burden associated with determining which documents are required for a specific transaction and jurisdiction.

Union Bank ranked first among all residential lenders in terms of average loan size in the second quarter — $965,197, according to figures compiled by National Mortgage News and the Quarterly Data Report. The bank's average loan size rose 7% over the past 12 months. Union is headquartered in San Francisco, one of the more expensive metropolitan areas in the nation. However, most firms on the list saw their average loan size fall during the second quarter. First Republic Bank of San Francisco, ranked second, with an average loan size of $801,582, a 24% decline from the same period last year. Thanks to the credit crisis, the secondary market for jumbo loans has essentially dried up and many originators are keeping these non-GSE mortgages on their balance sheets.

The National Association of Realtors is urging the Federal Reserve Board to delay implementation of a HOEPA provision that could place higher-priced Federal Housing Administration loans in violation of new restrictions on prepayment penalties. The Home Owners and Equity Protection Act regulation that goes onto effect this Thursday (October 1) "would prevent lenders from making higher-priced FHA loans," NAR says in a letter to the Fed. "We are requesting this delay to give the Board, the Federal Housing Administration and Ginnie Mae an opportunity to correct the unintended consequences of the intersection" between the new HOEPA rule and Ginnie Mae's payoff requirements, NAR president Charles McMillan says in the Sept. 25 letter. Ginnie Mae requires that all interest on a mortgage must be paid for the full month. If an FHA loan is prepaid on October 9, for instance, the borrower has to pay interest for the rest of the month. The Fed views this extra interest as a prepayment penalty. The American Bankers Association, Mortgage Bankers Association and Consumer Mortgage Coalition have asked the Fed to drop its treatment of post-payoff interest as a prepayment penalty.

Effective October 1, the proceeds on FHA-insured reverse mortgages will be reduced by 10% — a swift policy change that has spurred lenders to beat the deadline so their clients can borrow more. If lenders can get a FHA case number by September 30, they can save their clients $10,000 to $20,000 in loan proceeds. The average FHA-insured home equity conversion mortgage amount is $159,000. To get a case number for a HECM, the lender has to provide FHA with a signed certificate that the borrower has completed the necessary counseling requirements. Counseling agencies are "swamped," according to Peter Bell, president of the National Reverse Mortgage Lenders Association. "The rush is to get anyone thinking of getting a loan into counseling," he said. The federal mortgage insurance agency made the coverage change to reduce its risk exposure and operate the HECM program without a credit subsidy. According to budget estimates, the HECM program faces an estimated $800 million loss due to falling housing prices and congressional appropriators have not come up with the funds to cover this loss. "We are taking prudent steps at this time to protect the viability of the HECM program and the market it serves," FHA commissioner David Stevens said.

The Federal Reserve's recent decisions to enhance consumer protection regulation and crack down on industry compensation practices do not appear to be assuaging critics in Congress. In the past two weeks, the Fed announced it would begin supervising nonbank subsidiaries of bank holding companies for compliance with consumer protection rules. That move was followed by word that the central bank is crafting a proposal designed to restrict inappropriate executive compensation practices at financial institutions. Those steps come as the prospect of the Fed becoming the systemic risk regulator look increasingly bleak. Though the Fed makes no mention of Congress when discussing its latest actions, observers say its proposals are being developed with one place in mind — Capitol Hill. "They're talking to the Hill," said Gil Schwartz, a former Fed lawyer who is now in private practice. "They're saying the Fed is engaged and they should be anointed with the mantel of the systemic regulator."

Efforts by Financial Services Committee chairman Barney Frank, D-Mass., to get community bankers behind his Consumer Financial Protection Agency bill might require giving banking regulators more say over consumer regulations. Chairman Frank recently proposed several changes to the CFPA bill that the Independent Community Bankers Association considers very positive. "It is moving in the right direction," said ICBA's top lobbyist Steve Verdier. But he noted that the trade group still has concerns about rulemaking. In staking out the trade group's position, ICBA has issued a statement that calls for joint rulemaking between the banking regulators and the CFPA when it comes to consumer regulations. "While the bill provides a role for the banking agencies through an advisory oversight board, the board lacks substantive authority over consumer regulations," ICBA says.

Luxury hotel owners are at risk of defaulting on their commercial mortgages as the recession reduces occupancy rates, and the credit crunch constrains refinancing as banks and other lenders become weary of renewing existing lines. According to Realpoint LLC, a credit rating company, loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default. Realpoint LLC has put some of the biggest loans on its watch list because of late payments, according to Bloomberg. "All segments are showing signs of distress, but the luxury segment carries much higher loan balances and is more clearly affected," said Frank Innaurato, managing director of CMBS analytical services at Realpoint.