Originations

The nation's housing market might be best served by creating up to 20 housing GSEs, according to a recent report by the Congressional Research Service. The CRS, however, is not promoting one option over another but instead weighs the benefits of several different ideas concerning the future of Fannie Mae and Freddie Mac. CRS notes that 20 housing GSEs could fall under financial stress at the same time but says one way to avoid this is to assign each a specific geographic region or have them "specialize in certain types of housing such as condominiums or multifamily rental housing." Next year the Obama Administration is expected to unveil its proposals on Fannie and Freddie. Since the third quarter of 2007 Fannie has posted net losses of $102 billion, Freddie $63 billion.

Two additional mortgage vulture funds went public this week — both as REITs — but their IPOs failed to catch fire with investors. Colony Financial Inc., Los Angeles, sold 12.5 million shares, raising $250 million. Apollo Commercial Real Estate Finance, New York, sold 10 million shares and raised $200 million. Both are trading in a tight range with somewhat light volume. The two were formed to buy distressed mortgage assets, in this care, commercial-related notes. The deals were originally scheduled to price on Tuesday, but were postponed until later in the week. This past summer PennyMac Mortgage Investment Trust of Pasadena, Calif., went public, raising about $320 million, about half of what it was hoping for. PennyMac invests in, and services troubled residential loans. Sources tell National Mortgage News PennyMac has looked at several portfolios but has only wound up buying a few.

New Century Bank, Phoenixville, Pa., which recently entered the warehouse lending arena, has named Glenn Hedde president of the new division. Mr. Hedde will be in charge of approving and monitoring lines of credit extended to non-depository mortgage banking firms. Previously, he served as regional director of Agree Capital in Flushing, N.Y., and before that senior vice president of Popular Warehouse Lending, Marlton, N.J. (PWL was a division of Banco Popular, San Juan, P.R.) New Century is managed by Jay Sidhu, former CEO of Sovereign Bancorp. As reported by National Mortgage News this summer, Mr. Sidhu made the strategic decision to have New Century enter warehouse lending.

New home sales edged up 0.7% in August after a 6.5% jump in construction activity in July, according to the government. The U.S. Census Bureau reported sales of new single-family homes rose to a 429,000 seasonally adjusted annual rate in August, up from a 426,000 rate in July. The July rate was revised downward by 4,000 sales. "August new home sales inched higher, but only because of revisions," said Weiss Research analyst Mike Larson. Nevertheless, home sales continue to stabilize, "but at depressed levels," he said. IHS Global Insight economist Patrick Newport pointed out that the number of unsold new homes has declined over the past 28 months to 262,000 units, which is a 7-month supply, down from an 11- month supply a year ago. Despite this reduction in inventory, "the market for selling new homes is still brutal," Mr. Newport said.

The correspondent and warehouse lending division of Ally Bank, a unit of GMAC Financial Services, has created a correspondent community bank team that will purchase closed residential mortgage loans from banks, thrifts and credit unions. The new unit also will offer a table funding service — which means loan brokers should benefit. An executive with GMAC said the new unit will focus on community financial institutions that outsource some or all of their mortgage origination process. It will customize services to supplement the client's in-house capabilities. The Fort Washington, Pa., based company said it saw an opportunity in this line of business because market conditions have reduced funding alternatives for smaller institutions. Doug Miller is joining GMAC as the director of correspondent community banking. He held a similar position at Taylor Bean Whitaker, which filed for bankruptcy protection in August.

The serious delinquency rate on Freddie Mac guaranteed single-family loans broke the 3% mark in August, the highest reading ever posted by the mortgage giant. In its new monthly summary, the GSE said the percentage of loans 90 days or more past due and in foreclosure hit 3.13% during the month, up 18 basis points from July. In August 2008, the government sponsored enterprise had a 1.11% serious delinquency rate. The huge jump in defaults is driven mainly by Freddie's $172 billion portfolio of guaranteed alt-A loans, which had a 9.44% serious delinquency rate as of June 30. The alt-A portfolio includes $144.8 billion of interest-only loans and $11.6 billion of payment option ARMs. There was good news, though: In August Freddie issued $47.5 billion of MBS, a 7% increase from July. To date, Freddie has issued $411.2 billion of MBS, compared to $356.8 billion during the same period last year. Freddie reported that its purchases of refinanced loans in August totaled $35.6 billion, an increase of 4.3% from July.

The partial spin off of its Canadian mortgage insurance business is one of the factors that has strengthened the capital levels at Genworth Financial Inc., Richmond, Va., and thus Fitch Ratings, Chicago, is affirming the life insurance subsidiaries' "A-" insurer financial strength rating. Although Fitch is worried about investment losses at the life operations, it added projected losses from mortgage loans and alternative investments would be modest. If more capital is needed at Genworth, Fitch noted it could further monetize its remaining equity holdings in the Canadian mortgage insurer, currently valued at $1.4 billion. The report noted Genworth "remains exposed to a troubled U.S. mortgage insurance operation. Explicit in Fitch's rating (of the life insurance unit) is an assumption Genworth would not provide any future capital support to the U.S. mortgage insurance operations. Fitch continued that if this assumption were incorrect, the life units' ratings would likely be downgraded.

While the amount of multifamily debt outstanding increased between the first and second quarters of this year, the total commercial/multifamily debt decreased by 0.3%, according to data from the Mortgage Bankers Association. The $3.47 trillion in commercial/multifamily mortgage debt outstanding recorded for the second quarter by the Federal Reserve was a decrease of $9.9 billion from the first quarter 2009. Multifamily mortgage debt outstanding grew to $914 billion, an increase of $6 billion or 0.7% from first quarter. Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.55 trillion, or 45% of the total. CMBS, CDO and other ABS issuers hold $714 billion, or 21% of the total. Life insurance companies hold $313 billion, or 9% of the total, and savings institutions hold $195 billion, or 6% of the total. The GSEs, agency-backed mortgage pools and GSE-backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $195 billion in multifamily loans that support the mortgage-backed securities they issued and an additional $157 billion in "whole" loans in their own portfolios. The agencies are the largest holders of multifamily loans, with a 38% share, followed by commercial banks with a 24% share, securities holders at 12%, state and local governments at 8%, thrifts at 7% and life companies at 6%.

Lenders One Mortgage, the St. Louis-based cooperative, has selected Clayton Staffing Solutions, Shelton, Conn., to provide contract Federal Housing Administration and conforming mortgage underwriters to its members who need them to deal with temporary or full-time capacity issues. Clayton could also provide personnel for closing, processing, quality control, default management and servicing functions. Lender One members have the option of having the staffers work out of their locations or at Clayton's National Operations Center in Tampa, Fla. Luke Pille, Lenders One director of National Programs, said the arrangement helps members to capitalize on current market opportunities and to have the option of taking fixed labor costs and converting them to variable costs. Clayton's database of potential staffers includes over 10,000 underwriters and processors nationwide.

American Home Bank will now purchase seasoned, high-quality, residential mortgage loans from financial institutions and other portfolio holders. The company has created a team based in Fort Lauderdale, headed up by Maylin Casanueva. Most recently she had a similar role at Redwood Financial Services; also she has been the director of transaction management and due diligence services for CoreStates Securities and Meridian Capital Markets. Other members of the team have experience in banking, mortgage banking and capital markets. James Deitch, managing director of American Home Bank, said the new business helps sellers "augment their capital base and increase liquidity, while at the same time provide them with efficient trade execution." American Home Bank is the mortgage division of First National Bank of Chester County, West Chester, Pa.

A pair of former executives of what became known as LandAmerica Tax and Flood Services have acquired the company and returned it to its former name, Lereta. LandAmerica acquired Covina, Calif.-based Lereta in October 2003, changed the company's name and operated it under the LandAmerica OneStop banner. The new owners include Jim Thornton, who will take the job of president and Doug Foley, the new chief executive; both are also former LandAmerica OneStop executives. They are partnering with an unnamed third party investment group. Kerlin Capital Group LLC represented the investment group in the transaction; Kerlin had represented Lereta in the original sale to LandAmerica. LandAmerica Financial Group has been operating under bankruptcy protection since November 2008.

House prices could drop by another nine percentage points before prices bottom in the second quarter of 2010 and it might take a full decade before prices climb back to their 2006 peak, according to Moody's Economy.com. Overall house prices will fall by 40% before bottoming next year, Moody's Economy.com economist Celia Chen said. So far, house prices have declined by 31% based on the Standard & Poor's/Case-Shiller house price index. "For many reasons, the rebound will be disproportionately small compared to the decline. It will take more than a decade to complete recovery from the 40% peak-to-trough decline in national house prices," Ms. Chen says in a recent article in Moody's Resi Landscape. In hard-hit states like Florida and California, prices "will only re-gain their pre-bust peak in the early 2030s," the article says.

Recent Federal Reserve moves could make adjustable rates more relatively attractive while potentially putting upward pressure on 30-year rates. "In its Sept. 23rd policy statement, the Federal Reserve indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period," said Frank Nothaft, chief economist at Freddie Mac. "This will likely benefit consumers who opt for ARMs, because they are typically tied to shorter-term interest rates." Also in its Sept. 23 policy statement, the Fed extended its mortgage-backed securities purchases, which have helped keep long-term rates low this year, into the first quarter of 2010. It did this without increasing the dollar amount it is authorized to purchase, which potentially cuts the pace at which they are bought by about half (although the Fed has not detailed exactly how it will handle allocating its purchases over that time period). This could put upward pressure on rates, although the Fed has indicated it is monitoring the situation and could always change its policy going forward. Mr. Nothaft could not be reached for comment at press time as to whether he thinks this will affect his earlier prediction that 30-year rates could fall to a record low this year. The Mortgage Bankers Association survey this week, which reflects roughly a week earlier period than the Freddie Mac Primary Mortgage Market Survey, suggests the 30-year rate has already fallen below the psychologically important 5.0% mark. But Freddie's survey said that during the week ended Sept. 24 it found the rate for 30-year FRMs unchanged compared to the week before at 5.04%. It remains significantly lower during the same period last year when it was 6.09%. The average one-year Treasury indexed adjustable-rate mortgage rate dropped to 4.52% from 4.58% the previous week and 5.03% a year ago. Points averaged 0.6 for 15- and 30-year product and for one-year ARMs, and were 0.5 for five-year hybrid Treasury ARMs. The five-year hybrid rate remained at 4.52% in the most recent week. This was significantly lower from a year ago when it was 6.02%. The average 15-year rate was 4.46%, down from 4.47% the previous week and from 5.57% a year ago.

Housing starts in California slipped in August, falling 5% from July and 37% for August a year ago. The slide was hastened by the end of California's generous $10,000 home buyer tax credit, according to the California Building Industry Association. "When it was in effect, the tax credit was beginning to turn things around," said CBIA President Liz Snow. "Since the program stopped in July -- only four months after it started -- activity dropped off dramatically." According to the Construction Industry Research Board, builders pulled permits for just 2,911 housing units statewide in August. CIRB now is forecasting only 39,500 housing starts in 2009, which would be by far the lowest total on record.

At least seven in 10 potential first-time homebuyers said an extension of the $8,000 tax credit would have at least some influence on their decision to purchase a home next year. According to Zillow.com, which conducted the survey, an extension of the credit would add approximately 1.86 million first-time homebuyers to the market between Dec. 1, 2009 and Nov. 30, 2010. Approximately 18% said an extension would be the primary factor in their decision to purchase a home. This equates to 334,000 buyers, Zillow said. In addition, 25% of respondents said the credit would be a significant influence and 27% said it would have some influence. "Although nearly two million first-time homebuyers may receive the tax credit if it is extended for another year, the incremental impact of the credit is far smaller," said Zillow Chief Economist Stan Humphries. "While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year." He added while the credit would help to bring down inventory, it comes at a cost of an additional $14.86 billion in government spending. "For every five homebuyers who receive the credit, four would have bought their home even without the credit," he said.

After five straight months of increases, existing home sales took a breather in August — along with rising values. According to figures compiled by the National Association of Realtors, existing homes sales of one-to four-family units fell 2.8% in August (compared to the previous month) to a seasonally adjusted rate of 4.48 million units. Compared to the same month last year sales were down 2.5%. After several months of increases, the median sale price of a home fell to $177,500, NAR reported. But the trade group had some good news: the monthly supply of homes for sale continued to decline. In August there was an 8.2 months supply of homes for sale compared to 10.6 months back in November of last year, the nadir of the housing crisis. NAR and other trade groups are lobbying hard to have Congress extend the $8,000 first-time homebuyer tax credit which is set to expire on Nov. 30.

After five straight months of increases, existing home sales took a breather in August — along with rising values. According to figures compiled by the National Association of Realtors, existing homes sales of one- to four-family units fell 2.8% in August (compared to the previous month) to a seasonally adjusted rate of 4.48 million units. Compared to the same month last year sales were down 2.5%. After several months of increases, the median sale price of a home fell to $177,500, NAR reported. But the trade group had some good news: the monthly supply of homes for sale continued to decline. In August there was a 8.2 months supply of homes for sale compared to 10.6 months back in November of last year, the nadir of the housing crisis. NAR and other trade groups are lobbying hard to have Congress extend the $8,000 first-time homebuyer tax credit which expires November 30.

Nonbank mortgage lenders would be required to register with the Consumer Financial Protection Agency, which would be given the power to conduct financial exams and take enforcement actions, according to a new draft of the House CFPA bill. "Nonbanks will be subject to a level of supervision and scrutiny that is no less burdensome or comprehensive than that governing traditional banks and thrifts and will fully reflect the risks posed by these previously unregulated entities," according to an outline of the CFPA bill. House Financial Services Committee chairman Barney Frank, D-Mass., made several changes to the CFPA bill (HR 3126) he introduced in July, reducing the burden on banks and to ensure critics that nonbank lenders will be a main focus of the new agency. The American Bankers Association said the new draft "provides a more explicit and stronger mandate to focus on nonbanks that were the primary cause of the financial crisis." However, the bill removes federal pre-emption of state and local laws, ABA said, and creates a new agency with extensive new powers that could conflict with bank safety and soundness regulators. "ABA looks forward to working with Congress to improve consumer protections, while avoiding undermining the availability of credit or imposing conflicting and costly regulations," ABA president and chief executive Edward Yingling said.

The Federal Housing Administration is playing a larger role in the origination market and could end the year with a 30% market share, according to FHA commissioner David Stevens. FHA currently has a 23% market share, he said, and is no longer just a "countercyclical agency." FHA has become a "significant source of primary capital to fund the needs of homeownership," Mr. Stevens told a National Association of Federal Credit Unions conference. Meanwhile, the origination of mortgages has become very concentrated among several large banks, he said. He encouraged credit union executives to become more involved in mortgage lending to serve their members. He noted that FHA is increasing its net worth requirements, tightening credit standards, and taking other steps to control risks, such as hiring FHA's first credit risk officer. "FHA will never be able to fulfill its mission long-term or short-term if it is under scrutiny for not being well managed from a risk management standpoint," he said. The CRO candidate has already been picked and should be on board by year-end, he added.

The net worth requirement changes proposed to the Federal Housing Administration program could end up hurting small mortgage bankers, said National Association of Mortgage Brokers president Jim Pair. The higher requirement could force small mortgage banking firms to leave the FHA program, which in turn will limit consumer choice, said the trade group chief. As a result, only large lenders — more than anybody else — will benefit from this change, he said. As for removing the need for mortgage brokers to receive FHA approval, Mr. Pair said, "This is good and this is bad in some cases. The devil is in the details." He said NAMB is concerned about FHA adopting a similar policy regarding the ordering of appraisals as mandated by the Home Valuation Code of Conduct. NAMB is trying to set up a meeting with FHA to see if the agency will revise its stance. Mr. Pair spoke at the annual convention of the New York Association of Mortgage Brokers in Melville, N.Y.