Originations

Reverse mortgage lenders are learning that the Federal Housing Administration is moving quickly to implement a reduction in the loan proceeds that seniors can receive from a FHA-insured Home Equity Conversion Mortgage. National Reverse Mortgage Lenders Association president Peter Bell said FHA is expected to issue a mortgagee letter soon — possibly this week — on the HECM cut that could go into effect Oct. 1, the beginning of FHA's fiscal year. The reverse mortgage program faces an estimated $800 million shortfall due to declining house prices and it appears that congressional appropriators are not going to cover this credit subsidy shortfall. As an alternative (suggested by Congress), FHA is moving to cut HECM loan proceeds by 10%, according to sources. An analysis by NRMLA of the loan production by three large HECM lenders shows 21% of seniors would not be able to pay off their existing mortgage if their loans proceeds were cut by 10%. For seniors that need a HECM to remain in their home, the reduction in loan proceeds means they might have to sell or face possible foreclosure. "This is highly disruptive for the reverse mortgage industry, but more importantly to seniors' ability to access the equity in their homes to pay off their current mortgage," Mr. Bell said. FHA declined to comment.

Just over one in four existing homes sold in Orange County last month had been through foreclosure some time in the past year, according to MDA DataQuick. According to a report in The Orange County Register, it's the smallest percentage of total home resales in 18 months. It's believed that most of the homes (685) were repossessed houses and condos being resold as real estate-owned (REO) by banks and other lenders. Others may be homes being resold by investors who picked up the homes at foreclosure auctions. Previously foreclosed homes have accounted for a dwindling share of Orange County home sales since January, when almost one out of every two homes sold had been through foreclosure, DataQuick figures show.

Home prices rose 0.3% in July from the previous month, according to a Federal Housing Finance Agency price index that has registered three straight monthly increases in values. The home price index rose 0.1% on a seasonally adjusted basis in June and 0.6% in May. FHFA previously reported a 0.5% increase in June and revised it downward. The index is based on the purchase price of homes backed by mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. Overall, the July HPI is roughly at the same level as the March 2005 index.

The chairman of a key subcommittee is predicting that the House of Representatives will pass a regulatory reform bill this year, including new standards for securitizing mortgages and other assets. Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and GSEs, said, "We're coordinating our efforts with the European Community and the United Kingdom to try and come up with similar responsibilities when it comes to securitization." Speaking to reporters at a National Association of Federal Credit Unions conference, he said securitization became too speculative during the subprime crisis. He thinks the business can be rebuilt with less risk and more security. "I think having skin in the game is a good principle," he said, adding that this is particularly true when it comes to mortgage makers. Separate from regulatory reform, Rep. Kanjorski said there are discussions going on within his subcommittee about how to restructure Fannie Mae and Freddie Mac and "how we can better use the Federal Home Loan Bank System."

Envoy Mortgage of Houston, a nondepository, expects its loan origination volume will increase to $2 billion this year, a growth rate of almost 200%. The firm, formerly known as First Houston Mortgage, underwent a change of control about 18 months ago. Its CEO and owner is industry veteran Rick Thompson who during his long career in mortgages has managed such nonbanks as Troy & Nichols and Aegis Mortgage. Envoy - which depends on warehouse lines of credit - is in the process of obtaining its Freddie Mac and Government National Mortgage Association servicing approvals. It already has Fannie Mae approvals, said Mr. Thompson in an interview with National Mortgage News.

The Federal Housing Administration is giving appraisers the freedom to record their fee on the appraisal report that is separate from the fee charged by the appraisal management company. "The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal," FHA mortgagee letter 2009-28 says. Previously, FHA required the appraiser and management company's fees to be combined and based on customary and reasonable fees in the local market. Appraisers claimed this policy inadvertently capped the fees they could charge. The new policy "correctly separates fees for services charged by appraisers from the fees charged by appraisal management companies, allowing each to float at reasonable and customary levels," the Appraisal Institute said. FHA does not require lenders to use AMCs. But if they do, lenders must "ensure that FHA appraisers are not prohibited" by the AMC from recording their fee.

Zacks Equity Research's Bear of the Day for Sept. 18 was Developers Diversified Realty Corp., Beachwood, Ohio. DDR is a real estate investment trust which invests in retail properties. The statement from Zacks said the company "has a relatively high leverage compared to its peers due to acquisitions over the past several years. Developers Diversified is raising cash through asset sales, debt, and by selling 30 million shares and additional warrants to the Otto family, a shopping center developer in Germany. The equity sale is dilutive and the long-term sustainability of the company is under doubt. Our recommendation for the company is underperform as we anticipate it to perform well below the broader market. However, if Developers Diversified can tide over the current storm, the share price can rise."

Invesco Mortgage Capital Inc., an Atlanta-based real estate investment trust, is having its common stock added to three Russell Investments equity indexes. Effective after the markets close on Sept. 30, Invesco shares will become part of the Russell 2000 Index; the Russell 3000 Index; and the Russell Global Index. Invesco had its initial public offering on June 26, 2009 and focuses on financing and managing residential and commercial mortgage-backed securities and mortgage loans.

After pleading guilty in June to charges connected to a scheme to use a stolen identity to buy a home, Shawn Cannon of St. Louis was sentenced to 60 months in prison. According to Michael W. Reap, U.S. attorney for the Eastern District of Missouri, between August and October 2005, Cannon, knowing he would be unable to qualify for a loan to purchase a home using his true identity, used fraudulent information, including a false Social Security number and false payroll information, to obtain a loan from Pulaski Bank to purchase a personal residence in Florissant, Missouri, for approximately $300,000. Cannon failed to make required payments. In December 2008, Cannon filed a Chapter 13 bankruptcy petition in U.S. Bankruptcy Court, again using the false Social Security number.

Pricing and decisioning vendor Mortech Inc., Lincoln, Neb., has settled a lawsuit with online mortgage comparison site LendingTree. LendingTree filed a federal lawsuit against Mortech, seeking an injunction preventing the company from collaborating with Google on a competing service. In the lawsuit filed in Charlotte, N.C., LendingTree claimed Mortech had violated an exclusivity agreement by working with Google. Terms of the settlement were not disclosed, and both companies would not comment on the dispute resolution. A call to Google about the suit also had not been returned at deadline. Mortech Inc. has no connection to industry research firm MORTECH LLC, Guilford, Conn.

Effective Oct. 1, 2009, the Social Security Administration will be raising its fees for mortgage and financial companies to authenticate borrower Social Security numbers from $0.56 to $5.00 per verification. This price increase could significantly impair the industry's move to protect itself against identity-based mortgage fraud, according to fraud detection vendor Rapid Reporting. In a letter sent to Michael Astrue, Commissioner of the Social Security Administration by Congresswoman Kay Granger (R-Texas), Rep. Granger says this fee increase could lead to the de facto cancellation of the CBSV (Consumer-Based Social Security Number Verification) program, as it could significantly lead to fewer and fewer lenders using the program. According to that same letter, the decision to increase fees for the CVSB program was made by the Social Security Administration without collaboration with the U.S. Congress. Mr. Astrue denied Congresswoman Granger's initial request for a 60-day delay to evaluate the necessity of this fee increase. On Tuesday, Sept. 22, Congresswoman Kay Granger and key staff, which includes committees of oversight for the Social Security Administration, plan to meet with the SSA to discuss the negative repercussions this planned increase in fees will have on the mortgage industry and the nation as a whole, and intend to re-propose a delay in implementing these fees. Senate Majority Leader Reid, House Speaker Pelosi, House Majority Leader Hoyer and Senators Hutchinson, Harkin, Cochran and Cornyn have been contacted and are expected to support a delay in implementation as well.

The mortgage insurance division of Genworth Financial has knocked nine states off its list of declining/distressed markets, leaving its troubled list to just five: Arizona, California, Florida, Michigan and Nevada. Genworth, the nation's fourth largest MI, on Monday liberalized some of its underwriting guidelines, telling its mortgage banking customers that it will insure cash-out refis and second homes in non-declining markets. However, the cash-out refi rule changes apply to loans with maximum LTVs of 85% and minimum credit scores of 700.

The Federal Deposit Insurance Corp. is auctioning off a $2.6 billion pool of performing and nonperforming acquisition, development and construction loans through Keefe, Bruyette & Woods. Offered as a structured transaction, the bid deadline is Nov. 12. The package has been stratified into three different geographic pools: western ($652 million), central ($545 million), and eastern ($1.4 billion). Bidder due diligence starts this week, but final bids are due in mid-November. KBW notes that investors can purchase "sole membership interest in a newly-formed limited liability company" to which the loans are pledged.

Certain Federal Housing Administration loans could run afoul of a new HOEPA rule that prohibits prepayment penalties, and industry groups want the Federal Reserve Board to fix the problem. The problem stems from a Ginnie Mae payoff requirement that all interest on a loan must be paid for the full month. If the loan is paid off on September 5, the interest must be collected for the rest of the month. The Consumer Mortgage Coalition and other groups are concerned this extra interest is considered a prepayment penalty under the Home Owners and Equity Protection Act regulation that goes into effect October 1. HOEPA bans prepayment penalties on higher-priced loans if the interest rate changes during the first four years. On fixed-rate loans, HOEPA limits a prepayment penalty to the first two years. Too many FHA loans fall into the higher-priced category and the industry wants the Fed to clarify that payoff interest is not a prepayment penalty under HOEPA.

Federal Housing Administration chief David Stevens has confirmed that the government's mortgage insurer will see its reserves fall below the 2% minimum level set by Congress but said the agency is tightening its credit standards to bolster the fund. "To be clear, the fund's reserves are sufficient to cover our future losses, so FHA will not require taxpayer assistance or new congressional action," Mr. Stevens said. The commissioner told reporters there is no plan or need to increase FHA mortgage insurance premiums. FHA's auditors see the "capital reserves getting above 2% within a couple of years with absolutely no changes" in FHA policies or underwriting standards, Mr. Stevens said. But the new commissioner wants to accelerate that timetable and he outlined several changes, involving appraisals, refinancings and lender net worth requirements to reduce FHA's risks and defaults going forward. "These are the first steps in what will be an on-going increasing look at risk management within FHA," he said.

Title insurance premiums generated during the second quarter of 2009 totaled $4.53 billion, down 16.4% from a year ago. But the decline in premiums has narrowed over the past two quarters, according to the American Land Title Association. Refinance activity as well as people taking advantage of the first-time homebuyer credit were contributing factors for the improved performance. Nevertheless, the title industry posted an operating loss of $68.8 million during the second quarter of 2009. This is much improved over the operating loss of $264.4 million for the 2008 second quarter. Investment income resulted in a net profit for the industry, $111.4 million, as compared to a net loss of $190.4 million for the second quarter of 2008. In terms of market share, Fidelity National Financial, Jacksonville, Fla., received 45.8% of all premiums generated, up slightly from 45.5% one year prior (this number includes the underwriting units of LandAmerica which FNF acquired in December 2008). First American Corp., Santa Ana, Calif., reported a market share of 26.6%, down from 28.8% one year ago. Stewart Information Services Corp., Houston, has a 12.9% share of the market, up from 12.5%, while Chicago-based Old Republic International has 6.6% of the market, up from 5.4% in the second quarter of 2008.

The National Association of Mortgage Brokers said it has received thousands of complaints from its members as well as appraisers, Realtors, and consumers concerning Home Valuation Code of Conduct rules promulgated by the GSEs. Loan brokers, in particular, don't like the rule because it takes them directly out the appraisal process, ceding that function to appraisal management firms. "One of the major problems caused by the HVCC is inaccurate appraisals, which are lowering house prices," the trade group said. It said some of the complaints received over the HVCC consistently describe out-of-area appraisers unfamiliar with the neighborhood being contracted to appraise homes."

The country has seen a "drastic increase" in mortgage fraud cases as a result of the upheaval in the housing market, according to FBI director Robert Mueller. FBI agents are investigating 2,600 mortgage fraud cases as of July 31, up from 1,600 for all of 2008. Many of these investigations are focused on fraud perpetrated by industry insiders and most of the pending mortgage fraud cases involve losses of more than $1 million, Mr. Mueller told the Senate Judiciary Committee. "To meet this growing challenge, we have redirected investigative resources and assigned approximately 300 special agents the task of investigating mortgage fraud. In addition, we direct 15 task forces and 59 working groups that target mortgage fraud," he said. Mr. Mueller pointed out that the FBI is using innovative ways to generate new cases, "We employ statistical correlations and other advanced computer technology to identify patterns in the search for companies and persons engaged in activity that is indicative of fraud." FBI agents also analyze data compiled through Suspicious Activity Reports filed by financial institutions and through HUD-OIG reports.

Has the tide finally turned in California? A survey of home builders in the Golden State suggests it has. According to a poll by John Burns Real Estate Consulting, more builders are now raising their prices than are lowering them — or even keeping them at their current level. It's the first time that's happened since the Irvine-based consulting firm began its home builder executive survey 15 months ago. But reports of emerging price stability in a growing number of markets also were balanced by numerous reports of continued downward pressure on pricing from foreclosures and short sales, according to the consultant. In almost all markets, the lower price points are faring better than the higher price points due to government-backed financing and the $8,000 federal tax credit. The survey covered 269 industry executives from both public and private firms, including 62 in California. Together, their insight is said to be reflective of "on-the-ground conditions" in 86 metro areas and 1,855 new home projects.

The nation's six active mortgage insurance firms wrote $22.89 billion worth of coverage in the second quarter, a 61% decline from the same period last year, according to figures compiled by National Mortgage News. Even though originations are on the rise, the MIs have been constrained by their weak capital positions which hurts their ability to write news business. They also have lost customers to the Federal Housing Administration's insurance program. In the second quarter MGIC Investment Corp. ranked first with $5.9 billion in coverage, followed by Radian Guaranty ($5.49 billion), and United Guaranty Inc. ($3.9 billion). UGI is for sale. Investor Wilbur Ross has been mentioned as being a leading candidate to buy the company.