Originations

Rates moved higher after the market interpreted one closely watched economic indicator as somewhat positive ahead of prepayment reports the market will see when it reopens Tuesday. The benchmark 10-year Treasury yield that generally serves a rough indicator of mortgage rate direction was at 3.43% midday Friday, up from 3.33%, where it was at roughly the same time the day before. Art Frank, director and head of mortgage backed securities research at Deutsche Bank Securities, New York, said after Friday's employment-related numbers, the next anticipated major release expected to be seen in the mortgage bond market that drives rates are prepayment reports that market will likely see on Tuesday.

The action is picking up in Sin City, one of the hardest hit housing markets in the nation. Lower interest rates and an average sales price under $160,500 (for homes priced under $1 million) are attracting more bargain hunting foreclosure and short-sale buyers to the Las Vegas-Henderson market, according to local broker Robert Jenson, who reports that the inventory in that sector has dropped to a 6.5-month supply - 2.8 months if houses under contract are not counted. Prices actually inched upward 1.3 percent for single-family residences in August, only the second month in the last 12 that they have moved higher. In another hopeful sign, Mr. Jenson, who hangs his hat at RE/MAX Central, reports that the number of foreclosures on the market is down 7.4 percent. On the flip side, the number of short-sale offers is up. "There are twice as many short-sale listings, but REOs outsell short sales, five to one," the realty broker says. Distressed properties accounted for 82% of all sales in August, including one short sale at over $1 million.

CMG Mortgage of San Ramon, Calif., is re-launching a once popular first lien home equity product - and is even accepting applications from third-party loan brokers. The California-based non-depository stopped offering its 'Home Ownership Accelerator' a year ago when its secondary market investor -- GMAC Bank and its affiliates -- faced liquidity problems and had to pull the plug on the loan. At the time CMG was funding about $100 million a month in HOAs. It has found a new HOA investor - Ameriprise Bank of Minneapolis. (For more details see the Monday edition of National Mortgage News.)

Warren Buffett's Berkshire Hathaway Inc. and Leucadia National Corp. have teamed up to buy Capmark Financial Group's struggling commercial mortgage servicing and production units for a reported $490 million. At June 30, Capmark ranked third among all commercial servicers with $248 billion in receivables. According to figures compiled by National Mortgage News, Capmark is a top five ranked commercial funder. The announced sale comes a few days after Capmark said it might file for Chapter 11 bankruptcy protection after delinquent commercial mortgages left it with a $1.62 billion second-quarter loss. It said stockholders had negative equity of $1.14 billion as of June 30. In 2006 an investor group led by affiliates of Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners bought a majority stake in Capmark's predecessor company, GMAC Commercial Mortgage of Horsham, Pa.

Mortgage companies added 3,600 full-time employees to their payrolls in July while the number of active mortgage brokers fell to a level not seen since September of 2001. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 267,200 in July from 265,500 in June. The BLS survey counted 70,100 existing mortgage brokers in July, a 1,900 drop from the previous month. After a slight decline in the second quarter, employment at mortgage banking companies is now at first quarter levels. Meanwhile, Friday's employment report contains some encouraging signs that job losses are continuing to slow -- which could mean mortgage delinquencies might subside somewhat. BLS reported that 216,000 U.S. workers lost jobs in August, down from 276,000 in July. The nation's unemployment rate rose to 9.7%, up from 9.4% in July. (There is a one-month lag in BLS's reporting of mortgage industry employment data.)

The Federal Housing Administration mortgage insurance fund will not need a capital infusion from Congress, the FHA commissioner said in response to concerns that the program is experiencing larger than expected credit losses due to delinquencies and home price declines. "FHA will not need a congressional subsidy even if the congressional capital reserve ratio falls below 2%," FHA commissioner David Stevens said in response to a report in The Wall Street Journal that rising defaults have "eaten through" FHA's capital cushion and that the fund is in danger of falling below the statutory minimum of 2%. FHA's capital reserve is based on an annual actuarial study that is generally completed by October. The FHA commissioner said he would not comment on FHA's reserve ratio until he sees the study. At the end of the second quarter, 6.88% of FHA single-family loans were 90 days or more past due, up 35 basis points from June 2008, according to FHA. FHA foreclosures are up 17%, however. Meanwhile, the new commissioner has been conducting a thorough review of FHA's credit parameters. "It is expected that FHA will be coming out with some new tightening measures in the next several weeks, which the industry will welcome," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington.

Bond yields that pressured Freddie Mac's average for 30-year primary market mortgage rates slightly lower over the past week appeared to be stabilizing as of late Thursday morning ahead of an influential economic indicator due Friday. Art Frank, director and head of mortgage-backed securities research at Deutsche Bank Securities, New York, compared the secondary market for the agency mortgage-backed securities yields that influence primary market rates as slightly lower and in a calm before a potential storm Friday when some employment-related statistics are set to be released. The average rate for a 30-year fixed-rate mortgage during the week ended Sept. 3 dropped to 5.07% from 5.14% the previous week and 6.35% a year ago, according to Freddie Mac. "Bond yields pushed mortgage rates slightly lower this week," said Frank Nothaft, Freddie Mac vice president and chief economist. The benchmark 10-year Treasury bond yield had slid to 3.3% from near 3.5% since Aug. 28. At deadline, it was holding relatively steady at 3.33%. The average 15-year FRM rate during the week was 4.54%, down from 4.58% the previous week and 5.9% a year ago. The average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage was 4.67%, down from 4.59% the week before and 5.97% a year ago. The average rate for a one-year Treasury ARM was 4.62%, from 4.69% last week and 5.15% a year ago. Average points were 0.7 for 30-year FRMs and 0.6 for 15-year FRMs, five-year Treasury hybrids and one-year ARMs.

The addition of 432 commercial real estate loans totaling approximately $5.2 billion resulted in a 7% increase in U.S. CMBS "loans of concern" between June and last month, according to Fitch Ratings in the latest edition of "What's in Special Servicing." One notable entry is the $227.9 million Resorts International Casino Portfolio loan, which transferred to special servicing in July due to monetary default when the borrower failed to make their July payment citing significant declines in cash flow at the properties. "Properties directly tied to consumer spending such as hotels are the first to exhibit signs of performance declines," said Fitch senior director Adam Fox in a statement. Declining property performance and increasing CMBS defaults within remain the chief contributors to the rising amount of loans of concern. Fitch designated loans with declining performance as a concern because they have a higher probability of future default and current market conditions would result in significantly higher losses if the loans were liquidated in today's market. To date, Fitch has identified more than $80.7 billion in commercial real estate loans (17% of its rated U.S. CMBS portfolio) as having declining performance or defaulted loans. Recent vintage loans account for more than 12% of the $80.7 billion in loans of concern.

August Federal Open Market Committee minutes show members discussed slowing the Fed's agency mortgage-backed securities and debt purchases before their planned end this year, making it likely there will be a decision on this issue this fall. As the initial August FOMC meeting statement revealed, the Fed has made plans to end its Treasury purchases in October and the minutes showed a similar plan for the agency MBS and debt buys also was discussed. Some analysts think the FOMC might take action on the issue as early as this month. "Minutes of the August FOMC meeting suggest that the Fed could continue at its current pace, but taper off the purchases as we approach the program completion for a smooth transition. The September FOMC meeting would be an optimal time to make the announcement, in our view," Credit Suisse researchers said in a Sept. 3 report. Art Frank, director and head of mortgage-backed securities research at Deutsche Bank Securities, New York, said he believes slowing the purchases before stopping them could help the market avoid a shock that could cause disruptive spread widening. He said the minutes and comments from Fed officials showing they have discussed this are a good sign to that end. The minutes also showed FOMC members talked about possibly including agency MBS backed by adjustable-rate mortgages in the purchase program to address unusually large spreads between ARM rates and comparable Treasury yields. But divided opinions on the topic made the move seem unlikely. The plan to end Fed Treasury purchases in October may have some implications for MBS and potentially could boost mortgage rates. But these are less of a concern for the MBS market than the end of the MBS purchases themselves, Mr. Frank said.

In response to the DocMagic lawsuit filed against Ellie Mae, the origination vendor says that it is "surprised and very disappointed that DocMagic has taken these drastic actions." Ellie Mae asserts that DocMagic opted to terminate service and displace its own customers, abandoning a preplanned 60-day orderly transition. Ellie Mae says the agreements between both parties were set to expire on September 1, 2009. Further, Ellie Mae says on April 28, 2009, DocMagic notified Ellie Mae that it was opting to end its Reseller Agreement with Ellie Mae. On May 21, 2009, DocMagic was also informed that Ellie Mae had decided not to renew the outdated terms of its ePASS Agreement with DocMagic. Ellie Mae proposed new terms for their agreement with DocMagic. However, DocMagic did not respond, according to Ellie Mae, and instead decided to stop servicing mutual clients and file the lawsuit. DocMagic did not respond by deadline.

Fannie Mae and Freddie Mac — which are wards of the government — are seeking significant revisions to a regulatory rule that forces them to submit all new products and activities for review, arguing it is too restrictive and goes against congressional intent. In a rare joint comment letter sent this week to the Federal Housing Finance Agency, the two GSEs objected to several parts of the July 2 interim rule, saying it was unnecessarily burdensome and ineffective, and could make it difficult for the GSEs to help during a financial crisis. The letter marked one of the first times the two companies have publicly taken issue with their regulator, which seized them nearly a year ago and continues to manage them in conservatorship. No doubt because the companies are writing to their conservators, the letter is exceedingly polite, but it still makes clear that the GSEs think the current rule needs critical changes. On Wednesday the Mortgage Bankers Association released a working paper on overhauling the secondary mortgage market which assumes that Fannie Mae and Freddie Mac will no longer exist in the future but also calls for the creation of up to five mini-GSEs that would act as loan guarantors but without holding large on-balance sheet portfolios.

Delinquencies and losses in the United Kingdom's securitized nonconforming mortgage market are continuing to increase, according to Moody's Investors Service's latest available index data for the sector. Delinquencies and losses continue to rise at a rapid pace, as unemployment continues to rise, said Nitesh Shah, a Moody's economist and co-author of a second quarter report on the index. With only a few exceptions, deterioration can be observed for all U.K. vintages and transaction series, according Georgij Ludmirskij, a Moody's senior associate and also a co-author of the report. According to the report, 54 U.K. nonconforming transactions have more than 20% of 90-plus days delinquent loans in their portfolios, while 22 transactions posted 90-plus days delinquencies higher than 30%. In the second quarter, Moody's placed on review for possible downgrade 133 classes of notes in 13 U.K. nonconforming transactions. Eighty-eight transactions worth £27.3 billion ($44.4 billion) are currently outstanding in this market, according to Moody's.

Equi-Trax Asset-Solutions, Santa Barbara, Calif., is offering a service designed to provide clients with a way to quickly scan their portfolios and identify properties currently on the market that could be potential short sale, loan modification, portfolio retention or origination opportunities. The new Current Listing Search is designed primarily for use by servicers but Equi-Trax chief executive officer Guy Taylor said it also could serve as a source of sales leads for originators if the borrowers involved are moving. He said the search provides information as soon as it is available on multiple listing services. It draws on data from about 72% of multiple listing services in the country, which the company said represent most major Metropolitan Statistical Areas. Data available includes contact information for brokers that can be imported into servicers' contact databases on properties. Mr. Taylor said he believes the new service improves on alternatives such as other services that offer less extensive information, or borrower contact that may involve offering borrowers home valuation data in exchange for information about their future real estate plans.

The First American Corp. reaffirmed plans for a split into two companies it noted will come relatively soon as it celebrated its 120-year anniversary. The plan to separate the Santa Ana, Calif.-based company's information solutions and financial services businesses into two new, separate publicly traded companies could come as soon as the first half of 2010. Originally an Orange County, Calif. title abstract company, The First American Corp. said it has grown to the point where 90% of all real estate transactions in the United States involve at least one of its products or services. It is one of the nation's largest title insurance companies, has trust company, tax services, home warranty and flood certification businesses and is a national data and analytics provider to the mortgage industry and the investment community. The company first went public, trading on the over-the-counter market, in 1964 and began offering its stock on the New York Stock Exchange in 1993.

Wells Fargo & Co. is said to be auctioning off a $65 million portfolio of sub- and non-performing residential loans and is set to take final bids next week. "They've been offering a lot of stuff lately," said one bidder requesting his name not be used. There is more to come, he said. At press time a company spokesman had not returned a telephone call about the auction. In the past the bank has rarely commented on its offerings. A few years back Wells Fargo Home Mortgage was one of the largest correspondent buyers of subprime loans but eventually exited that business.

The Federal Housing Administration is providing a helping hand to some multifamily developers that started construction but had their financing pulled after completing the foundation. FHA generally does not insure multifamily projects where construction has already started. But for the next six months, the federal mortgage insurer is willing to consider applications in cases where construction was halted early and only foundation and site preparation work was completed. The FHA mortgagee letter indicates that the agency is not going to insure multifamily loans for condominium projects that are 90% complete and are trying to convert to rental units. To qualify, developers have to prove that their financing was cancelled and they have been unable to find alternative financing. The Department of Housing and Urban Development said it is taking this step "due to the illiquidity in the financial markets." The mortgagee letter points out some lenders are backing out of commitments and refusing to fund construction draws. The Census Bureau recently reported that multifamily starts fell to an all-time low of 80,000 units in July, down 72% from a year ago.

After six months of gains, the Credit Managers' Index is showing slower progress, according to the National Association of Credit Managers, Columbia, Md. The index climbed inched up to an August score of 48.3 from July's combined index score of 48. While this represented some positive movement in the index as a whole, there also was some weaknesses in terms of credit availability, credit applications and sales. "This suggests that the proposed recovery is a little weaker than some of the indicators reflect, especially in terms of availability of money," NACM said. "There are some shoes left to drop, most notably the commercial property sector," said NACM chief economist Chris Kuehl. "It is mildly encouraging to note that the index has not fallen, but an anemic .3 gain was much less than had been anticipated," he said. The index had been expected to rise to closer to 50 in August.

The latest 2.7% quarterly gain in Freddie Mac's Conventional Home Price Index's Purchase-Only Series suggests a more broad-based recovery in housing values is starting to emerge. "For the first time in two years average home sales values rose at least a little bit in every region," Freddie Mac vice president and chief economist Frank Nothaft said. "Values are still down relative to their peaks, though. For example, as measured by the CMHPI, average values in the New England, East North Central and Pacific divisions are at 2004 levels, on average. In contrast, the average value in the West South Central area is only slightly below its 2008 peak, while the index for the East South Central region is at about its 2006 level. Other areas have home-purchase values at 2005 levels."

The latest Mortgage Bankers Association Weekly Mortgage Applications survey shows an overall seasonally adjusted 2.2% decline in apps, with only the government-insured share of purchases rising. The government Purchase Index rose 0.5% in the latest recorded week, which ended Aug. 28. That index has seen seven consecutive weekly gains. In the latest week, the government-insured share of purchase applications during the period was 40.4%, the highest share seen since 1991. This is up from 38.3% in July and 31.7% in August 2008. The overall Purchase Index dropped 1.0% and the Refinance Index fell 3.1% on the week on a seasonally adjusted basis. On an unadjusted basis, the overall Market Composite Index decreased 3.1% on the week but increased 22.7% compared to the same week one year earlier. The four-week moving average for the seasonally adjusted Market Index is up 1.7%. This same average is up 1.2% for the seasonally adjusted Purchase Index and up 2.1% for the Refinance Index. The refi share of mortgage activity during the week stayed constant at 56.5% while the adjustable-rate mortgage share of activity fell to 5.6% of total applications from 6.5% the previous week. During the week, the MBA said the average contract interest rate for 30-year fixed rate mortgages slid to 5.15% from 5.24%, with points (including the origination fee) increasing to 1.09 from 1.07 for loans with 80% loan-to-value ratios. The average rate for 15-year FRMs inched down to 4.57% from 4.58%, and the points for 15-year FRMs with 80% LTVs dropped to 0.85 from 1.18. The average rate for one-year ARMs fell to 6.71% from 6.74%, and the points for one-year ARMs with 80% LTVs rose to 0.20 from 0.17.

The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form. Under the plan, the creation of mortgage-backed securities would rely on risk-based premiums paid into a federal insurance fund with loan level guarantees provided by what the trade group calls a "small number of privately-owned government-chartered and regulated mortgage credit-guarantor entities" or MCGEs. MBA wants ownership of at least one of the MCGEs to be in a co-op form with mortgage lenders as shareholders. "A co-op could be attractive to mortgage bankers," said MBA chief executive John Courson. (Ownership of Freddie Mac stock was limited to savings and loan associations under a co-op structure until 1989, when the company first sold shares on the New York Stock Exchange.) Even though Fannie and Freddie would no longer exist under this blueprint for the secondary market their "technology, human capital, standard documents and relationships" could serve as the foundation for the new MCGEs, MBA says. The plan — which played a role in driving down the GSEs' share price on Wednesday morning — was drafted by a special task force of MBA members including top executives in the industry who work for lenders, servicers, mortgage insurance firms, title companies and other players in the business. Fannie and Freddie declined to comment on the proposal. Some members of the task force work for companies that were once part of FM Watch, a lobbying group whose mission was to curtail the powers of Fannie and Freddie.