Originations

Mortgage document company DocMagic is suing mortgage software firm Ellie Mae for alleged antitrust violations and, in a second suit, for misuse of intellectual property. DocMagic also is seeking a permanent injunction against Ellie Mae for alleged misuse of DocMagic's intellectual property in the Ellie Mae Docs system. The antitrust suit alleges that DocMagic was provided access to Ellie Mae's ePASS network until Ellie Mae terminated its ePASS agreement and then took steps to prevent its users from accessing DocMagic products through unfair and anti-competitive behavior, including sabotaging clients from accessing DocMagic altogether through alternative web service calls. The filing said Ellie Mae notified ePASS Network users that DocMagic would no longer be available on ePASS or Encompass Closer and that DocMagic users would instead be moved to Ellie Mae's loan document service. It further alleges Ellie Mae began changing the terms of the Encompass user agreements to prohibit the transfer of data from Encompass to any third-party service provider outside of the ePASS network. "We've had a long relationship with Ellie Mae and have also been a long-standing client of ePASS. It has become clear that Ellie Mae wants to replace us as their document provider. They really didn't give us any alternative," said Don Iannitti, president and CEO of DocMagic. "I think they want to save money. I think the client is the victim. It can't be about monopolization." The complaint for injunctive relief DocMagic filed is based on Ellie Mae's alleged unauthorized use of DocMagic's intellectual property, including DocMagic's user interface, workflow, terminology and overall look in Ellie Mae's document system. "When we were working with them, we helped them in creating the workflow in the Encompass project. We recreated our screens and workflow for them. In replacing us, the look remained the same," Mr. Iannitti added. Ellie Mae was unable to comment at deadline but said it plans to release a statement in the future.

Federal Home Loan Banks are on pace to pay off their Resolution Funding Corp. obligations by April 15, 2012, which would free up 20% of their income one year earlier than expected. The FHLBank's Office of Finance made this determination based on the $278 million Refcorp payment the banks made in the second quarter. Since 1989, the 12 FHLBanks have diverted at least $300 million of their income to pay off $30 billion in Refcorp bonds. The federal government sold the 40-year bonds to cover part of the costs of the savings and loan cleanup. American Bankers Association executive vice president Bob Davis noted that the FHLBank System will be more secure once the Refcorp obligations are finally satisfied. "We need to start planning now for how we are going to use those funds. And how some of those funds can be used to make the FHLBank System more competitive and effective in carrying out its mission," Mr. Davis said.

A leading indicator of future home sales rose 3.2% in July to a level not seen since the summer of 2007, according to the National Association of Realtors. The NAR pending sales index hit 97.6 in July, up from 94.6 in June. The index has risen for six straight months, according to NAR chief economist Lawrence Yun, as homebuyers take advantage of very affordable prices and the $8,000 first homebuyer tax credit. NAR estimates that 1.8 million to 2.0 million first-time homebuyers will use the tax credit before it expires at the end of November. The tax credit, the group believes, will generate approximately 350,000 sales that would not have happened without it. NAR, the National Association of Home Builders and other housing groups are urging Congress to extend and expand the tax credit this fall. "Unless the tax credit is extended no one should be surprised to see home sales drop in the first quarter of next year," Mr. Yun said. However, NAR is forecasting that existing home sales will pick up again in the second quarter and be stronger in 2010 than this year even without the tax credit. The economic recovery appears "fragile," a NAR spokesman said. An extension of the tax credit will provide a sounder footing for the housing market, he said.

With PHH Corporation's stock nearing its 52-week high of almost $23 a share, company insiders — including mortgage chief Mark Danahy — have been unloading shares. According to trading records, Mr. Danahy sold 16,120 shares over the past month at a price between $20.10 and $20.49. In total, he grossed $327,000. William F. Brown, an officer of the company, sold 10,000 shares for $21 each, grossing $210,000. The Mt. Laurel, N.J.-based PHH, which underwent a proxy battle and management shakeup earlier this year, is the nation's 11ith largest residential lender, according to the Quarterly Data Report. It services $149 billion in product, ranking 10th nationwide. Its 52-week low is $4.27, reached back in November of last year.

CBC National Bank, Beaufort, S.C., hopes to fund at least $900 million in loans through mortgage brokers this year, more than double its volume from 2008. "It could reach $1 billion or more," said Steve Ralyf, senior vice president in charge of wholesale for the bank. During the first-half CBC table funded $490 million through brokers, a 145% gain from the same period a year earlier. CBC re-entered the wholesale channel in the fall of 2007 after exiting the business in 2004. At the time many of the nation's top wholesale lenders were beginning to scale back their table funding units dramatically or closing them outright. "We saw a major opportunity," said Mr. Ralyf. Currently, the bank has a network of 200 brokers but has no immediate plans to expand its broker network dramatically. Most of the residential loans it funds are in the southeast, in Georgia and Florida. "We're staying in the bank's imprint," he told National Mortgage News.

The Federal Reserve should slow its purchases of agency mortgage-backed securities so that it can extend the buying program into next year, according to one MBS market expert. Credit Suisse mortgage strategist Mahesh Swaminathan said the Federal Reserve Bank of New York is purchasing Fannie Mae, Freddie Mac and Ginnie Mae MBS at a rate of $25 billion a week. "They are really racing," said Mr. Swaminathan. "At this pace they will be done with their purchase program by yearend. I don't think that is desirable," he added. Recent statements by a couple of Federal Reserve Bank presidents indicate the $1.25 trillion MBS purchase program may be allowed to expire at the end of December. The New York Fed has already purchased $790 billion of agency MBS. If they cut their weekly purchases by 50% or more, the Credit Suisse strategist said, the purchase program could be extended into the first and second quarters of 2010. "It is much better to slow things down now and telegraph that they are ready to support the market for some more time," he said.

Two of 10 defendants indicted in a straw buying mortgage fraud scheme have pleaded guilty to their roles. Anthony E. Carollo of Raytown, Mo., and Rebecca Gelwix of Des Moines, Iowa, each admitted to conspiring with Eric M. Rabicoff and others to defraud mortgage lenders. According to Lanny Welch, U.S. attorney for the District of Kansas, the convicted and alleged conspirators arranged for straw buyers to purchase homes that were for sale by owners. They obtained financing for the deals by submitting false loan applications to lenders. The scheme also called for contract prices to be increased and for the convicted and alleged conspirators to receive money by submitting false invoices to title companies at closing. Carollo, the manager of a small business, was listed as the employer for all the straw buyers and provided false verifications of employment on behalf of the straw buyers that were sent to lenders. Defendant Anthony Painton, Jr., recruited Gelwix as a straw buyer. The scheme obtained more than $3 million. Carollo and Gelwix are scheduled for sentencing Nov. 16. Painton, who pleaded guilty in January, is scheduled for sentencing Oct. 19. The remaining seven defendants, including Mr. Rabicoff, are awaiting trial and were unavailable for comment. They are: Jason L. Rabicoff, Lucas R. Collier, Deborah Saulmon, Bora Ly, Kong Bun Ly and Richard Ngek.

The fair value of loans held by the nation's largest commercial banks continues to decline, indicating that credit markets have not yet turned around and raising serious questions about the effectiveness of the government's efforts to help the industry through the credit crisis. Among the banks that were stress-tested by the government in May, the difference between carrying values and fair values grew 14.4% from Dec. 31 to June 30 - to $164.4 billion. Observers said the data shows that it is getting even more difficult to find buyers for stressed loans and that banks' efforts to jettison bad assets could be delayed. And if the Financial Accounting Standards Board advances a sweeping mark-to-market proposal, some banks might have to raise more capital to close their valuation gaps. "It is clearly a sign of stress that surprises me," said Tim Yeager, a finance professor at the University of Arkansas and a former economist at the St. Louis Federal Reserve Bank. "I thought by now that we would have turned the corner, but things seem to be getting worse."

Freddie Mac soon may be receiving a notice from the New York Stock Exchange, saying it is back in compliance with the NYSE's listing requirements. At press time Freddie's common was trading at $2.22, which means that its average share price will have been north of $1 for the past 30 days - that is, as long as its stock price doesn't collapse by close of business Monday. Under NYSE rules, the exchange can initiate delisting proceedings for companies whose 30-day average price falls below $1. "We're waiting for official notification from the NYSE," a company spokeswoman said Monday. In a week it will mark the one-year anniversary since Freddie and its sister company, Fannie Mae, were taken over the government and placed into conservatorship. The share price of both GSEs has been rising over the past month. Some stock analysts attribute the price increase to bottom fishing and speculation by short sellers. Freddie's 52-week low is 25 cents, its high $5.52. In the second quarter Freddie actually posted a profit while Fannie lost money.

The nation's beleaguered mortgage insurance companies wrote $7.54 billion of new traditional MI policies in July, its third worst volume month of the year. Compared to the same month a year ago, new business fell by 39%, according to figures compiled by the Mortgage Insurance Companies of America, a trade group. July was the industry's weakest month in terms of new applications received: 44,532 -- almost half the number received in July 2008. Meanwhile, MICA reported that primary insurance defaults rose to 94,571 units in July, the second highest reading of the year for the industry. January was the worst month of the year for defaults at 106,482. The data was culled from six of the nation's seven MI companies. Triad, which is self-liquidating, is not represented in the numbers.

Guaranty Financial Group Inc., the parent company of the recently failed Guaranty Bank, Austin, Texas, has filed for bankruptcy protection, listing assets of $24.3 million and debts of $323.4 million. Guaranty Bank was also a warehouse provider to non-bank mortgage lenders, a business it was in the process of winding down when the Federal Deposit Insurance Corp. seized the lender on August 21. The agency sold Guaranty to Banco Bilbao Vizcaya Argentaria SA, Spain's second-biggest depository. "Beginning in 2007, volatility in the credit and residential housing markets resulted in extensive impairment of existing mortgage-backed securities held by GFG and its subsidiaries," the company said in its bankruptcy court papers.

Mortgage technology software provider Mortech, Lincoln, Neb., said it has plans to address a legal challenge by LendingTree, Charlotte, N.C. Mortech said in an e-mailed statement that it would deal with the issue in a "timely fashion," and noted it has a good track record and reputation when it comes to its dealings with industry partners and customers. According to a New York Times press report, the suit alleges that LendingTree feels that Mortech, as its business partner, is in violation of its contract because it is planning to make its pricing engine services available for another online provider's use (Google) and those services would compete with LendingTree's. LendingTree could not be reached for comment at press time. (The Mortech referenced here is not industry expert Jeff Lebowitz's similarly named Mortech LLC, which has its principal office in Guilford, Conn.)

Deutsche Bank Securities is the largest unsecured creditor of Taylor, Bean & Whitaker and is owed at least $42 million, according to a supplemental filing in the bankruptcy case of the nonbank lender. A spokesman for DB had no comment at press time. The claim is labeled as "disputed" in the filing and no additional information is provided. The second largest unsecured creditor is James G. Hicks of Lawrenceville, Ga., who has staked a claim for $9 million. Mr. Hicks, however, is not listed in the telephone directory as a consumer or business. The third largest unsecured creditor is RBC capital Markets, New York, which is owed $2.2 million. Meanwhile, the Office of Thrift Supervision has hit Platinum Community Bank, owned by TBW, with a cease-and-desist order, telling it to stop unsafe and unsound practices. The C&D, which is available on the agency's website, says the depository has failed to maintain accurate books and records, has not operated independently from affiliates and is having liquidity problems. The bank issued a statement saying it's working closely with OTS to address the issues in the order. In July 2008 TBW bought controlling interest in Platinum Bankshares, the holding company of the depository. The parent was based in Rolling Meadows, Ill.

Fannie Mae's issuance of mortgage-backed securities fell 39% in July from the previous month, according to the company's new monthly activity report. The mortgage giant issued $79.7 billion in MBS during July, compared to $130 billion in June. At the same time, its commitments to purchase loans jumped 42% in July to $103.6 billion, a sign that residential production could be picking up. Freddie Mac recently reported a 30% decline in July MBS issuance along with a 33% drop in purchases of refinanced mortgages. Freddie said it purchased $34.1 billion in refinancings in July, but Fannie has stopped reporting refinancing volumes. However, their regulator reported that Fannie purchased 264,317 refinanced loans in July and Freddie purchased 158,182 refinancings. Based on Freddie's average loan size, Fannie purchased approximately $57 billion in refinancings. Fannie also said 3.9% of its single-family mortgages in June were 90 days or more past due, up from 1.36% a year ago.

Some 41 people and four companies have been indicted for engaging in a massive mortgage fraud scheme to purchase 453 homes using $44 million worth of fraudulent loans. The state charges are the result of an 18-month investigation by the Cuyahoga County Mortgage Fraud Task Force in conjunction with the Ohio Organized Crime Investigations Commission. Ohio attorney general Richard Cordray singled out Uri Gofman of Beachwood, Ohio, as the scam's ringleader, saying he enlisted family, friends and others to invest in his real estate company, Real Asset Fund, with promises of profit. Mr. Gofman's alleged enterprise began with seed money from an investor who transferred funds from a bank account in Latvia. The scheme involved using straw buyers to purchase homes, falsely claiming home improvements were performed on houses in order to refinance them and then selling houses to unqualified buyers with the assistance of real estate agents, mortgage brokers and title companies. The defendants, who were unavailable for comment, allegedly siphoned off more than $31 million in profits from their criminal enterprise. Eventually, 358 of the homes fell into foreclosure. The Cuyahoga County Mortgage Fraud Task Force was formed in December 2007. To date, 289 defendants have been indicted on mortgage fraud charges involving $111 million in loans on 812 homes, 616 of which are now in foreclosure.

Federal regulators are seeking information from banks and thrifts on how a new accounting rule on securitized assets will impact their balance sheets and capital levels. Financial Accounting Standards 166 and 167 can trigger consolidation of securitized assets on the balance sheet if a bank controls the servicing or provides support for assets in the trusts. "It will require institutions to bring a lot more assets on the balance sheet," Comptroller of the Currency John Dugan said at a Federal Deposit Insurance Corp. board of directors meeting. As part of the proposed rulemaking, the FDIC is seeking information on what assets will likely be consolidated and how it will impact lending and securitization activities. The proposal also asks whether a phase-in of risk-based capital requirements over four quarters is needed. Comments are due in 30 days. The new accounting rule goes into effect at the yearend. Separately, the FDIC agreed to extend its Temporary Liquidity Guarantee Program until June 30, 2010. This program provides unlimited insurance for servicer accounts and other non-interest bearing accounts.

There was a two basis point increase in the average rate for the 30-year fixed-rate mortgage over the previous week, according to the Freddie Mac Primary Mortgage Market Survey for the week ended Aug. 27. The current rate of 5.14% with an average of 0.7 points is still well below the average rate of 6.4% for this week one year ago. The 15-year FRM had a similar increase to the 30-year FRM as this week it averaged 4.58% with an average of 0.7 points, up from last week when it averaged 4.56%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.67% this week, with an average of 0.6 points, down from last week when it averaged 4.57%. One-year Treasury-indexed ARMs averaged 4.69% this week with an average of 0.6 points, unchanged from last week. "Long-term mortgage rates were barely changed this week, remaining historically low, which is helping to sustain a high level of affordability in the home-purchase market," said Frank Nothaft, Freddie Mac vice president and chief economist.

The Federal Reserve Board is now seeking public comment on a Truth in Lending Act proposal that could completely change the way most mortgage brokers and loan officers are compensated. The proposed rule pushes the industry toward paying originators a flat fee that is stated upfront and cannot be increased due to changes in the interest rate or changes to other loan terms. Consumers can still finance closing costs and origination fees, "provided this does not affect the amount the originator receives for the transaction," the Fed says. If finalized, the TILA proposal will "dramatically alter compensation for all mortgage originators, whether they are loan officers in retail operations or mortgage brokers," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington. Compensation based on loan volume, the performance of loans delivered by an originator or hourly wages is permissible under the proposal. The Fed is specifically seeking comment on whether it should allow compensation based on the loan amount, which is not an uncommon practice. The comment period on the 195-page proposal ends Dec. 24. The Fed also issued a separate TILA proposal that would create an entirely new disclosure regime for home-equity lines of credit and new safeguards for consumers. The comment period on the HELOC proposal also ends on Dec. 24.

State credit union regulators said the second quarter saw a continued increase in loan delinquencies and loan losses, most of it concentrated in mortgage loans, and of troubled institutions among California's credit unions. The delinquency ratio for all California credit unions topped 2% at midyear, with state charters particularly hard-hit at over 2.2%, William Haraf, commissioner of the state's Department of Financial Institutions, told the California CU League. That compares to a delinquency ratio of 1.58% for all credit unions nationwide at midyear. Loan defaults surged by 12% during the second quarter to more than $1 billion, while the charge-off ratio rose to almost 2%. Delinquencies among real estate loans continued to rise even faster, by 27% in the second quarter to $680 million. Delinquencies for member business loans also spiked in the second quarter to 1.78%, from 1.23% in the first quarter, the DFI commissioner reported. In addition, the number of problem credit unions, those rated CAMEL 3, 4 or 5, rose to 53, from 41 at the end of the first quarter, even as several troubled institutions, like American River HealthPro CU, E1 Financial CU and Community Trust CU, were merged out.

Appraisal management companies are not to blame for real estate deals falling apart, the chief compliance officer for the nation's first AMC said in an interview. Donald Blanchard of Lender Processing Services, the parent of LSI, an AMC which has been in business 25 years, said that while his company is "agnostic" concerning the Home Valuation Code of Conduct, it has decided to get out the word that AMCs are not the source of the problem. He cited statistics that show home values nationwide are down 15% to 20%; consequently property valuations would be lower. Furthermore, we are in a slow recovery process from the tumult of the last few years. Another contributory factor is that about 30% of home sales right now are from real estate-owned or distressed sales, which also bring down values. The company checked its data, he said, and found that 85% of the appraisals last year met the underwriting criteria for the loan to be made. Mr. Blanchard addressed some of the other myths HVCC opponents have been pushing. For example, supposedly AMCs use inexperienced appraisers. LSI has some 20,000 appraisers on its panel, with an average tenure of over 13 years. There is a requirement of three years experience just to get on the panel, he said. The next myth is that AMCs don't pay fair fees. LSI's fees have been stable for five years and its panel appraisers understand the value added by being a member. As for the argument of out-of-area appraisers, the No. 1 criteria used to assign jobs is proximity.