Originations

The mortgage banking firm Taylor, Bean and Whitaker, which recently ceased making mortgages, originated an estimated $22 billion in Federal Housing Administration-insured loans over the past 24 months, which represents 4.5% of the FHA's total business during that period. TBW was FHA's third largest direct endorsement lender and it approved 119,800 loans over the past two years. However, 7.1% of those FHA-insured loans are 90 days or more past due or in foreclosure, according to FHA's Neighborhood Watch System. The average default rate for FHA loans is 4.6%. Based on a higher than average claim rate and loss severity rate of 40%, FHA could face possible losses of $800 million to $900 million due to its exposure to TBW, one source said. As previously reported, the Department of Housing and Urban Development on Aug. 4 suspended the Ocala, Fla., mortgage banking firm from making FHA loans. Freddie Mac also terminated TBW on Aug. 4. In a recent securities filing, Freddie said approximately 5.2% of its mortgage purchase volume in 2008 came from TBW and TBW accounted for 2.7% of its mortgage purchases during the first half of this year.

The Federal Housing Administration has no plans to implement the Home Valuation Code of Conduct, Commissioner David Stevens told a delegation from the National Association of Mortgage Brokers. NAMB's FHA chairman John Councilman, who attended the meeting, reported that Mr. Stevens said he was well aware of the problems originators have been having with the code, which only applies to loans sold to Fannie Mae and Freddie Mac. That being said, the commissioner added FHA is looking at alternatives it feels would insulate appraisers from pressure from originators. Mr. Stevens also told NAMB that plans for FHA to start risk-based pricing for mortgage insurance on Oct. 1 will not be implemented anytime soon. The meeting also clarified upcoming changes in the Real Estate Settlement Procedures Act as it applies to FHA. Mortgage brokers will no longer be allowed to charge discount points starting on Jan. 1, 2010. The 1% fee limitation has been removed, and there is no limit as long as the fees are customary to the market. Furthermore, all fees, including those that are charged by the lender, must be lumped into one sum. A yield-spread premium may be charged, but it must be disclosed on a separate line on the good-faith estimate. FHA reserves are higher than they have ever been, Mr. Stevens told NAMB. That being said, he would not rule out that the government would have to bail out FHA because those reserves are projections and those projections could be changed. Still the average credit score for the program has risen from 633 to 693, due to the elimination of what were termed "troublesome programs" such as seller-paid downpayment assistance and cash-out refinancings.

Mark M. Mr. Benun of New York has been charged with fraudulently selling a Bronx building for more than $5 million and not disclosing several liens on the property. According to Preet Bharara, U.S. attorney for the Southern District of New York, Mr. Benun and a real estate company operator purchased a commercial property in the Bronx near Yankee Stadium for $9.5 million. Mr. Benun, purporting to be the sole owner of the property, allegedly sold it for approximately $5.96 million to another buyer, who paid $4 million in cash and gave Mr. Benun a note for the remaining $1.96 million. Shortly after the sale, Mr. Benun is alleged to have sold the note for $1.46 million. To establish his apparent sole ownership of the building, Mr. Benun allegedly created false satisfactions of the three mortgages on the property and transferred ownership of his co-purchaser's majority interest in the property to himself. U.S. District Judge Victor Marrero has been assigned to the case. Mr. Benun was unavailable for comment.

Single-family existing home sales jumped 6.5% in July from the previous month as "demand for foreclosed and lower-priced homes spiked," according to the National Association of Realtors. NAR reported that sales of previously owned SF homes rose to a seasonally adjusted annual rate of 4.61 million in July, up from 4.33 million in June. "The housing market has decisively turned for the better," said NAR chief economist Lawrence Yun, who noted that sales have increased for four consecutive months. First-time homebuyers who are eligible for an $8,000 tax credit purchased 30% of the homes, and distressed sales made up 31% of transactions. "In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and the lack of inventory is becoming a common complaint," Mr. Yun said. The median existing single-family home price was $178,300 in July, which is 14.6% below the sales price a year ago. The NAR report also shows that the inventory of unsold existing homes fell to an 8.6-month supply in July, down from a 10.4-month supply a year ago.

The Federal Reserve accepted $2.3 billion in investor requests for financing to purchase legacy commercial mortgage-backed securities at the second TALF subscription, up from $669 million at the first subscription in July. The Fed's Term Asset-Backed Securities Loan Facility also provides financing for newly issued CMBS but there were no takers at the Thursday (Aug. 24) subscription. It is understood that several real estate investment trusts are gearing up to sell CMBS and may participate in the September TALF subscription. At the urging of commercial real estate interests, the Federal Reserve Board recently extended the CMBS TALF program until March 31 for legacy bonds and June 30 for newly issued bonds. The TALF program was due to expire at yearend.

Fannie Mae Delegated Underwriting and Servicing credit facilities structured and executed as mortgage-backed securities have been scarce, but there have been signs they may be making a comeback. PNC said recently it originated a $420 million Fannie Mae DUS MBS credit facility for Houston-based multifamily real estate investment trust Camden Property Trust. It represents the first Fannie Mae DUS credit facility of this type since 2007. The Pittsburgh-based PNC said the facility was structured using 11 separate Camden multifamily assets with a combined total of nearly 5,000 units located in California, Colorado, Georgia, Maryland and Texas.

The new Federal Housing Administration commissioner said the suspension of Taylor, Bean & Whitaker should send a clear message to the mortgage industry that FHA will not do business with lenders that don't play by the rules. "If you don't operate within our standards — if you don't act transparently and ethically — we won't do business with you," FHA commissioner David Steven said in a recent speech that was just released by the agency. The Department of Housing and Urban Development suspended TBW from making FHA single-family loans on Aug. 4 after it learned the Ocala, Fla.-based lender failed to provide financial statements and did not disclose that it was the target of two separate investigations. Shortly afterwards, TBW ceased originating loans. On Aug. 14, Mr. Stevens told a Housing Renaissance meeting in San Diego that FHA will improve lender monitoring as well as tighten product guidelines and counterparty requirements to "ensure the strength of the FHA Mutual Mortgage Insurance Fund over the long term."

Federal Housing Administration officials expect to insure over two million single-family loans in fiscal year 2009, which ends September 30, and 2.25 million in FY 2010. During the first three quarters of FY 2009, FHA endorsed approximately 1.39 million loans totaling $255.8 billion. To reach two million, FHA will have to endorse over 600,000 mortgages in the final quarter. The latest "FHA Outlook" report shows the agency insured 197,600 loans, including FHA-insured reverse mortgages, in July, which is a new record for the agency. "Given our expectation that FHA loan volumes will continue to be high until the credit crisis passes, we have just received authorization by Congress for the authority to endorse up to $400 billion for FHA insurance and are asking the same for next year," FHA commissioner David Stevens said in an Aug. 14 speech that was just released by the agency. Based on average loan size, FHA loan volume will hit $367.5 billion if two million loans are endorsed.

Jake David Abegg Whitman of Mesa, Ariz., pleaded guilty to federal fraud charges related to his participation in a cash-back mortgage fraud scheme involving 19 unimproved residential properties in the greater Phoenix area. According to John J. Tuchi, U.S. attorney for the District of Arizona, Whitman played a leadership role in a conspiracy to obtain mortgage loans that were substantially larger than the actual value of the properties. Whitman owned 10 of the properties and served as branch manager of the mortgage broker Academy Mortgage that processed the loans. Whitman worked with an appraiser to obtain inflated appraisals for the properties and recruited buyers to purchase the properties at the inflated prices. To overcome the buyers' inability to provide the down payment, Whitman secretly supplied the down payment to the buyers and also provided cash back to the buyers at closing. The properties eventually went into foreclosure and cost lending institutions nearly $1 million in losses. Whitman is cooperating with authorities in the prosecution of others. U.S. District Judge G. Murray Snow has scheduled sentencing for Oct. 26.

Commercial real estate is expected to remain weak into 2010, but recent actions by the Federal Reserve should improve some flow of capital into commercial lending, the National Association of Realtors' forward-looking Commercial Leading Indicator for Brokerage Activity shows. The Indicator declined 1.3% to an index of 101.5 in the second quarter from a downwardly revised reading of 102.8 in the first quarter, and is 13.7% below the 111.9 recorded in the second quarter of 2008. The index is at the lowest level since the first quarter of 1994. NAR's tracking of the indicator dates back to 1990. NAR chief economist Lawrence Yun said that the pace of decline moderated, but the leading indicator has fallen sharply and quickly from the peak, suggesting much lower business opportunities for commercial real estate practitioners engaged in leasing, sales and property management. "The reduction in commercial real estate activity is expected at least through the first quarter of 2010," he said. "Any meaningful recovery is not likely to occur before the second half of next year." However, Mr. Yun added that with the economic recession likely coming to an end within six months, a recovery in commercial real estate might soon follow.

The Mortgage Bankers Association took an $8.6 million loss for the fiscal year ending September 30, 2008 as the mortgage crisis took its toll on MBA members and the trade group's revenues fell by 31% to $39.4 million. In fiscal year 2007, MBA generated a $6.7 million surplus with total revenues of $57.1 million, including $13.9 million in member dues and assessments. In its latest annual filing with the Internal Revenue Service, MBA reported that dues and assessments fell by 20% to $11.1 million. MBA expects to take another loss in FY 2009 and show a positive result in FY 2010, according to MBA spokeswoman Cheryl Crispen. MBA's board of directors has just approved its FY 2010 budget and it shows a "balanced, slightly positive" budget, she said. MBA moved into its newly constructed headquarters in June 2008 that is listed as a $98.6 million asset on the IRS report. MBA planned to lease out 60% of the building but reported no rental income. MBA has leased some of the space and there is "substantial interest" in the remaining office and retail space, Ms. Crispen said.

Benchmark bond yield activity suggests the average rate for a 30-year fixed-rate conforming mortgage is stabilizing after dropping over the course of the past week to close to a three-month low. The benchmark 10-year Treasury yield, which is roughly indicative of mortgage rate direction, was at about 3.46% near noon on Aug.20, just slightly higher than where it was at the same time the day before. A steep drop in that benchmark yield had contributed to a decline in the average rate for a 30-year fixed-rate mortgage to 5.12% from 5.29% the week before and from 6.47% a year ago during the week ending Aug. 20, according to Freddie Mac's weekly primary market survey. "U.S. Treasury bond yields fell nearly a quarter of a percentage point over the week, and other long-term yields followed suit," said Frank Nothaft, Freddie Mac vice president and chief economist. "Interest rates on 30-year and 15-year fixed-rate mortgages fell to the lowest level since the end of May, while initial rates on 5/1 hybrid ARMs declined to levels not seen since January 2005." The average 15-year FRM rate fell to 4.56% from 4.68% a week ago and 6.00% from a year ago. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage slipped to 4.57% from 4.75% a week ago and 5.99% a year ago. Finally, the average one-year Treasury ARM rate dropped to 4.69% from 4.72% a week ago and 5.29% a year ago. Average points were 0.7 for 15- and 30-year FRMs, 0.6 for five-year hybrids and 0.5 for one-year ARMs.

Although delinquencies for residential properties continued to climb in the second quarter of 2009, the rate of new foreclosures started was essentially unchanged from last quarter's record high, according to the Mortgage Bankers Association's national delinquency survey. The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a rate of 9.24% of all loans outstanding at the end of the second quarter of 2009, up 12 basis points from the first quarter of this year and up 283 basis points from the second quarter one year ago. According to the MBA, the percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter. The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985. The percentage of loans in the foreclosure process at the end of the second quarter was 4.3%, up 45 basis points from the first quarter of 2009 and 155 basis points from one year ago. The combined percentage of loans in foreclosure and at least one payment past due was 13.16% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey. The percentage of loans where foreclosure actions were started during the second quarter was 1.36%, down one basis point from last quarter and up 28 basis points from one year ago. "There was a major drop in foreclosures on subprime ARM loans," said MBA's chief economist Jay Brinkmann. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase." California, Florida, Arizona and Nevada continue to have a disproportionately high share of foreclosure starts, although the share has fallen slightly from last quarter. Those states had 44% of all new foreclosures in the U.S. during the second quarter 2009, down from 46% in the first quarter 2009.

Fitch Ratings is looking more closely at U.S. banks' commercial real estate exposure, noting that current indicators suggest continued deterioration could surpass its current expectations. The rating agency said it is currently gathering more specific information from the more than 75 bank and thrift institutions it rates on those institutions' CRE exposure. Fitch currently assigns negative outlooks to nearly half of the U.S. bank and thrift institutions it rates and has noted that "a major concern contributing to these negative outlooks is the potential for further deterioration in the institutions' loan portfolios with a specific focus on CRE exposures." While CRE loans, excluding the more problematic construction and development portfolios, represent more than 125% of total equity for the 20 largest banks rated by Fitch, the risk is even higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200% of total equity for these institutions," Fitch said. "The analysis of the additional data will assist in highlighting which, if any, institution's portfolios are particularly vulnerable to an extended period of stress," the rating agency said.

John MacFarland has joined the independent real estate firm of Resource Title as senior vice president, National Commercial Division, to develop and grow certain lines of business at the company. Mr. MacFarland will spearhead the division's growth into the commercial real estate owned and default market segments, and take part in developing and servicing more traditional commercial and investment transactions as well. The company, based in Independence, Ohio, has been servicing the commercial market nationwide for twenty-five years, recently opening a second office in Chicago to serve its commercial customers. Resource Title also offers nontraditional services in the relocation, default and REO fields. Mr. MacFarland's arrival will enhance an already considerable national commercial presence, said Andrew Rennell, executive vice president.

Summer homebuying, especially among first-timers, brought a significant improvement to Houston's housing market in July, according to the Houston Association of Realtors. Despite a year-over-year sales decline of 5.1%, the volume of resales was the greatest in 12 months, according to HAR. Better yet, the median price of single-family house sold in the month — $163,000 — was the second highest since the group began compiling such stats, and just $1,500 below the all-time set in June. Moreover, while the average price dipped 1.8% to $220,030, it, too, was the second highest ever. Better yet, perhaps, is the fact that foreclosure sales continued to slow. Duress properties accounted for just 16.6% of all single-family sales in the month, compared to 18% a year ago and 34% as recently as January. In total, 6,744 properties of all types changed hands in July in the greater Houston area. "Strong pricing performance, an easing decline in sales volume and the slowdown of foreclosure sales make for very positive indicators about the state of Houston's real estate market," said HAR Chair Vicki Fullerton, who is broker of record at RE/MAX of The Woodlands & Spring.

Homeowners' perceptions of the housing market are improving, with over eight in 10 believing their home's value will increase or stay the same in the next six months, according to the Zillow 2Q Homeowner Confidence Survey. This is the highest percentage recorded in this category since the survey in the second quarter 2008. But the company's economist thinks such optimism is misplaced. Approximately 60% believe their homes lost value in the preceding 12 months; Zillow compared this to its real estate market reports, which showed 83% of homes lost value during that time. This gives the Home Value Misperception Index for the quarter a value of 13, up from 6 in the first quarter but down from 32 one year prior. When the index is zero, homeowners' perceptions are in line with reality. Stan Humphries, Zillow chief economist, said "While their perceptions of past declines in their homes' values have gotten more realistic over the past year, each quarter homeowners express the opinion that the worst is behind them. Unfortunately, that has not been the case thus far and it's far from clear that it's the case today. Despite some signs of slowing depreciation in many markets in the second quarter — the height of the 2009 homebuying season — there are many market fundamentals that will challenge home prices in the near-term: high for-sale inventory levels, foreclosures, negative equity, and price-to-rent ratios that still aren't back to historical levels yet."

Interest rate volatility has had a large effect on the refinance component of the Mortgage Bankers Association Market Composite Index in recent weeks. Two weeks ago, the Refinance Index increased 7.2%; last week it declined 7.2%. For the week ended Aug. 14, the index increased 6.9%. The MCI gained 5.6% on a seasonally adjusted basis for the most recent period, after a drop of 3.5% for the week prior. On an unadjusted basis, the Index increased 4.8% compared with the previous week and increased 25.0% compared with the same week one year earlier. The MCI is calculated from the MBA's Weekly Mortgage Applications Survey. MBA stopped disclosing index values with the July 31 data release. MBA noted the seasonally adjusted Purchase Index has been less sensitive to interest rate swings. It increased 3.9% from one week earlier, the third gain in the Purchase Index in a row and fourth in the past five weeks. The share of refinancing applications increased to 53.3% of total applications, up from 52.3% the previous week. The adjustable-rate mortgage share of activity has been increasing as of late. At the end of last year, ARMs were just 0.9% of mortgage applications. In the most recent survey their share increased to 6.5% from 5.8% of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages fell to 5.15% from 5.38%, with points decreasing to 0.98 from 1.18 (including the origination fee) for loans with an 80% percent loan-to-value ratio, the association reported. The average contract interest rate for 15-year FRMs declined by 19 basis points to 4.52%, while for one-year adjustable rate loans, it decreased by 5 BPs to 6.66%.

BB&T has acquired all of the mortgage warehouse assets from the failed Colonial Bank, except for those associated with Taylor, Bean & Whitaker, a spokesman for the Federal Deposit Insurance Corp. said. A BB&T spokeswoman added that the company is currently evaluating Colonial's warehouse business. BB&T does have a warehouse lending business of its own, but it is very small, she said. In its statement on the Colonial acquisition, BB&T said it did not acquire any assets relating to TBW. The FDIC spokesman said those assets are primarily mortgage loans and are currently involved in litigation. Bank of America last week sued Colonial over $1 billion in collateral associated with TBW affiliate Ocala Funding LLC.

Fitch recorded a decline in commercial real estate loan collateralized debt obligation delinquencies in July but said the figure was misleading and indicated that there may be significant downgrades to all Fitch rated CREL CDOs in the coming months. Fitch said it expects to see high default rates in the sector "as these loans mature into the trough of the current commercial real estate cycle." As a result, the rating agency is finalizing its review methodology for the sector and believes this will result in several downgrades. In July, delinquencies had dropped to 7.6% from 8.2% in June, according to Fitch's CREL CDO Delinquency Index, but the decrease reflected an average of 2.7% of the CDO par balance being lost in distressed asset sales and discounted payoffs. "Had the loans, which were resolved at a loss over the past three months ... remained in the transactions, the CREL DI would have exceeded 9%," Fitch said.