Originations

The recent reversal of some positive technical conditions in the CMBS market supports the need for clarification of the Public-Private Investment Program supporting the sector as well the extension of the TALF program, according to a New Oak Capital report. "While I think that the extension of TALF for CMBS into 2010 is a positive, we'll need some more clarity around PPIP in order for the market to get back on track," said Craig Lieberman, managing director and co-head of commercial real estate at NewOak Capital, a New York advisory, asset management, and capital markets firm. He said that contributing to negative technicals seen recently in the market was "news of big CMBS borrowers like Maguire and Moinian handing over the keys on several properties," as well as an earlier announced delay of the PPIP program, followed by a large collateralized debt obligation liquidation.

The Federal Reserve Board has extended the TALF program into next year to see if the special financing facility can finally provide a boost for the commercial mortgage-backed securities market. The Fed noted that the CMBS market is "still impaired" as it extended the Term Asset-Backed Securities Loan Facility for legacy CMBS until March 31 and new CMBS until June 30. The TALF program was due to expire at yearend. But several members of Congress and commercial real estate groups have been urging the Fed to extend the program because of the limited availability of financing for maturing CRE loans. In addition, the TALF program for CMBS has gotten off to a slow start and it has only financed the purchase of $670 million in legacy CMBS so far. The Fed is expected to approve the first new CMBS deals using TALF financing on Thursday (Aug. 20).

Single-family housing starts rose 1.7% in July following a 17% surge in home construction during the previous month. The U.S. Census Bureau reported that single-family housing starts increased at a seasonally adjusted annual rate of 490,000 in July, up from 482,000 in June, as construction activity rose for the fifth consecutive month. The June rate was revised upward from 470,000, which means starts jumped by 17.3% from May to June, higher than the 14.4% the Census Bureau reported last month. The Census Bureau also reported that multifamily starts fell to an all-time low of 80,000 units in July, down 72% from a year ago. "The credit market and overbuilding are hammering multifamily housing construction," IHS Global Insight economist Patrick Newport said. He noted that the securitization market collapsed in 2008 and the banks have tightened credit on commercial real estate mortgages. "Going forward, multifamily starts are nearing a bottom, and should start growing later this year," Mr. Newport said.

After being found guilty of fraud and money laundering charges in connection to participating in a commercial mortgage fraud scheme, Larry P. Nardelli of Tampa, Fla., has been sentenced to 48 months in federal prison and ordered to pay $26.3 million in restitution. According to A. Brian Albritton, U.S. attorney for the Middle District of Florida, Nardelli and his co-conspirators agreed to purchase and immediately "flip" vacant land for double the money by falsely obtaining loans for the land. Nardelli entered into sham contracts that falsely represented to victim banks that the contract proceeds gave him the equity necessary to purchase the vacant land. The banks unwittingly loaned money for approximately 140% of the value of the land. The conspirators then purchased the land and distributed the excess funds among themselves in various amounts. The loans went unpaid. Two co-conspirators, Michael Tringali and closing attorney John Yanchek previously pleaded guilty and have been sentenced. One conspirator, Neil Mohamed Husani is in Jordan, and efforts are underway to extradite him back to Florida for prosecution.

Farmington Hills, Mich.-based XSite Validation has launched a tool designed to evaluate overall "toxicity" in commercial loan pools. The tool can see into each and every commercial property loan in a portfolio, ranks all performing, non-performing and REO properties from "First to Worst," allows for quick reassessment of the concentration of types of properties within loan portfolios, and provides the "best use" evaluation of every loan portfolio property by presenting the top five potential uses of each property. For every property in a financial institution's portfolio, XSite uses its patent-pending XRI Scoring System, which assesses the "market viability of a property for its current or proposed commercial use, in conjunction with the financial institution's own loan grade/risk factors, to create a unique "Composite XRI Score." XSite's Composite XRI Score gives banks a single measurable that joins the financial viability and the market viability of the commercial property into one "go / no-go" decision-making factor.

Keefe, Bruyette & Woods, New York, has made some changes to the KBW Mortgage Finance Index. Effective Aug. 19, it is deleting homebuilder and mortgage company Centex Corp., Dallas, because it is being acquired by another publicly traded homebuilder, Pulte Homes. Bloomfield Hills, Mich.-based Pulte will see an increase in its shares in the composition of the index as a result of the deal. MGIC Investment Corp., Milwaukee, Wis., will be added to the index as a replacement for Centex. The last change, and the only one not related to the Pulte-Centex deal, is that Ocwen Financial Corp., West Palm Beach, Fla., is having an increase in its shares included in the index as a result of its equity offering.

BB&T Corp., Winston-Salem, N.C., did not acquire any assets and liabilities relating to Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., in its acquisition of the banking operations of failed Colonial Bank, Montgomery, Ala. A statement from the company also declared assets and liabilities that the Federal Deposit Insurance Corp. determines are related to fraudulent or criminal activities are excluded from the purchase as well, leaving the future of Colonial's warehouse lines in doubt. Further BB&T said FDIC indemnifies it "for any liabilities not expressly assumed in the transaction, including those related to fraudulent, criminal or inappropriate activities of Colonial." Colonial's Orlando mortgage warehouse business offices and TBW were raided by federal agents recently working under the auspices of the Special Investigator General for the Troubled Asset Relief Program. Colonial later said it was the target of a U.S. Department of Justice criminal investigation relating to its mortgage warehouse lending business. Calls to FDIC and BB&T about Colonial's warehouse lines to about 70 lenders were not returned by deadline.

Freddie Mac borrowers are increasing their interest in 15-year fixed-rate mortgages but continue to shun adjustable rate loans, according to second quarter loan figures released by the GSE. While the 30-year FRM remains the preferred product of choice — with both 30- and 15-year rates at or near their historical lows — some borrowers are finding 15-year payments more affordable while providing an opportunity to lessen their loan terms as well as their rates. In 2Q borrowers continued to show an increasing preference for FRMs: 99% of Freddie Mac borrowers that had an ARM switched to a FRM. In the first quarter the ratio was 98%.

Every month Fannie Mae and Freddie Mac are paying bondholders about $1 billion to cover seriously delinquent homeowners. Guaranteeing timely payments on MBS and supplying liquidity to the primary mortgage market is the government-sponsored enterprises' main business. But once a loan has been delinquent for four months Fannie and Freddie can buy it out of the pool and stop advancing unpaid interest to investors. Ajay Rajadhyaksha, an analyst with Barclays PLC, said the companies should exercise this right a lot more often than they have been. "Every day that passes," he said, "is another day in which wealth is transferred from the U.S. taxpayer" to bondholders. The problem is that such buyouts would result in staggering hits to the GSEs' capital. Under bondholder agreements, Fannie and Freddie would have to pay 100 cents on the dollar for the loans, but under accounting rules, they would have to then write the mortgages down to their steeply discounted market prices. The paper losses would in turn force the GSEs to accelerate their draws on the $400 billion backstop the Treasury is providing. Analysts said such a course would run counter to the aspiration that at least some part of the companies emerge from conservatorship intact. Fannie and Freddie declined to discuss the issue.

The Department of Housing and Urban Development has issued guidance to give settlement service providers a better understanding of a RESPA rule that goes into effect January 1, but it doesn't get into the more complicated issues that some lenders and title companies are "grappling with," one expert said. RESPA attorney Phillip Schulman noted that the written responses HUD has provided to frequently asked questions will be "informative and instructive" for those who are not familiar with the Real Estate Settlement Procedures Act rule. However, the new RESPA rule completely revises the HUD-1 settlement sheet and requires lenders to provide a standardized good faith estimate disclosure to mortgage applicants. "For lenders and title guys who have been struggling to put the software together — to be able to complete the revised HUD-1 and GFE — the instructions were lacking," Mr. Schulman said. The K&L Gates Washington partner is hoping HUD will do a second round of frequently asked questions to address some of the more difficult issues.

Contraction in the mortgage broker arena may be even greater than most realize, if statistics presented in Savannah at the American Association of Residential Mortgage Regulators' annual conference are on target. According to data compiled by the National Mortgage Licensing System, only 49% of the nearly 90,000 brokers licensed in 14 states signed up to be on the mandatory NMLS system. Worse, just 36% of those who went on to the NMLS have renewed their licenses. "It's unbelievable how quickly things have changed," remarked Bill Matthews, president of the State Regulatory Registry, the Conference of State Bank Supervisors' affiliate which operates the NMLS. The 14 states are the earliest adapters of the NMLS and have been on the system long enough to go through their first renewal period. They are: Connecticut, Iowa, Idaho, Kentucky, Louisiana, Massachusetts, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Rhode Island, Vermont and Washington.

Deutsche Bank is beginning to make a run at non-bank mortgage lenders, offering them warehouse lines of credit but also requesting that they sell their loans to the bank on a correspondent basis, according to investment banking sources. At press time Detusche Bank could not be reached for comment. Meanwhile, there is a new concern among some warehouse managers and consultants that with Government National Mortgage Association president Joe Murin stepping down, the agency's effort to aid the warehouse lending industry could be delayed or even imperiled. "He was definitely the point guy there on the issue," said one warehouse consultant, requesting anonymity. In other warehouse news, there are new reports that BB&T Corporation is the leading bidder to buy Colonial Bancshares of Alabama, the troubled bank that is also the nation's largest warehouse provider. BB&T is already in the warehouse business.

FNC Inc., Oxford, Miss., has signed a three-year deal with credit and debit card processing firm Elavon, a wholly owned subsidiary of US Bancorp. The appraisal management company said the agreement is to help its customers comply with the Home Valuation Code of Conduct. Under HVCC, mortgage brokers can no longer pay for appraisals directly. Lender clients can pay for appraisals through the dashboard of FNC's Collateral Management System as a result of the agreement, the company said.

A real estate company owner who obtained over $4 million in mortgage loans through fraudulent means has pleaded guilty to his role in the scam. Michael I. Striker of Minnetonka, Minn., was the president and sole owner of U.S. Equities of Minnesota, a real estate company that entered into 21 real estate loans with Associated Bank from March 2003 to September 2003, according to Frank J. Magill, U.S. attorney for the District of Minnesota. A co-defendant was a construction loan officer at the bank who processed and approved the loans, which totaled more than $4 million. Striker admitted those loans were approved based on false and misleading information he submitted. In total, Striker obtained more than $724,000 in cash back at the closings on the loans. Although the loans were purported to be for construction rehab projects, Striker admitted he used some of the loan funds for unrelated expenses and debts. Furthermore, Striker paid more than $100,000 in brokerage fees to a mortgage brokerage company even though it did not broker any of the loans. U.S. District Court Judge Joan Ericksen will determine his sentence at a future date.

Moody's Investors Service ratings on 159 classes from 12 commercial mortgage-backed securities transactions worth about $6.3 billion could face downgrades due to uncertainty surrounding Maguire Properties Inc. "Additional material exposure to Maguire loans exists in other CMBS transactions, however Moody's has already accounted for such exposure in previous rating actions," the rating agency added. In other deals, "the smaller relative share of Maguire exposure within each deal does not necessitate the transaction being placed on review at this time as any potential losses are consistent with our current ratings," said Moody's senior vice president Michael Gerdes. Uncertainty about Maguire stems from second quarter earnings that showing the company "continues to experience ongoing levels of high effective leverage, declining operating performance and an inability to cover dividends from operating cash flow," he said. In addition, as part of a reorganization plan to put the company back on track, it has advised the master servicer for six mortgages in CMBS transactions that it would no longer fund cash shortfalls associated with those loans, making it likely that this imminent default would lead to their transfer into special servicing, according to Moody's. "Most Maguire properties are located in California in either Los Angeles or Orange counties, both of which have experienced significant rent and occupancy declines," the rating agency said.

In what is being hailed as practically warp speed for legislation, all but two states have now acted to implement provisions of the federal Secure and Fair Enforcement for Mortgage Licensing Act. Signed by President Bush on July 30, 2008, the SAFE Act gave states one year to pass laws requiring the licensing of loan originators according to national standards and start participating in the National Mortgage Licensing System. As of Aug. 8, 48 states and the District of Columbia have done so. California is expected to comply this month or next, leaving Minnesota as the lone holdout. The states have been aggressive, Bill Matthews, president of the Conference of State Bank Supervisors' subsidiary which runs the NMLS, said at the American Association of Residential Mortgage Regulators' annual conference in Savannah, Ga. "You tell me anytime in history that all states have acted so quickly? This is a huge lift," he said. AARMR Secretary Rod Carnes of North Carolina's Department of Banking and Finance, agreed: "I think this speaks volumes for the states." Mr. Matthews said CSBS is now in the process of adding "functionality" to meet the SAFE Act's other requirements, including a streamlined renewal component and consumer access.

The troubled Federal Home Loan Bank of Seattle reported a $34.3 million loss for the second quarter, up 50% from the first quarter, and it plans to submit a recapitalization plan to the GSE regulator before Aug. 24. The Federal Housing Finance Agency has classified FHLB-Seattle as "undercapitalized" due to continuing losses on its investments in private-label mortgage-backed securities. FHLB-Seattle said it held $3 billion of regulatory capital as of June 30. "Although the bank did not comply with its risk-based capital requirements as of June 30, 2009, the bank was in compliance with all of its regulatory capital requirements as of July 31, 2009," the bank said in releasing its second quarter results. It took $61.8 million in credit-related impairment charges in the second quarter, compared to a $71.1 million other than temporary impairment credit-related charge in the previous quarter. "We have seen some recent improvement in the market values of some of the mortgage-backed securities we own," FHLB-Seattle president and chief executive Richard Riccobono said. The $50 billion-asset bank has $5.3 billion invested in private label MBS, mostly backed by Alt-A and subprime loans.

The Federal Reserve said it would continue to support mortgage lending and the housing markets by purchasing agency mortgage-backed securities after concluding a two-day meeting of its Federal Open Market Committee. The FOMC members renewed the Fed's commitment to purchase up to $1.25 trillion in MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae by the end of this year. The Fed has purchased $721.2 billion in agency MBS since last December. "Although economic activity is likely to remain weak for a time, the committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in the context of price stability," according to a FOMC statement. The Federal Reserve also renewed its commitment to purchase $200 billion in Fannie, Freddie and Federal Home Loan Bank debt by yearend. It has already purchased $107.3 billion in agency debt.

The average 30-year mortgage rate could give up some of the slight week-to-week gain seen in Freddie Mac's most recent survey if the declining trend seen this week in a benchmark bond yield continues. The average 30-year rate according to the Freddie Mac Primary Market Mortgage Survey for the week ended Aug. 13 rose to 5.29% compared to 5.22% the previous week due to a slight improvement in the still-weak labor market. The employment statistics drove the benchmark 10-year bond yield higher to levels near 3.85% on Aug. 7, but since then the yield has generally dropped and as of noon Thursday it was at about 3.66%. The current 30-year rate still remains far below the 6.52% 30-year rate seen a year ago. The average rate for a 15-year fixed-rate mortgage in the most recent week was 4.68%, up from 4.63% the previous week and down from 6.07% the previous year. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 4.75%, up from 4.73% the previous week and down from 6.02% a year ago. The average rate for a one-year Treasury ARM was 4.72%, down from 4.78% the previous week and 5.18% a year ago. Average points were 0.7 for 15- and 30-year loans, 0.6 for five-year Treasury hybrids, and 0.4 for one-year Treasury ARMs.

Franklin American Mortgage Co. of Tennessee, a top 20-ranked lender, has suspended the origination of jumbo loans through brokers. In a memo to its broker clients, Andrew Taylor, the company's director of national sales, said, "Due to constricting secondary market options and continued lack of demand for conventional nonconforming (jumbo) products, FAMC is temporarily suspending this product offering." The non-bank lender said rate lock requests would be accepted if they were filed by close of business Wednesday, Aug. 12. It's believed that one of Franklin's warehouse lenders is the troubled Colonial Bancshares of Alabama. The company did not return a telephone call about the matter.