Originations

The Mortgage Bankers Association Market Composite Index increased 4.4% on a seasonally adjusted basis for the week ended July 31 when compared with the previous week. The MCI is calculated from the MBA's Weekly Mortgage Applications Survey; starting with this week's release, the group no longer discloses specific application values. On an unadjusted basis, the index increased 4.1% when compared with the previous week and 18% when compared with the same week one year earlier. The Refinance Index increased 7.2% from the previous week. MBA noted this index has increased 35% since hitting its recent low at the end of June. The seasonally adjusted Purchase Index increased 0.9% from one week earlier. The index has experienced little change over the last three weeks, MBA said. The share of refinancing applications increased to 54.2% of total applications, up from 52.6% the previous week. The adjustable-rate mortgage share of activity decreased to 5.4% from 5.5% of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.17% from 5.36%, with points increasing to 1.02 from 0.93 (including the origination fee) for mortgages with an 80% loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs declined 15 basis points to 4.6%, while for one-year adjustable-rate loans, it increased by 1 basis point to 6.67%. The MBA can be found online at http://www.mortgagebankers.org.

After pleading guilty to a $1 million scheme involving the approval and disbursement of two fraudulent home equity loans, four individuals, including two bank insiders, were sentenced to prison. U.S. District Judge Alan S. Gold sentenced Ramon Puentes to 57 months in prison and five years of supervised release, Jorge Nobrega to 27 months and five years of supervised release and Jorge Arrieta to 22 months and five years of supervised release. Sebastian Kishinevsky, who cooperated with the government and assisted with the investigation, received a sentence of six months in prison, six months of home confinement and three years of supervised release. Judge Gold also ordered Puentes and Nobrega to each pay $796,700 in restitution, Arrieta $470,000 and Kishinevsky $326,700. According to Jeffrey H. Sloman, U.S attorney for the Southern District of Florida, the defendants obtained two fraudulent loans, one from Bank of America and one from Wachovia, for $500,000 each. They submitted the loan applications using the stolen identification information of one of the defendant's mother-in-law and supported by fraudulent documents. Each application listed the mother-in-law as the borrower and a home owned by the mother-in-law as collateral. The Bank of America application was submitted to Arrieta, a personal banker at Bank of America. The Wachovia application was submitted to Kishinevsky, a financial specialist at Wachovia. After the loans were approved, the defendants disbursed and shared the proceeds.

The San Francisco Federal Home Loan Bank Cost of Funds Index for June 2009 is 1.599% — a decline of 23 basis points from May's 1.832%. This is the second large abrupt change in direction in COFI in the past two months, with the index reporting its second biggest rise ever between April and May. In calculating the June index, the FHLBank used average total funds of $93.5 billion and total interest expense of $124.5 million. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey for the monthly average commitment rate on one-year adjustable rate mortgage increased 18 basis points between May and June to 4.93%. The monthly average commitment rate for the 30-year fixed rate mortgage is 5.42% in June, up 56 basis points over May.

The latest results from London-based HSBC Holdings PLC show its mortgage business in the United States and two other regions improving in some respects, but runoff of troubled legacy assets still leaves U.S. operations with net losses. HSBC USA Inc. generated $59 million in residential mortgage banking revenue in the three months ended June 30, up from $14 million during the same period a year ago. But the unit as a whole netted a loss of $249 million for the second quarter that was greater than the $174 million loss it took in the second quarter of last year. Its HSBC Finance Corp. unit, which discontinued its real estate-secured lending earlier this year and suffers from its past subprime lending activity, took about a $5.96 billion net loss during the three months ended June 30, compared to approximately $1.44 billion during the same period a year ago. The global banking company as a whole, which reported interim results for the first six months of this year, generated a $5.02 billion profit. This was down 51% from the same period a year ago. North America was the only one of the six world regions the company does business in that did not generate a profit. In addition to the mortgage banking revenue gains noted by HSBC USA, the company said it has seen positive mortgage market developments in the United Kingdom and Hong Kong, where there have been market share gains.

GMAC Financial Services, New York, had an after-tax net loss of $3.9 billion for the second quarter 2008, which includes a $1.6 million loss on the disposition of international mortgage assets and provisions, impairments and reserves on U.S. mortgage assets. The mortgage operations reporting segment had a net loss of $1.84 million compared with a net loss of $1.76 million in the second quarter of 2008. U.S. mortgage loan volume was $18.5 billion, up from $13.2 billion in the first quarter 2009 and $17 billion in the second quarter 2008. GMAC Financial is the parent of Residential Capital LLC; the segment results include the mortgage activity at Ally Bank and ResMor Trust. The international assets sold consisted of ResCap's operations in Australia and Spain. The parent company's net loss includes a $1.2 billion tax charge as part of the conversion from a partnership into a corporation.

Pending home sales, a key leading indicator for the resale sector, were up in June for the fifth consecutive month, according to the National Association of Realtors. The last time there were five straight monthly gains was in July 2003. The index, a forward-looking indicator based on signed contracts that have not yet closed, rose to 94.6, up 3.6% from an upwardly revised reading in May and 6.7% above June 2007. NAR Chief Economist Lawrence Yun said the latest figures are yet another indication that "sales have bottomed out," and that "buyers recognize it." And he expects "the momentum to continue to build." But sales are far from even. Fueled by first-time buyers and investors, most of the activity is in the lower price ranges, which Mr. Yun said "are selling briskly." On the other hand, there is a 20-month inventory of unsold houses offered at $1 million or more. Indeed, the stock of big, expensive for-sale houses is the largest it's been in a year. The index rose from May to June in all four regions, with the South recording the biggest gain. Although it is normal for some pending sales to fall by the wayside because buyers can't qualify for financing or appraisals come in too low, the NAR economist expects existing-home sales to gradually rise over the balance of the year, with conditions varying around the country. "It appears home sales are on a sounder footing and inventory is gradually being absorbed," he said.

Federal regulators are starting to put pressure on banks to recognize losses on second liens in markets where the first mortgage is underwater due to declining house values. "Failure to timely recognize estimated credit losses could delay appropriate loss mitigation activity, such as restructuring junior lien loans to more affordable payments or reducing principal on such loans to facilitate refinancing," the Federal Deposit Insurance Corp. says in a letter to banks. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., recently urged the regulators to stop allowing banks to carry home equity loans at inflated values. "Carrying these loans at potentially inflated values may contribute to resistance on the part of servicers to negotiate the disposition of these second liens," the chairmen say in a July 10 letter. The FDIC Financial Institution Letter reminds banks of 2006 interagency guidance that says delaying recognition of losses on second liens in declining markets is an "inappropriate" accounting practice.

Colonial BancGroup Inc., Montgomery, Ala., has confirmed that federal agents affiliated with the special inspector general for the Trouble Asset Relief Program executed a search warrant at the company's mortgage warehouse lending division in Orlando on Monday. The company's statement said it was cooperating with the investigation and is conducting business as usual. There are press reports that federal agents also executed a search warrant on Colonial's former merger partner, Taylor, Whitaker and Bean, a mortgage wholesaler based in Orlando. A call to TBW was not returned by deadline. The raid on Monday (Aug. 3) came on the same day Colonial disclosed that a $300 million investment in the bank by TBW would not take place. The deal was believed to be necessary for Colonial to receive a $550 million capital infuson in TARP funds.

After allegedly preparing fraudulent notes by forging the signatures of borrowers, William Everett Nichols of Alexandria, Louisiana, has been indicted and arrested on federal fraud charges. According to Donald W. Washington, U.S. attorney for the Western District of Louisiana, the indictment alleges that Mr. Nichols, who is the president and sole shareholder of First Fidelity Mortgage Inc., knowingly and willfully conspired to devise a scheme to defraud Sabine State Bank and obtain money to which Mr. Nichols was not entitled. The defendant and others allegedly prepared fraudulent notes by forging signatures of borrowers and notaries public and delivered them to Sabine State Bank as collateral in order to cause the bank to deposit money into an account of First Fidelity Mortgage, which Mr. Nichols controlled. Mr. Nichols was unavailable for comment.

Fannie Mae issuance of mortgage-backed securities jumped 44% in June from the previous month but the mortgage giant did not report its monthly purchases of refinanced loans. Fannie saw new MBS issuance of $97.7 billion in June, up from $67.7 billion in May. This jump is most likely due to high refinancing volumes, but there are no numbers to support this as the mortgage giant omitted data on its purchases of refinanced loans in its monthly report. Freddie Mac reported earlier that its issuance of MBS in June jumped 40% and its purchases of refinanced loans were up 26% from May. The GSE regulator said on Thursday that Fannie and Freddie have refinanced over 2 million loans since March 31 and 56,000 of those loans were through the Obama administration's Home Affordable Refinancing Program. HARP is designed to help borrowers with underwater mortgages that can't qualify for regular refinancing programs. Meanwhile, delinquencies continue to creep up at the GSE. Single-family loans 90 days or more past due or in foreclosure rose by 26 basis points to 3.68% in June from the month before. A year ago, just 1.3% of single-family loans were severely delinquent or in foreclosure.

Senate Banking Committee chairman Christopher Dodd, D- Conn., has been diagnosed with prostate cancer and he will have an operation during August when the Senate is not in session. Sen. Dodd said the cancer was discovered in an early state and his "prognosis is excellent." After the Senate adjourns, "I am going to have surgery. After a brief recuperation at home, I'll be back at work," Sen. Dodd said. The Connecticut senator is running for re-election next year. Sen. Dodd also is a key player in the Obama Administration's efforts to restructure regulation of the financial system and reform health care.

The amount of primary new mortgage insurance written in June rebounded upwards from the year-to-date low totals written in May, according to information collected by the Mortgage Insurance Cos. of America. There was a total of $7.65 billion of primary new insurance written in June, compared with $6.92 billion in May. June was the best month of the year for transactions through the bulk channel, with $45.6 million, up from $18.8 million in May, the previous high for the year. Still the amount of primary insurance in force continued to decline from $922.1 billion in May to $915.1 billion in June; in December 2008, when Radian Group's performance once again was included in the statistics, the amount of primary insurance in force was $952.2 billion. There was $9.4 million of new pool risk written in June. The cure/default ratio fell from 59.8% in May to 58.7% in June, with 51,908 cures and 88,362 defaults recorded.

Mortgage Guaranty Insurance Corp., Milwaukee, has delayed its first contribution of capital to MGIC Indemnity Corp., as plans to reactivate the unit are fluid. There were plans for MGIC Indemnity Corp. to write a new book of business beginning on Jan. 1, 2010; MGIC was worried it would not be able to write new business because of a failure to meet individual state regulatory capital requirements. As part of that plan, Wisconsin insurance regulators permitted MGIC to make a $1 billion capital contribution to MGIC Indemnity Corp., with the first $500 billion installment due on July 31. In its statement, MGIC said that in obtaining approval from the government-sponsored enterprises for MGIC Indemnity Corp. as an eligible mortgage insurer, the latter entity might only write new business in certain states where MGIC might not meet regulatory capital requirements. MGIC would continue to write new business in other states that do not have specific capital requirements. If this were to happen, MGIC would reduce its capital contribution to MGIC Indemnity Corp. The specific amount will be determined as part of the discussions with the GSEs. When the plan was first revealed, FBR Capital Markets issued an upgrade on its ratings of MGIC, because the transaction would have avoided a highly dilutive capital raise. In its comments on the latest news, FBR Capital Markets said, "While we would have preferred to have seen a quick resolution with the GSEs, this delay does not change our outlook or residual value expectations for the company as a whole." It added investors could use any weakness in the stock price from this announcement to add to their positions. As of noon on Aug. 3, MGIC was trading down $0.20 per share on the day, at $6.40.

Chase customers who choose to pay their new Chase mortgages regularly through Chase checking account debits can get back 1% of their total scheduled monthly principal and interest through a new patent-pending program. A customer with a $210,000 30-year mortgage bearing a 6% interest rate, for example, could choose to get $151.08 per year cash back or a total of $4,381 in rewards paid by Chase annually on each anniversary of the original date of origination over 29 years. Loans may be purchase mortgages or refinances. Borrowers must choose at the time of closing whether they want to receive the reward in the form of cash back or whether they would like the funds used to help pay down their mortgage each year. The creation of the loan resulted from customer research Chase did in which it discovered that for every one borrower that preferred rate reductions or closing cost discounts, two preferred the cash back concept. "We found that they liked this more than a closing cost discount and they also liked deciding how the loan would be paid," a spokesman told MortgageWire. The 1% Mortgage Cash Back is part of Chase's Exclusives program, which is aimed at rewarding checking account customers for using the bank's other products and services. Chase Exclusives also offers a discount of up to 0.50% on the quoted interest rate of a new home equity loan to borrowers who pay regularly through automatic checking account debits.

The deal for a group of investors led by Taylor, Bean & Whitaker Mortgage Corp., Orlando, to make a $300 million capital infusion into The Colonial BancGroup Inc., Montgomery, Ala., is dead. A statement included in Colonial's second quarter 2009 results said both sides agreed to terminate the deal because it had not closed by a July 31 deadline; among the conditions outstanding was approval by the Office of Thrift Supervision. The death of the transaction will probably mean Colonial will not receive $550 million from the U.S. Treasury's Capital Purchase Program. Colonial lost $606 million ($3.02 per share) in the second quarter 2009, including a loan loss provision of $294 million and net charge-offs of $244 million. The company also included in the statement that there is doubt about Colonial's ability to continue. Fitch Ratings cut Colonial's long-term issuer default rating from "CCC" down to "C," stating it believed it will be extremely challenging for Colonial to raise the required capital by a Sept. 30 deadline established under a cease and desist order.

Moody's Investors Services said its negative outlook for Australian residential and commercial mortgage-backed securities and asset-backed securities could persist for another 12 to 18 months. "Although there is no immediate short-term unease with regard to the performance of RMBS collateral, Moody's is nevertheless concerned with the situation over the next 12 to 18 months, as expectations of increased unemployment and an uncertain global economic climate filter through the Australian economy," said Richard Lorenzo, a Moody's vice president and senior analyst. In the CMBS market, "On the supply side, institutional property owners are looking to delever their balance sheets by unloading noncore assets and thus providing a supply overhang in the market," Moody's said. "On the demand side, property investors are facing hurdles in obtaining debt funding from banks which are weary of overexposing themselves to the commercial real estate sector."

Close to $500 billion or 6% of U.S. commercial mortgage-backed securities are currently in special servicing and that amount could double by the end of the year, according to Fitch Ratings. "The resources of special servicers will continue to be stretched, which will intensify scrutiny on their preparedness," said managing director Stephanie Petosa. "Compounding the problem is that many of these loans expected to default are large and complicated loans." However, Fitch said it does not expect to see the same rate of growth in CMBS delinquencies, which it expects to exceed 5% by the end of 2009.

The California real estate commissioner said he would oppose increases in mortgage broker licensing fees that the state Legislature is considering as part of a regulatory reform package. Commissioner Jeff Davi told attendees at the California Association of Mortgage Brokers convention in San Diego he would fight to insure the new regulatory scheme would not drive up the costs for mortgage broker licenses. Higher fees could impact the ability of some brokers to stay in business, he said. The state Legislature is considering a bill to create a financial services regulator that would oversee the mortgage industry and brokers. Right now, mortgage brokers are licensed as real estate brokers.

Refinances tracked by Freddie Mac in the second quarter are expected to cut payments by about $3.4 billion in the coming year. Refinancing borrowers' new interest rates were approximately 1.25% below the old rates on average. "We are anticipating more than one-half of originations to be for refinancing throughout the rest of the year as long as rates stay their current levels of 5.25%," said Freddie Mac vice president and chief economist Frank Nothaft. In the second quarter, cashout refinancing dropped to its lowest share since the third quarter of 2003, according to Freddie's Refinance Report. Sixty two percent of borrowers with a prime credit quality conventional second-lien mortgage either kept the same principal balance or reduced it, up from a revised 57% in the first quarter. The share of refinance loans resulting in new loan amounts that were at least 5% higher than the paid-off second lien mortgage balances fell to a six-year low of 38%. The first-quarter cash-out share was revised down to 43%. "In the second quarter, about $25 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage. This is up a little less than $5 billion from the first quarter volume, but, importantly, the rise reflects the jump in the number of loans refinanced rather than an increase in the amount borrowers are cashing out per loan," said Amy Crews Cutts, Freddie Mac deputy chief economist.

Standard & Poor's Ratings Services has lowered several of Colonial BancGroup's ratings, citing risks linked primarily to its consent to a cease-and-desist order by its regulators. "The rating downgrade largely results from our view that regulatory risk has increased following the company's announcement that it has consented to an order to cease and desist by the Federal Reserve, its primary federal regulator, and the Alabama State Banking Department," S&P credit analyst Robert Hansen said. S&P noted that the cease-and-desist order states that the "company cannot pay any dividends or make any distributions of interest or principal on subordinated debt or trust-preferred securities without the prior written permission of these two regulators. If Colonial BancGroup is not granted permission by these regulators to make interest payments and subsequently misses an interest payment on its subordinated debt, the company's rating would be lowered [to default level]." The company's counterparty credit rating fell to CC from CCC. Its rating on the company's preferred shares fell to C from CC. And its long-term counterparty credit ratings on its subsidiaries fell to CCC- from B-. All short-term ratings on the company and its primary bank remain at C. All ratings remain on CreditWatch with negative implications.