Originations

Senate and House appropriators are taking slightly different approaches in trying to cover an $800 million shortfall in the Federal Housing Administration reverse mortgage program. The Senate Appropriations Committee is providing $288 million to cover part of the shortfall, which is based on expected losses due to declining house prices, and requiring HUD to reduce the loan proceeds seniors receive by 5%. House appropriators are not providing any funds for the FHA Home Equity Conversion Mortgage program, but they are instructing the Department of Housing and Urban Development to cover the shortfall by reducing the proceeds on HECMs. Reverse mortgage lenders are opposed to such reductions, claiming it would hurt seniors who can't sell their home, but need a large enough HECM to pay off their existing mortgage. The National Reverse Mortgage Lenders Association is proposing that HUD reduce the upfront mortgage premium on HECMs and increase the annual premium to deal with shortfall. "We are willing to work with HUD to re-engineer the mortgage insurance premium," NRMLA president Peter Bell said.

The Senate passed a bill Thursday evening that provides the Federal Housing Administration with additional loan commitment authority so the FHA can continue to endorse single-family loans through Sept. 30 without interruption. The Senate's action clears the measure so it can be sent to President Obama for his signature. The House passed the bill (H.R. 3357) earlier in the week by a 363-68 vote. The bill provides $85 billion in additional commitment authority for FHA and $100 billon for Ginnie Mae. The Senate passed it by a 79-17 vote. The measure also includes emergency funding for the highway trust fund. FHA warned Congress back in June that it had used 75% of its $315 billion in loan commitment authority and later requested additional commitment authority to avoid a shutdown of the single-family program.

Recently, several U.S. homebuilders, including DR Horton, Ryland Group and Meritage Homes, voluntarily terminated their revolving credit facilities, opting to use cash and equivalents on their balance sheets as the sole source of short-term liquidity, according to Fitch Ratings. In these cases, the actions did not result in any ratings action, but Fitch now says any future cases will be reviewed and could warrant negative ratings action as the cancellation of the revolver does raise concern about a reduction in liquidity and the removal of the bank group oversight. Fitch said in the absence of a revolving credit line, a consistently higher level of cash and equivalents than was typical should be maintained on a homebuilder's balance sheet, especially in these still uncertain times, said lead homebuilding analyst Robert Curran. Fitch expects management will be allocating a certain percentage of cash to serve as standby liquidity, in an amount comparable to a standard revolving credit requirement over and above what is needed for working capital and debt maturities. In addition to the loss of standby liquidity, Fitch said the termination of the bank facility eliminates the oversight of builder operations by bank groups, a useful check on management's appetite for risk. While certain bond indentures have financial and other covenants, the requirements under bank credit facilities are more onerous and would usually be violated in a deteriorating environment ahead of the covenants in place in bond indentures, said the rating agency. Fitch suspects that this issue, in particular, will be an area of concern to bondholders and could result in tighter covenants on new bond offerings going forward.

Wintrust Financial Corp., Lake Forest, Ill., has set another company record for quarterly originations. "Residential mortgage originations for the secondary market continued to be strong in the second quarter, with $1.5 billion in originations," said president and chief executive officer Edward J. Wehmer. "This follows a then-record level of $1.2 billion originated in the first quarter of 2009." He said the mortgages continue to be primarily refinancings. The company as whole generated $6.5 million in net income during the quarter compared to $6.4 million in net income in the first quarter and $11.2 million during the second quarter of last year.

Based on data collected as of June 30 by Lender Processing Services, Inc., new delinquencies dropped to their second lowest level in the last year and the percentage of loans rolling to a more delinquent status declined across all product types. "At current interest rates there is a lowered risk of increased defaults associated with outstanding hybrid adjustable-rate mortgage resets," LPS said in its report. "Liquidity is becoming increasingly available again to borrowers who are in some stage of delinquency. A dramatic improvement in borrower credit quality has created a significant decline in first payment defaults." In its report, LPS said total loan originations for the first half of 2009 were higher than 2008 levels for the same time. Loan originations for Jan. to June 2009 were 2,333,451 versus 2,211,852 for Jan.- June 2008. These findings from the June LPS Mortgage Monitor could be indicators that the nation's housing market may be turning a corner toward recovery. But according to LPS, foreclosure inventories continued to climb while non-current loans, including defaults and foreclosures, rose to 11.44%. Foreclosure starts in June increased 1.6%, while recidivism rates are not yet showing signs of improvement. Jumbo prime loans continue to experience the highest rates of deterioration with rates up 580% since January 2008. The total U.S. loan delinquency rate was 8.58%, a monthly increase of 1.1% and a year-to-year increase of 44%. June's foreclosure rate was 2.86%, a month-to-month increase of 2.5% and a year-to-year increase of 86.1%. States with the most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Ohio and West Virginia. States with the fewest non-current loans are North Dakota, South Dakota, Wyoming, Montana, Alaska, Vermont, Nebraska, Oregon, Colorado and Washington.

Lending is steady or slower and residential real estate generally remains weak with signs of improvement, according to the Federal Reserve's Beige Book. Residential real estate lending is decreasing in New York, Richmond, and St. Louis, according to the Fed. Dallas' outstanding mortgage volumes are steady but low, while Kansas City's rise in mortgages is slowing. Refinancing activity is dropping dramatically in Richmond, decreasing in New York and Cleveland, and maintaining its pace in Dallas. Credit quality is varying by district with commercial real estate concerns leading to tighter credit in some areas as generally credit standards continue to tighten or remain stable. The only district where residential real estate sales are failing to improve is St. Louis, where they instead are seeing a steep drop. The Fed said the low end of the market, particularly entry-level sales, continues to do relatively well, with some districts attributing this to the first-time homebuyer tax credit. The Boston and New York districts said condominium sales are still far below 2008 levels. Home prices continue to decline in most cases although some districts see possible signs of stabilization. Three districts said foreclosure sales are putting downward pressure on prices. Residential construction appears to remain slow, with three districts noting that financing is difficult, according to the report. Respondents said commercial real estate sales volume is low, or even "non-existent" in some districts, citing a combination of tight credit and weak demand. Tight credit also was cited as a factor in limited or declining commercial construction in most districts, exceptions being health and institutional construction in the St. Louis district, public sector construction in the Chicago district and World Trade Center reconstruction in Manhattan.

A Senate appropriations subcommittee has approved new funding for the Federal Housing Administration to hire additional staff and update its aging information systems as part of the Department of Housing and Urban Development budget for fiscal year 2010. "It provides funds to start modernizing its technology systems in order to track its mortgages and obligations, which — I regret to tell you — it cannot do right now," said Sen. Christopher Bond, R-Mo. Sen. Bond also expressed concerns about the rapid growth of the FHA program and the lack of staff and expertise to manage the FHA single-family program effectively. "It may be at the edge of a meltdown," he warned. Sen. Richard Shelby, R-Ala., expressed similar concerns. "If we don't watch out we could have another Fannie Mae or Freddie Mac," Sen. Shelby said at a subcommittee markup of the HUD appropriations bill.

The House has passed a bill to provide the Federal Housing Administration with an additional $85 billion in loan committee authority so FHA can continue to insure single-family loans through Sept. 30 without interruption. The bill (H.R. 3357) also provides Ginnie Mae with an additional $100 billion in authority to guarantee the issuance of mortgage securities backed by FHA and other government guaranteed loans. The Department of Housing and Urban Development warned Congress back in June that it had used 75% of FHA's $315 billion in loan commitment authority. Now FHA might have to suspend its single-family program if Congress does not provide additional commitment authority before lawmakers leave Washington for the August recess. The House passed H.R. 3357 by a 363-68 vote. The Senate was debating the bill as MortgageWire went to press.

The National Association of Mortgage Brokers has received a setback in its lawsuit against the Department of Housing and Urban Development over the proposed Real Estate Settlement Procedures Act rule. NAMB president Jim Pair told attendees at the California Association of Mortgage Brokers convention in San Diego that the judge hearing the case ruled that HUD followed the Administrative Procedures Act in creating the rule. However, he added, the ruling, "Does not hurt us because the judge did not make any comments regarding yield spread premiums." In NAMB's favor, Mr. Pair said, is pressure from two different sources on HUD to withdraw the RESPA rule, first from the Federal Reserve proposal and the proposed Consumer Financial Protection Agency legislation. NAMB is still looking at the ruling, Mr. Pair said, but it is quite likely it will wait and see before deciding how to proceed on this suit. Mr. Pair was asked about a moratorium on the Home Valuation Code of Conduct. He said there was a good chance a bill will pass Congress but it needs more sponsors. He also said NAMB has obtained an e-mail from an appraisal management company sent to an appraiser saying the appraisal came in too low and it needs to be raised. This goes to the heart of the HVCC issue, which was said to be originator pressure of appraisers over valuations.

Essent Guaranty, Inc., Radnor, PA, a new mortgage insurer, has received approval from the Pennsylvania Insurance Department to write mortgage insurance. Essent is the first private mortgage insurer established in the United States since the start of the current financial crisis. Essent also announced that it has been approved by a working group of the National Association of Insurance Commissioners to participate in an expedited licensing pilot project, and is currently seeking approvals from other state insurance departments. Essent anticipates that it will become a licensed mortgage insurance company throughout the United States in the near future. As part of its expedited licensing pilot, the NAIC seeks to streamline state-specific application requirements, including the need for hard copies of forms and supplemental information involved in Uniform Certificate of Authority Applications. This is intended to facilitate the efficient regulatory review of new entrants in insurance industry sectors deemed of national importance.

Helped by the strong performance in its title insurance operations, Fidelity National Financial Inc., Jacksonville, Fla., had net earnings of $91.9 million ($0.40 per share), an improvement on the $6.9 million ($0.03 per share) reported one year prior. Pre-tax earnings at Fidelity National Title Group went from just $5.1 million in second quarter 2008 to $133.3 million one year later. Total title premiums went from $745 million in the second quarter 2008 up to $1.0 billion one year later. For the full quarter, William P. Foley II, chairman said, FNT had a pre-tax title margin of 9.2% for the quarter and over 10% for the month of June alone. Furthermore, it completed the integration of the former LandAmerica units, giving the company an additional $32 million in cost synergies on top of the $231 million previously realized. Mr. Foley added that order counts for July have been consistent with the levels the company saw for most of June and thus put FNF in a position to continue to generate "solid profitability."

Ambac Financial Group Inc., New York, said it expects to see second-quarter statutory loss and loss expenses that relate primarily to deterioration in second-lien and alternative-A credit securitized mortgage financial guarantee portfolios amount to $800 million. The company said it also expects to see a more than $1 billion increase in its second-quarter statutory impairment losses. Ambac estimates the second quarter statutory impairment losses will increase by about $1.6 billion to roughly $4.9 billion. "The increase in impairment losses, which relate to [Ambac Assurance Corp.'s] insured portfolio of collateralized debt obligations of asset-backed securities transactions, was driven by rising forward LIBOR rates, which increase estimated future cash outflows, and further deterioration of the underlying collateral within the CDO of ABS transactions," Ambac said.

Flagstar Bancorp, Inc., Troy, Mich., saw its mortgage banking unit's loan production in the second quarter decline compared to the first quarter, but it was still better than it was during the same period last year. The company's agency-dominated loan production decreased to $9.3 billion for the second quarter, as compared to $9.5 billion in the first quarter, but increased from the $8.2 billion seen in the second quarter of 2008. The company as whole took a $76.6 million net loss, compared to $67.4 million during the same period a year ago. "Although it is always disappointing to lose money, we were able to continue to generate positive income on an operating basis and are encouraged by ... improvement in mortgage delinquency trends that we experienced towards the end of the quarter," said Mark T. Hammond, Flagstar's chief executive officer.

The Mortgage Bankers Association's latest weekly Mortgage Composite Index shows applications slid 6.3% on seasonally adjusted basis from one week earlier to 495.4. On an unadjusted basis, the index for the week ending July 24 decreased 6.0% from the previous week and increased 16.1% compared with the same week one year earlier. The Refinance Index declined 10.9% to 1862.1 from 2089.7 the previous week and the seasonally adjusted Purchase Index remained unchanged from one week earlier at 262.0. The four-week moving average for the seasonally adjusted overall Market Index is up 2.6%, and while it is down 0.5% for the seasonally adjusted Purchase Index, this average is up 5.2% for the Refinance Index. The refinance share of mortgage activity decreased to 52.6% of total applications from 55.5% the previous week. The adjustable-rate mortgage share of activity increased to 5.5% from 4.8% of total applications from the previous week. Average contract interest rates and points (including the origination fee) for 80% loan-to-value ratio loans during the week ending July 24 were: for 30-year fixed-rate mortgages, 5.36%, up from 5.31% the week before, with points decreasing to 0.93 from 1.18; for 15-year FRMs, 4.75%, down from 4.80%, with points increasing to 1.14 from 1.03; for one-year ARMs, 6.66%, up from 6.50%, with points decreasing to 0.09 from 0.11. Starting next week, the MBA plans to no longer publicly report index values but said it will continue to provide index percentages.

Two-thirds of the 94,000 foreclosure sales in June involved properties previously financed by prime mortgages as the tide of subprime foreclosure sales has declined over the past four quarters, according to the Hope Now alliance. The alliance's monthly report shows the foreclosure sales involving subprime loans crested in the second quarter of 2008 and foreclosure sales involving prime loans have surged since the expiration of several moratoriums in March of this year. Prime foreclosure sales hit 154,000 in the second quarter, up 36% from the first quarter. Prime sales totaled 62,600 in June, up 13% from May and 50% from April. Meanwhile, the Hope Now servicers completed 96,000 loan modifications in June, down 5% from the previous month. This marks the second monthly decline as servicers put more modification candidates through a 90-day trial period as required by the Obama administration's Home Affordable Modification Program. Most of the Hope Now servicers have signed up for President's program but some are waiting for permission from their investors to modify loans.

Arbor Realty Trust Inc., Uniondale, N.Y., has completed a restructuring of its financing facilities, totaling $374 million, with Wachovia Bank NA (now part of Wells Fargo). It also agreed to amend its management agreement with Arbor Commercial Mortgage LLC. The $374 million of restructured indebtedness with Wachovia was comprised of two term loan facilities with an aggregate outstanding balance of $332 million and a working capital facility with an outstanding balance of $42 million. This debt restructuring resulted in the consolidation of the three facilities into one term debt facility with an outstanding balance of $317 million and one working capital facility with an outstanding balance of $57 million. The maturity dates of the facilities were extended for three years. The term loan facility requires a $48 million reduction over the three-year term, with approximately $8 million in reductions due every six months beginning in December 2009. Arbor was able to eliminate most margin call provisions. However, the term loan had a rate increase to Libor plus 350 basis points compared with Libor plus approximately 200 BPs; the working capital facility saw a 300 BP increase in rate to Libor plus 800 BPs. Arbor also gave Wachovia 1.0 million warrants at an average strike price of $4.00; half are exercisable immediately at a price of $3.50, 250,000 warrants are exercisable after July 23, 2010 at a price of $4.00 and 250,000 warrants are exercisable after July 23, 2011 at a price of $5.00. The deal also required Arbor's CEO and chairman, Ivan Kaufman to remain an officer or director for the term of the facilities.

The Real Estate Roundtable has named Daniel M. Neidich, co-CEO of New York-based Dune Capital Management LP, as its new chairman. He succeeds Hilton Hotels president and CEO Christopher J. Nassetta. Mr. Neidich said the most significant issue facing him as he takes over the leadership of the group is the ongoing liquidity and refinancing crisis that is forcing real estate owners into bankruptcy and pushing up delinquency rates on commercial mortgages. The remaining executive board members are: secretary, Robert S. Taubman, chairman, president and CEO of Taubman Centers Inc.; and treasurer, Jeffrey Schwartz, chairman of Global Logistic Properties. The Roundtable's current policy agenda includes a "Five Point Plan" for restoring liquidity to the credit market. While some of those steps have already been enacted, the group said additional policy action is needed to facilitate loan workouts and restructurings through temporary changes in the tax rules governing real estate mortgage investment conduits. Also needed is an overhaul of policies governing foreign investment in U.S. real estate. "The debt markets, including the CMBS market, are still generally dysfunctional, transaction volume remains at virtually zero, and commercial property values remain under downward pressure," said Mr. Neidich.

Both sides claimed victory after a U.S. District Court judge dismissed some of the charges made by FICO, Minneapolis, in a lawsuit against VantageScore Solutions LLC, Stamford, Conn., and two of the three credit repositories. Barrett Burns, president and chief executive of VantageScore said in an interview the suit was an expensive distraction to his company and he is glad it is substantially over. FICO CEO Mark Greene said his company was fighting for "fairness and consumer protection. At a time when consumers most need clarity regarding their creditworthiness, it's imperative that they understand whether or not the credit scores they purchase are industry-standard FICO scores or merely look-alike 'educational' scores not actually used by lenders to make lending decisions." Mr. Burns said VantageScore is gaining acceptance and market share. He added the dismissal of the false advertising claim was the biggest one that impacted the defendants. Judge Ann Montgomery also dismissed antitrust allegations. The two defendant credit repositories issued statements. "We are particularly gratified that the court found that VantageScore represented the 'very essence of competition,'" said Kerry Williams, Experian Group President of Credit Services and Decision Analytics. Meanwhile, Jeff Hellinga, president of TransUnion's U.S. Information Services division, said, "The court's decision dispels a perception that there can be only one scoring model that holds relevance for lenders and consumers. The outcome is a victory for the kind of choice, clarity and consistency that the marketplace demands and deserves." Equifax had previously entered into a settlement with FICO. FICO said it would appeal the dismissed charges after a trial over the remaining complaint. Mr. Burns said if FICO does go forward with the suit, VantageScore would see it in court.

Home sales increased 20.1% in June in California compared with the same period a year ago, while the median price of an existing home was $274,740, a decline of 26.4% from May 2009, according to the California Association of Realtors. Closed escrow sales of existing, single-family detached homes totaled 514,110 in June. The June 2009 median price rose 4.2% compared with May's $263,600 median price. CAR's Unsold Inventory Index for homes in June 2009 was 4.1 months, compared with 7.6 months in June 2008. "The statewide median price for existing condos increased for the third consecutive month in June, while sales climbed 27% compared with last year," said CAR president James Liptak. "Both of these trends are indicative of increased interest in condos on the part of first-time and other buyers." The median number of days it took to sell a single-family home was 44.3 days in June 2009, compared with 49 days a year ago.

House prices have reversed their steep decline and it appears home prices are finally stabilizing at mid-2003 levels, according to the May Standard & Poor's/Case-Shiller 20-city house price index. The May HPI shows that prices have fallen 17.1% from a year ago, which is slower than the 18.1% annual decline in April. "The pace of descent in home price value appears to be slowing," said David Blitzer, chairman of S&P's index committee. While the index has reached a "clear inflection point," he said, prices are still down 17% on a year over year basis and "so we likely do have a way to go before we see sustained home price appreciation."