Originations

Colonial BancGroup Inc., Montgomery, Ala., has consented to a cease-and-desist order from the Federal Reserve System and the Alabama State Banking Department. The order, Colonial said, is similar to one issued to its Colonial Bank subsidiary by the Federal Deposit Insurance Corp. and the state regulator. Under the agreement, the holding company has 30 days to submit to the Fed and state regulators a capital plan, 60 days to submit a liquidity management plan and 30 days to eliminate from its books by collection or charge-off all assets or portions of assets identified as "loss." Colonial, one of the leading warehouse credit providers, is in the midst of a pending transaction that would recapitalize the company with a consortium of investors including Ocala, Fla.-based mortgage lender Taylor Bean & Whitaker. TBW had no comment on the order.

New-home sales jumped 11% in June from the previous month and homebuilders expect to see a slow improvement in sales during the rest of this year. "Significant evidence has accumulated that we have hit the bottom," said Bernard Markstein, senior economist at the National Association of Home Builders. But NAHB has not called a bottom yet, because of concerns sales may drop off toward yearend with the expiration of the first-time homebuyer tax credit. NAHB is seeking an extension of the tax credit. The U.S. Census Bureau saw sales of new single-family homes rise to a 384,000 seasonally adjusted annual rate in June, up from a 346,000 rate in May. NAHB economists expect sales will run at a 390,000 rate during the second half of this year, up from a 347,000 rate in the first half.

WSFS Financial Corp., Wilmington, Del., has given up on its joint venture in the reverse mortgage field after a little over one year, citing the unlikelihood of profitability. In April 2008, the company acquired a majority interest in 1st Reverse Financial Services LLC, Westmont, Ill. While results at the unit did improve during the second quarter when compared with the first quarter this year, it was still a money-losing operation. For the most recent period 1st Reverse had a pretax loss of $152,000, while in the first quarter it lost $586,000. Another positive sign was a $98,000 increase in fee income during the period to $654,000. However, according to WSFS president and chief executive Mark Turner, 1st Reverse has not reached breakeven levels "and in the current economic climate, prospects for achieving required returns are weak. As a result, WSFS has made the decision to conduct an orderly wind-down of this start-up initiative." WSFS will take a pretax charge of $1.6 million related to the closure. Mr. Turner added that WSFS will still do reverse mortgages in its Delaware retail banking branches, pointing out it is the top reverse originator in that state. For the quarter, WSFS lost $2.3 million, which besides the 1st Reverse charge, includes a $12 million increase in its loan loss provision and a $1.3 writedown of assets acquired through foreclosure. It also had a $622,000 positive mark-to-market adjustment on a reverse mortgage securitization. A request for comment from 1st Reverse's management had received no response at press time.

The homeownership rate appears to have stabilized at 67.4% after falling for three consecutive quarters and the number of vacant homes for sale has dropped by 14% since the start of this year, according to a government report. The Census Bureau reported that the number of vacant homes on the market fell to 1.92 million in the second quarter, down from 2.23 million at yearend 2008. The homebuilders have been waiting for this inventory to drop back to its historical norm of 1.25 million to 1.5 million, because the overhang puts downward pressure on new home prices. The Census Bureau also reported that the U.S. homeownership rate edged up to 67.4% in the second quarter from 67.3% in the first quarter. In the second quarter of 2008, the homeownership rate was 68.1%. Meanwhile, the homeownership rate for blacks was 46.5% in the second quarter, down from 47.8% a year ago, while the homeownership rate for Hispanics was 48.1%, down from 49.6% a year ago.

Freddie Mac's issuance of mortgage-backed securities jumped 40% in June, compared to the previous month, and purchases of refinanced loans jumped 25%. The government-sponsored enterprise attributed the surge in business activity due to heavy seasonal deliveries from some of its largest customers. Deliveries of refinancings totaled $50.9 billion in June, up 26% from the previous month, according to the GSE's monthly activity report. In March, refinance loan purchases totaled $52 billion — Freddie's largest refinance month since 2003. MBS issuance came in at $61.1 billion in June — the highest since September 2005 when Freddie issued $62.5 billion in MBS. Meanwhile, delinquencies continue to creep up at the GSE. The delinquency rate on single-family loans (90 days or more or in foreclosure) rose 16 basis points to 2.78% in June, up from 0.93% a year ago.

The Department of Housing and Urban Development is concerned the Federal Housing Administration may have to suspend its single-family loan program later this summer if Congress does not provide the agency with additional loan commitment authority. HUD has submitted a request to Congress for an additional $85 billion in commitment authority to keep the FHA mortgage insurance program running through September 30, a HUD spokesman said. Earlier this year, Congress authorized FHA to insure up to $315 billion in loans in fiscal year 2009, which ends Sept. 30. On June 16, HUD notified Congress that FHA had used up 75% or $236 billion of its commitment authority. As of June 30, FHA had endorsed 1.39 million single-family mortgages - up 83% compared to the first three quarters of FY 2008. The Obama administration is seeking $400 billion in loan commitment authority for FHA in FY 2010.

Tom Neary has resigned as executive vice president and senior managing director of Residential Capital Corp., effective at the end of July. Mr. Neary joined the nation's seventh-largest residential originator a year ago and was brought in by ResCap chairman and CEO Tom Marano. "He resigned for personal reasons," a company spokeswoman confirmed to this newspaper. He is responsible for managing the business risk for ResCap's mortgage servicing rights and oversees its pipeline hedging activities. ResCap is an affiliate of GMAC Financial Services.

The Federal Reserve Board is pushing the mortgage industry toward paying originators a flat fee under a proposed rule but lenders can continue to compensate loan officers and brokers based on the interest rate, according to regulatory experts. At first read, the proposed Truth in Lending Act rule appears to ban yield-spread premiums, which are a form of broker compensation that can be increased by pushing up the interest rate. American Bankers Association senior regulatory counsel Rod Alba points out that the Fed is prohibiting compensation based on the terms and conditions of the loan transaction. "The proposed rule does not appear to ban the practice of compensating the mortgage broker through the interest rate. But it does intend to put limits on the more abusive uses of yield-spread premiums," Mr. Alba said. As proposed, lenders can pay a broker one point, for example, but not a range of one point to two points where brokers have the discretion to increase the mortgage rate and their compensation. In addition, a lender cannot increase a LO or broker's compensation for "steering" borrowers into loans with adjustable rates or prepayment penalties. The Fed also is seeking public comment on allowing lenders to compensate LOs and brokers based on the principal amount of the mortgage. The Fed notes that compensation based on the loan amount is a "common practice today."

Capital Markets Cooperative, Ponte Vedra Beach, Fla., has a new strategic alliance with Freddie Mac. CMC said the alliance will give its members improved pricing on all executions at Freddie Mac's cash window, free introductory use of Freddie's Loan Prospector if members are new users of that automated underwriting service and discounts on training for groups of various sizes. Through its cooperative structure, CMC aims to give mortgage bankers partnered with the group access to economies of scale and methods of execution historically limited to players with larger volumes.

After running a scheme that enticed victims to participate in a bogus real estate investment opportunity in order to get rid of their personal mortgages, Rodney McGill, a radio talk show host and pastor of New Hope Outreach Center in Jensen Beach, Fla., and his wife, Shalonda McGill, a mortgage broker, have been convicted by a jury in Martin County, Fla. According to the Florida attorney general's office, Rodney McGill used his radio program to advertise a contest to become the "Fabulous Five," five "winners" who would receive advice from the pastor on making millions through real estate investments. At least three victims called the radio station and provided their Social Security numbers and other financial information. The McGills showed their victims the properties that had been "selected" especially for them, but the scheme carefully concealed the fact that the McGills owned each of the properties offered up as potential investments. The McGills also encouraged their victims to lie about their income to obtain the mortgages. The defendants stole more than $1 million from banks, paid down their debts and left their straw buyers with ruined credit. Rodney and Shalonda McGill were arrested in September 2008. They will be sentenced in September 2009.

NexBank, a bank which offers commercial mortgage lending and wholesale residential lending based in Dallas, has started a retail residential mortgage unit. The new unit, NexBank Mortgage, Plano, Tex., is being created through a partnership with The Funding Source, a Plano-based mortgage broker. Tish Ashley, founder of The Funding Source, will remain with NexBank as the vice president of the residential mortgage division. All 14 employees of The Funding Source will join NexBank Mortgage, bringing the bank's head count up to 40 in its mortgage business lines vs. zero one year ago. "Mortgages are an important relationship product, and NexBank now has the opportunity to better serve our customers and to enhance future profitability. Retail mortgages will be a key area of growth for NexBank," said its president and chief executive Davis Deadman.

Second quarter 2009 mortgage banking net revenue at Fifth Third Bancorp, Cincinnati, was up 72% over the same quarter last year, $147 million vs. $86 million. The bank set a record for loan production at $6.9 billion, up from $4.9 billion for the first quarter 2009. As a result, Fifth Third had gains on mortgages sold of $161 million. In addition, mortgage-related revenues included a $1 million gain on sale of portfolio loans. Net servicing revenue, before mortgage servicing rights valuation adjustments, was $2 million. The MSR valuation adjustment, including mark-to-market of hedges, was a loss of $16 million. Fifth Third took a net charge off of $626 million, as the company continues to be plagued by losses related to commercial and residential real estate loans in Michigan and Florida. Commercial mortgage net losses were $85 million, 45% from those two states. Those states also represented 45% of the second quarter home equity loan charge-offs of $88 million and 75% of the $112 million of net charge-offs in the residential mortgage portfolio.

The residential mortgage banking segment at PNC Financial Services Group, Pittsburgh, earned $88 million in the second quarter 2009, down from $221 million in the fist quarter of the year. The company blamed lower net mortgage servicing rights hedging gains and reduced loan sales revenue for the decline. Loan originations for the quarter were down slightly from the first quarter, $6.4 billion vs. $6.9 billion in the linked period. Refinancings caused the mortgage servicing rights portfolio to decline from $168 billion at the end of the first quarter to $161 billion as of June 30, 2009. PNC had net charge-offs during the quarter of $795 million, an increase of $364 million over the first quarter. Nonperforming assets as of June 30, 2009 were $4.5 billion, an increase of $1 billion over the first quarter. The increase consisted of $400 million for residential real estate loans and a $400 million increase in nonperforming commercial real estate loans (mainly residential real estate projects).

The second quarter 2009 operating results for Old Republic International Corp., Chicago, were aided by lower production and operating expenses at its mortgage insurance subsidiary and stronger revenue growth at its title insurance unit. Still, the company had an operating loss of $49.6 million (down slightly from $49.9 million one year ago) and a net loss of $15.8 million, compared with $364.7 million one year ago. ORI said it also benefited from deferred income tax credits that could not be recognized previously. Republic Mortgage Insurance Co. had a pretax operating loss of $137.9 million, an improvement over the second quarter 2008's loss of $140.7 million. The claims ratio increased to 197.7% for the most recent period, up from 192.5% one year prior. Total primary insurance written for the quarter was $2.5 billion, down from under $6 billion one year ago. The delinquency ratio for the primary channel was 12.91% and the bulk channel 24.57%, vs. 6.92% and 11.29% one year prior. Meanwhile, the title insurance unit had an operating profit for the first time since the second quarter of 2007. The pretax operating income was $5.6 million, compared with a loss of $4.5 million one year ago, as Old Republic Title Insurance Co. benefited from the refinance boom and gains in market share as a result of industry "dislocations and consolidations."

The average rate for a 30-year fixed-rate mortgage rose to 5.20% from 5.14% during the week ended July 23, according to the Freddie Mac Primary Mortgage Market Survey. "Mortgage interest rates were mixed this past week with fixed-rate loans averaging somewhat higher while initial rates on ARMs were flat-to-down slightly," said Frank Nothaft, Freddie Mac vice president and chief economist. The 15-year FRM this week averaged 4.68%, up from the previous week when it averaged 4.63%. A year ago at this time, the 15-year FRM averaged 6.18%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.74%, down from the previous week when they averaged 4.83%. A year ago, the five-year ARM averaged 5.49%. One-year Treasury-indexed ARMs averaged 4.77%, up slightly from the previous week when they averaged 4.76%. At this time last year, the one-year ARM averaged 5.49%. Average points for almost all the aforementioned loans were 0.7. The exception was the one-year Treasury ARM, for which the average was 0.6.

The regulator of the government-sponsored enterprises has moved to clear up some "misinformation" about the Home Valuation Code of Conduct that Fannie Mae and Freddie Mac adopted three months ago and counter criticism that the new appraisal code is causing problems in the real estate market. "Market participants should appreciate the difficulty facing appraisers when valuing properties in a declining market, especially when sharply dropping home prices and foreclosures are prevalent. The challenges of appraising properties exist with or without the Code," the Federal Housing Finance Agency says. The code was designed to shield appraisers from inappropriate pressure from lenders, borrowers and brokers. But critics are complaining that the code has slowed the appraisal process, led to lower appraisals and the use of unqualified appraisers. The HVCC notice issued by FHFA stresses that professionals should report appraisers that are unqualified or unfamiliar with local markets to state licensing agencies. The GSE regulator also notes that lenders are requiring additional comparables and even second appraisals, which slowed processing. "FHFA believes that the Code is serving the intended purpose and will continue its oversight role both as to the implementation of the Code by the enterprises and its market impact," the agency said.

Existing single-family home sales rose 2.4% to an annualized rate of 4.32 million units in June and prices appear to be firming up as well, according to figures released Thursday morning by the National Association of Realtors. The comparison is to the previous month and when measured against the same month last year, the figures aren't as promising. Sales of single-family homes (condos and cooperatives excluded) rose 0.2% compared to June 2008 and prices fell 15% (to $181,400). NAR points out that it revised downward the May 2009 sales figure as well. Taken by themselves, the condos and cooperatives sales numbers look somewhat promising: a 14% increase from May to June but a 3.1% decline from May 2008. In total Realtors hope to sell 570,000 condos and co-ops this year (based on the June numbers) and are banking on the market being bolstered by state and federal tax credits for first-time home buyers. Meanwhile, NAR is blaming the somewhat new Home Valuation Code of Conduct — which sets appraisal ordering rules for GSE loans — for some lost sales. NAR says 37% of its members said they "experienced at least one lost sale as a result" of HVCC "with seven out of 10 reporting an increased use of out-of-area appraisers."

Hudson City Bancorp Inc., Paramus, N.J., charged off $9.6 million of nonperforming mortgage loans whose current values were below the outstanding loan balance during the second quarter. The charged-off loans, said Ronald E. Hermance Jr., chairman, president and chief executive, are still in the foreclosure process. These loans may or may not become real estate-owned. Even with the charge-off, Hudson City made $127.9 million, or $0.26 per share, up from $110.7 million, or $0.22 per share, for the same period one year prior. During the quarter, the company originated $1.7 billion and purchased $1.2 billion of first-mortgage loans.

Standard & Poor's Fixed Income Risk Management Services and the American Securitization Forum are creating a loan identifier and mortgage loan repository. FIRMS, an analytics unit separate from S&P's ratings business, said it will create a new loan numbering system and a central loan data repository aimed at providing investors with a means to understanding the risk, collateral and credit of an individual loan that has been securitized or may be repackaged for the secondary market. Assigned by Standard & Poor's at no cost to issuers, the unique Loan ID linked to the CUSIP and ISIN number of the security are aimed at helping investors track loans throughout their life spans and providing a chain of accountability between loan originators and investors.

U.S. Bancorp, Minneapolis, saw record mortgage banking revenue for the second quarter 2009, driven by loan applications of $21.6 billion and record mortgage loan production volume of $16.3 billion. It had $308 million in mortgage banking revenue for the period, up from $233 million in the first quarter of 2009 and $81 million in the second quarter of 2008. The company also had over $25 billion of new and renewed commercial real estate and commercial loan commitments. The mortgage banking division's contribution to U.S. Bancorp's net income was $162 million. The company had net income of $471 million ($0.12 per share) for the second quarter, down from $950 billion ($0.53 per share) one year prior as the provision for credit losses exceeded net charge-offs by $466 million. The loan loss provision for the quarter was $1.4 billion, up $799 million over the same period in 2008, reflecting continued stress in residential real estate markets driven by declining home prices in most geographic regions. Net charge-offs for the quarter included $121 million in commercial real estate, $116 million in residential mortgages and $83 million in home equity and second mortgages.