Originations

Bank of America saw its residential mortgage income increase more than fivefold in the second quarter to $2.6 billion as it originated $110 billion worth of home loans during a strong refinancing boom. Refinancings accounted for 71% of its residential loan production. In the year-ago quarter, the bank did not own Countrywide Financial Corp., which at the time was still the nation's largest lender. Even though BoA posted strong mortgage (and overall results) its 2Q mortgage earnings fell compared to 1Q when it earned $3.4 billion.

The Federal Reserve Board will consider amendments to the Truth in Lending Act placing new restrictions on mortgage broker compensation. "The proposal will include new rules governing mortgage originator compensation," Fed governor Elizabeth Duke said. The proposed rule — which the Fed will take up on July 23 — also includes "re-redesign, consumer tested disclosures and rule changes for closed-end mortgages and home-equity lines of credit," Ms. Duke told a congressional panel. The Fed punted on regulating broker compensation and yield-spread premiums last July when it approved a Home Ownership and Equity Protection Act rule to clamp down on abusive lending practices that led to the subprime meltdown. However, Fed chairman Ben Bernanke directed staff to continue their efforts to address the issue. He noted YSPs that brokers receive from lenders are based on the interest rate, which "on its face seems to be an incentive for steering borrowers into higher price loans."

Federal Reserve policy makers "revised upward" their outlook for economic growth at a June 23 meeting and decided to keep the $1.25 trillion mortgage-backed securities purchase program on track without any changes. The Fed launched the MBS purchase program in December to lower mortgage rates and support the housing market. So far, it has purchased $622 billion in Fannie Mae, Freddie Mac and Ginnie Mae MBS. The purchase program is due to expire at yearend. The minutes of the Federal Open Market Committee meeting indicate the members see the housing market as "vulnerable to further weakness." And they are concerned increases in mortgage rates could "further depress demand for housing and thus impede an economic recovery." Nevertheless, home sales appear to be leveling off and they expect the economy will expand in the second half of this year. However, unemployment could hit 10% this year and remain above 9.5% during 2010, according to the Fed's revised outlook.

Farmer Mac said it no longer owns securities issued by troubled CIT Group Inc. in its investment portfolio. A few weeks back the GSE said it sold its entire position ($35 million principal amount) of CIT bonds to mitigate its risk of loss on those securities. The same day, Farmer Mac also sold its Fannie Mae preferred stock holdings realizing a book gain on this transaction, thereby partially offsetting the loss on the sale of the CIT bond holdings. The net loss realized by Farmer Mac on the two transactions will be included in its third-quarter results and was approximately $1 million. Farmer Mac said it issued the statement after inquiries driven by the end of CIT's bailout talks with the government.

Credit unions continue to sell increasing portions of their home loans as interest rates fall to decade-lows. A new report by the National Association of Federal Credit Unions shows through the first six months of the year credit unions sold 49.1% of their mortgages, compared to just 32.3% in 2008, when mortgage rates were as much as 100 basis points higher. "Despite the fact that a vast majority of the responding credit unions currently consider interest rate risk as a bigger problem when compared to liquidity risk (92.7%), they hold a smaller average percentage of their loans granted this year in portfolio (50.9%) than they did in 2008 (67.7%)," said the NAFCU report. The increase in secondary market sales came after the federal government took both Fannie Mae and Freddie Mac under conservatorship last September, and as the average rate for 30-year, fixed-rate loans was plunging to 4.5%, the lowest in decades.

American General Financial Services, a subsidiary of the government-controlled AIG, is considering a plan to liquidate up to $10 billion in whole loans using the securitization market, investment banking sources told NMN. The first part of that liquidation was revealed in a new regulatory filing where the company said it would securitize roughly $1.6 billion in subperforming and nonperforming whole loans — many of which are nonprime in quality — through Credit Suisse. PennyMac, which is controlled by former Countrywide president Stan Kurland, is involved in the transaction as a servicer. At press time both CS and AIG declined to comment on the record. Initially, CS will purchase the loans and then issue securities. In an SEC filing AGFS and "sellers" could reap net cash proceeds of up to $975 million. The transaction is expected to close by the end of July. The company said it will use the cash to support its liquidity position and funding needs, "including the discharge of approximately $313 million of debt security obligations under an indenture dated Jan. 1, 1988 that are due during 2009."

MortgageDashboard, an Austin, Texas-based loan origination software firm, lost funding unexpectedly and is out of business. The company's head of marketing confirmed the company was forced to close its doors yesterday. One Maryland lender told National Mortgage News that he received an e-mail from the company saying it would be closing. "They gave us seven days to get our files in order," he said. "It's too bad. It's a wonderful program." Since 2001 MortgageDashboard's claim to fame was that it operated a Web-based on-demand system that allowed users to pay as they go. Jordan Brown, president of MarketWise Advisors, a mergers and acquisition consulting firm, said he is not surprised by the development. "I've looked at least 30 loan origination systems [firms] looking for a buyer. It's a tough market for an LOS. I suspect more will go out of business going forward." Mr. Brown predicted that the more prominent LOS firms will find refuge and eventually be bought.

Mortgage Guaranty Insurance Corp., the nation's largest MI company in terms of policies-in-force, posted a $340 million loss in the second quarter, warning that it may not meet minimum capital standards that would allow it to continue writing new policies. The company stressed to this publication, however, that it is continuing to write new MI policies. In a statement, MGIC — which insures $223 billion in home mortgages — warned that there are no plans by the U.S. Treasury to provide it, or any other MI, with capital support. "Nothing's going on in that regard," a company spokesman told NMN. MGIC hopes to activate a subsidiary called MGIC Indemnity Corp. that would allow it to begin writing new policies in January of next year. MGIC is supplying the unit with $1 billion in fresh capital. Despite all the bad news for the company, MGIC's share price was up $0.37 in trading early in the afternoon of July16.

Mortgage stocks rebounded modestly at the end of the trading day on Wednesday as the Dow went up nearly 257 points. MI companies Milwaukee-based MGIC Investment Corp. and Richmond, Va.-based Genworth Financial, however, saw healthy upticks at 19.8% and 11%, respectively. Philadelphia-based Radian's stock price closed the end of trading on Wednesday up 7.9%, while Winston-Salem, N.C.-based Triad Guaranty's stock rose 6.7%. Walnut Creek, Calif.-based PMI Group's closed up 4.7%.

Andrea Goode-James, a closing attorney from Roxbury, Mass., pleaded guilty before U.S. District Judge Douglas P. Woodlock to mortgage fraud for pocketing more than $1 million in proceeds of loan closing transactions. According to Michael K. Loucks, acting U.S. attorney for the District of Massachusetts, Goode-James performed closings on three different properties between 2005 and 2007 and pocketed more than $1 million in lender proceeds rather than using those funds to pay off pre-existing mortgages as directed by the lenders. To conceal her fraud, Goode-James made some monthly payments on the pre-existing mortgage loans. She also issued title insurance commitments to the new lenders, which bound the title insurance company for title defects and misled lenders to believe that she had in fact cleared title by paying off prior loans and obtaining discharges of those mortgages. Judge Woodlock scheduled sentencing for Oct. 29.

The mortgage insurance industry should survive, declared analysts at Keefe, Bruyette & Woods, but any fundamental recovery is still well down the road. Meanwhile, the second quarter spike in interest rates has made estimated volumes for the rest of the year at the title insurers "more tenuous" and as a result, KBW is lowering its earnings estimates and price targets for those companies. For Fidelity National Financial, it lowered its second quarter 2009 earnings estimate to $0.37 per share from $0.48 per share primarily due to lower fee-per-file expectations, slightly higher expenses and reduced commercial activity. The EPS estimate for First American Corp. was cut from $0.87 to $0.73 and for Stewart Information Services Corp. from $0.52 to $0.39 for the same reasons. As for the mortgage insurers, the KBW analysts "expect the second quarter will see an increase in the sequential growth rate in delinquencies, likely returning to the mid-teens percent range rather than the single-digit growth rates seen in the first quarter." The analysts increased their estimates for the loss at Old Republic (which operates in both segments, but which was grouped with the MI companies) to $0.18 per share from 0.13 per share on lower orders and lower fee per file in the title segment. For MGIC, KBW's second-quarter operating EPS estimate was increased to a loss of $1.28 from a loss of $0.74 primarily on the elimination of the tax benefit from operating losses due to the establishment of a valuation allowance. PMI had its loss estimate increased by $0.01 per share to $1.62, while KBW held its estimates for Radian at a loss of $1.19 per share. For the mortgage insurance segment at Genworth, analysts Nathaniel Otis and William Clark predict it will lose $23.0 million or $0.05 per share for the second quarter.

The Financial Crimes Enforcement Network (FinCEN) is seeking public comment on a proposal to require mortgage brokers to file suspicious activity reports with the federal agency. FinCEN is in charge of the government's anti-money laundering efforts and it recently turned its attention to detecting loan modification scams and foreclosure rescue scams. "FinCEN believes that new regulations requiring non-bank residential mortgage lenders and originators to adopt anti-money laundering programs and report suspicious transactions could augment FinCEN's initiatives in these areas," the agency's director James Freis said. The agency is issuing an advance notice of proposed rulemaking for a 30-day comment period.

Freddie Mac reopened its 1.75% three-year Reference Notes security that matures on June 15, 2012. The issue was priced at 99.942046 or approximately 24 basis points more than three-year U.S. Treasury Notes. The bid-to-cover ratio was 3.275 to 1. The stop yield was 1.770%. It will settle on July 16. The $1 billion reopening of the security was conducted via an Internet-based auction. The issue, CUSIP 3137EACC1, is listed on the Euro MTF market of the Luxembourg Stock Exchange. After the reopening, the outstanding size of the 1.75% three-year Reference Notes security will be $7 billion. All auction details can be found on Freddie Mac's Debt Securities Web page. Freddie Mac has issued $40 billion of reference notes securities during 2009 and has approximately $257.5 billion in reference notes and reference bonds securities outstanding.

The Federal Housing Administration will now provide mortgage loan insurance on refinanced commercial loans collateralized by hospitals. Previously, hospital owners could only get FHA insurance on loans that included a substantial construction component such as replacing, rebuilding, or renovating existing structures. "This refinance program will help hospitals struggling with skyrocketing interest rates and limited credit options," said HUD Secretary Shaun Donovan. "The savings provided through FHA refinancing should also help hospitals decrease the cost of healthcare, which is a major priority of the Obama Administration." HUD is prepared to accept refi applications as soon as lenders are prepared to submit them. The application process will be similar to that for construction loans, but it is expected to be faster and with fewer required steps. HUD anticipates that full applications will start to be received in August and that, following application review, insurance commitments for refis will start being issued in October.

The Government National Mortgage Association issued a record $43.6 billion in mortgage-backed securities in June, and reported that issuance during the first six months of this year has nearly doubled from a year ago. In May the agency issued $39 billion in MBS, a record at the time. Ginnie Mae issued $207 billion in MBS during the first half of this year, compared to $107 billion in the first half of 2008. The secondary market agency guarantees mostly single-family MBS. It guaranteed only $584 million in multifamily mortgages in June and $319 million in May. The June monthly report shows a 125% jump in the issuance of MBS backed by FHA-insured reverse mortgages, which are called 'home equity conversion mortgages' or HECMs. Ginnie issuers securitized $590 million in HECMs in June — the highest level ever.

In what was otherwise a good period for the Goldman Sachs Group, commercial mortgages were one of the down items in the firm's second quarter 2009 results. The Fixed Income, Currency and Commodities business, in which the mortgage business reports, had record quarterly net revenues of $6.8 billion. Net revenues in mortgages, Goldman Sachs said, were higher when compared with the second quarter 2008. However, the results in mortgages included a loss of approximately $700 million on commercial mortgages. No details were offered in its SEC filing. One lingering problem on Goldman's balance sheet is its exposure to commercial real estate as the economy remains weak and defaults rise. Goldman owns Litton Loan Servicing, a specialty servicer that specializes in subprime mortgages and 'scratch & dent' loans.

Troubled warehouse lender Colonial BancGroup of Alabama has agreed to sell some of its Nevada assets — including its branch network there and $492 million in loans — to Global Consumer Acquisition Corp. of New York. The sale comes amid unconfirmed reports that the bank's recapitalization plans are moving slowly and may have hit a snag. The lead investor in the recap plan is Taylor, Bean & Whitaker of Ocala, Fla., which recently declined to comment on the situation. If the sale to GCAC proceeds as planned the bank will receive a $28 million premium for its deposits. At press time Colonial's shares were up 15% on the day to 72 cents. Its 52-week high is $10.50, its low 29 cents.

The proposed Consumer Financial Protection Agency would draw personnel and assessment fees from the existing federal banking agencies to staff and pay for its operations, according to Treasury assistant secretary Michael Barr. Under the legislative proposal, the CFPA would have broad authority to assess fees on consumer lenders, Mr. Barr told a Congressional panel on Tuesday. But he noted that community banks may not see an increase in fees because they already pay assessments to the federal banking agencies for consumer compliance exams and regulation. "We don't anticipate it will result in an increase in fees," he predicted. "It will likely result in a reduction in fees," as the consumer protection functions of the agencies are consolidated into one agency. Senate Banking Committee chairman Christopher Dodd, D-Conn., said he strongly supports the concept of a consumer protection agency that will level the playing field for banks and non-banks when it comes to regulation and enforcement. The chairman stressed that he does not want to see community banks "saddled" with additional costs and fees.

The Obama administration is planning to release a proposal for restructuring Fannie Mae and Freddie Mac in February when the President sends his budget to Congress. "Between now and then, we will be holding a series of public meetings as well as engaging in our own internal deliberations," Treasury assistant secretary Michael Barr told a Senate panel. The Bush administration forced Fannie and Freddie into conservatorships in September 2008 when it became clear the two would not able to finance their operations without government support. Mr. Barr urged the Senate Banking Committee to move ahead and pass the administration's proposals to create Consumer Financial Protection Agency and other financial regulatory reforms before addressing the GSEs. "We could move forward expeditiously on financial reform measures and then turn to government sponsored enterprises in February," he testified. The Treasury assistant secretary also noted that the administration will soon send up a legislative draft of its proposal to create a systemic regulator for the largest financial institutions. The capital and liquidity requirements will take away "any incentive to be large," he said.

The Treasury Department has earmarked another $486 million in American Recovery and Reinvestment Act funding for the construction and renovation of affordable housing in 12 states. Treasury deputy secretary Neal Wolin said the $3 billion total stimulus program is designed to contribute to economic stability, "one community at a time" through the development of affordable housing and creation of much needed jobs. The department has granted $36 million to Alabama; $29 million to Arkansas; $34 million to Connecticut; $76 million to Georgia; $114 million to Louisiana; $44 million to Maryland; $51 million to Massachusetts and $16 to Montana, $38 million to New Mexico; $20 million to the Virgin Islands; $10 million to Vermont and $17 million for New Hampshire, which had already received $11 million under the program. Treasury is expected to award another round of grants in the coming weeks.