Originations

FBR Capital Markets has raised its ratings on PHH Corp., Mt. Laurel, N.J. to "outperform" because of improvement in its mortgage banking fundamentals and the change to its management team.The leadership change occurred as a result of a successful proxy challenge by Pennant Capital Management LLC, Chatham, N.J. " With respect to mortgage banking, gain-on-sale margins have held up surprisingly well over the first half of 2009 due to less competition in the mortgage origination space; we expect margins to remain strong throughout the year; however, volumes will be significantly lower in the second half of the year due to higher rates," said analysts Paul J. Miller Jr., William Wallace and Jessica Halenda. The analysts at the Arlington, Va., firm said they expect the new management team, led by acting chief executive George Kilroy, to have a focus on creating shareholder value. FBR has assigned a price target of $23 per share for PHH, up from $13. Their valuation for the mortgage banking business is $15, based on the company's first quarter tangible book value of $22.50. The remaining $7.50 is from the fleet management business.

A report from A.M. Best Co., Oldwick, N.J., found the property/casualty segment of the insurance business had an underwriting loss of approximately $800 million in the first quarter of 2009 in large part because of the significant losses reported by mortgage and financial guaranty insurers. The mortgage and financial guaranty segments reported an underwriting loss of $1.9 billion and posted a combined ratio of 220.8, adding approximately two percentage points to the P/C industry's combined ratio; this ratio is a measure of underwriting profitability. Historically, these businesses add less than one percentage point to the combined ratio. The Best report said although the mortgage insurance and financial guaranty business represent just 1% of P/C net premiums written in the first quarter, the poor performance hurt what was otherwise a profitable underwriting quarter. Still the first quarter 2009 results were an improvement of the first quarter 2008 results of a $3.3 billion loss and a combined ratio of 305.1.

Nearly 60% of homebuilders are running into problems with appraisals and 26% of the builders surveyed said they have seen sales contracts fall through because the appraisals are coming in below the contract price, according to the National Association of Home Builders. The "biggest problem," NAHB says is that appraisers are using foreclosures and distressed sales as comparables for new single-family homes. Freddie Mac has reiterated in a July 10 Bulletin that it does not require appraisers to use foreclosures or short sales as comparables. And appraisers must certify that they are using comparables "most similar" to the property. NAHB called this a "step in the right direction." But Freddie did not rule out the use of distressed sales as comparables. "If the appraiser determines these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use," the bulletin says.

A survey conducted for researchers at the University of Chicago and Northwestern University found that fewer Americans feel that home prices in their area will decrease in the next year than did at the end of last year. The findings were part of the Chicago Booth/Kellogg School Financial Trust Index. In December 2008, 47% of the respondents to the survey felt home prices in their local market would decline in the next year. By March 2008, that number fell to 37% and in the most recent survey, the number was 26%. Paola Sapienza of the Kellogg School of Management at Northwestern said, "In only six months we've seen marked improvement in confidence toward home values. In fact, 75% of the people who changed their opinion during this time period now think house prices will remain stable, while the remaining fourth think that house prices will rise." The Financial Trust Index increased from 19% in the first quarter to 21% for the second quarter as the researchers found an increase in the percentage of Americans who trust their banks and bankers, from 29% to 34% during that timeframe.

Banks are holding up loan modifications by refusing to subordinate or extinguish second liens that are "virtually worthless," according to two powerful banking committee chairmen who want federal regulators to intervene. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., contend that the banks don't want to recognize their losses on second liens and they are preventing borrowers with underwater first mortgages from refinancing under the FHA Hope for Homeowners program. "Carrying these loans at potentially inflated prices may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus stand in the way of increasing participation in the H4H program," the chairmen say in a letter to the banking and thrift regulators. "We urge you and your staff to look into this issue as expeditiously as possible to ensure that we can achieve the vital goal of the H4H to help American families build equity and keep their homes," the July 10 letter says.

Freddie Mac has slashed its origination forecast for the third quarter by $265 billion mainly due to a drop off in refinancings. Freddie's latest housing market forecast shows that loan production in the third quarter coming in at $625 billion, down from its $890 billion estimate a month ago. All of the reduction in loan production comes from conventional loans that Freddie and Fannie Mae purchase. The new forecast shows a slight pickup in originations of Federal Housing Administration and Department of Veterans Affairs-guaranteed loans. The government sponsored enterprise now is forecasting that lenders will originate $2.3 trillion in single-family loans in 2009, down $400 billion from its previous forecast. The Mortgage Bankers Association recently cut its 2009 origination forecast by $700 billion to $2.03 trillion.

The Senate has confirmed David Stevens to be the new Federal Housing Administration commissioner and he is expected to begin work at the mortgage insurance agency on Monday. Mr. Stevens' nomination has been help up for several months due to alleged Real Estate Settlement Procedures Act violations by his former employer Long & Foster — a mid-Atlantic real estate brokerage firm. The RESPA complaints did not name Mr. Stevens and HUD secretary Shaun Donovan continued to support Mr. Stevens, claiming his executive experience at Freddie Mac and Wells Fargo Home Loan is needed at FHA. Meanwhile, FHA commissioner Brian Montgomery finally stepped down on July 3 after it was clear the Mr. Stevens would be confirmed. Mr. Montgomery was appointed to the FHA post by former President Bush and he was asked to stay by the Obama administrations until his successor is confirmed. "I was pleased to be able to serve the Obama Administration as a holdover, which is exactly what Secretary Donovan did back in 2001 in the early months of the Bush Administration," Mr. Montgomery said in a farewell note. "Having worked for Secretary Donovan for the past 5 ½ months, I want to tell you that he is a man of great vision and commitment to the causes that HUD champions," Mr. Montgomery said.

Two congressmen have introduced a bill to provide the Federal Housing Administration with greater resources to increase its staffing and upgrade its technology systems. The bill (H.R. 3145) also gives FHA additional tools to oversee lender performance and implement new programs to reduce foreclosures. Two members of the House Financial Services Committee — Reps. John Adler, D-N.J., and Christopher Lee, R-N.Y., — introduced the FHA bill. The National Association of Realtors endorsed the bill. "FHA continues to be a stable, affordable, safe option for American families seeking to purchase a home," NAR says in a letter to the congressmen. "Your legislation will provide FHA with the means necessary to play this important role," the Realtors said.

Chicago Title and some of its affiliates are reporting delays in what it calls "the funding of mortgage loans" by Taylor, Bean & Whitaker, Ocala, Fla. At press time TBW CEO Lee Farkas had not returned a telephone call about the matter. A memo written by title attorney S.K. Sumner of New Jersey offers no reason for the delay but notes that, "Until Taylor Bean resolves these delays, we recommend that additional interest be added to payoff calculations in order to avoid a possible shortfall in payoff amounts." TBW is the lead investor in a $300 million recapitalization plan for Colonial BancGroup, Montgomery, Ala. The recap is dependent on Colonial receiving $550 million in Troubled Asset Relief Funds from the government. Earlier this week Colonial — a warehouse lender to TBW — cut 136 jobs across five states including Alabama, Georgia, Texas, Florida and Nevada, The cuts make up about 3% of the bank's work force.

American International Group subsidiary United Guaranty Corp., Greensboro, N.C., has a new chief operating officer who — like the company's recently named chief executive — at one time worked for Safeco Corp., Seattle. Kim Garland will have responsibility for UGC's claims service and operations, business development, underwriting, marketing and risk management functions. Most recently, he was the president of the Open Seas Solutions group for Safeco. UGC president and CEO Eric Martinez, before joining the mortgage insurer's parent company AIG, New York, earlier this year, was executive vice president — claims, customer care and business operations for Safeco. Mr. Garland's previous positions also include being vice president, auto product management at Safeco, and before that he held various senior management and actuarial positions at Safeco and GEICO.

The average sale price of a home in New York City fell 22% in the second quarter, to $644,000, according to the Real Estate Board of New York. But Board President Steven Spinola says real estate brokers in the Big Apple are reporting that people are out kicking tires, if not seriously looking. "It's only a matter of time before the New York market is on the rise again," he said. "If this economic downturn is anything like others in the past, New York is one of the last to feel the effects." Manhattan showed the biggest declines in the April-June period, with average prices for cooperatives, condominiums and one-to-three unit buildings falling 19% to $1.297 million. In Queens, the average dipped 13% to $403,000, and in Brooklyn, it fell 12% to $503,000. Staten Island saw only a 10% decline to $388,000, while the Bronx fell 9% to $356,000.

The commercial real estate sector has shown signs of increased market volatility across all major sector types, according to Fitch Ratings' latest annual U.S. Property Market Metric update report. With the average cash flow volatility score rising to 3.62 in 2008 from 2.98 in 2007, volatility in commercial real estate has reached its highest levels since Fitch launched its PMM scores in 2000. The office sector was hit the hardest, with the average volatility score jumping to 3.68 last year from 2.62 in 2007. The office markets showed greater volatility in the three largest metropolitan statistical areas: New York, Chicago and Los Angeles. Multifamily properties' average volatility scores jumped to 3.15 in 2008 from 2.5 in 2007, with San Francisco, Phoenix and Miami among the more volatile markets. Retail markets also reflected more volatility with a 3.7 average PMM score last year as opposed to 3.12 in 2007. Several MSAs in Texas were affected, including Dallas-Ft. Worth and Houston.

The national Realtor.com Homeownership Survey found the same motivating factors for homebuyers that are coming back into the market that a similar survey from its California affiliate found. According to the survey, over two-thirds of potential buyers are being lured into the market by affordability; low interest rates are also being cited by respondents. Nearly 20% of the potential buyers are being motivated by foreclosed property being sold at bargain prices; over 15% believe prices are as low as they will go, while a similar number state they want to buy before interest rates rise. Just fewer than 15% of first-time buyers said the Obama administration tax credit is bringing them into the market. The survey asked participants if they or someone they knew was facing foreclosure and what steps did they take: 20% said they haven't done anything; 22% have not done something now but plan to take advantage of the Making Homes Affordable program before it expires; 37% talked to their lender about a modification; 44% asked about a refinance; and 26% have or are planning to refi in the Making Homes Affordable program. Only 28% said they believe the program is working, compared with 41% who said it isn't.

The share of new mortgage applications for government-insured products is at its highest point since 1990, the Mortgage Bankers Association said. Based on data from its Weekly Applications Survey, the share of borrowers seeking Federal Housing Administration and Veteran's Affairs program loans for June 2009 is 36%, its highest level since November 1990, and up from 26% in May and 27% in June 2009. Almost four years ago, the share of FHA/VA applications was under 6%, in August 2005, the lowest since MBA started collecting this data in January 1990. Purchase applications for the government products made up just less than 39% of total purchase application volume; the average for the year was just under 37%. The split between conventional and government product applications on the refinance side, MBA said, has been more volatile, with FHA/VA refi applications going from over 38% in October 2008 to under 20% for most of this year. "Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6% in June," said Orawin Velz, MBA's associate vice president of economic forecasting.

The average rate for a 30-year fixed-rate mortgage dropped during the week ending July 9 to 5.20% from 5.32% the previous week, according to the Freddie Mac Primary Mortgage Market Survey. The benchmark 10-year Treasury yield also has dropped notably in the past day or so and at noon was at levels near 3.4%, suggesting that rates may continue to decline. Bankrate's latest Rate Trend Index survey indicated the largest percentage of respondents — 44% — anticipate mortgage rates will remain relatively stable for the next 30-45 days while 37% believe they will fall. The remaining 19% of survey respondents expect rates to rise. Freddie Mac chief economist Frank Nothaft and other experts cite renewed signs of economic weakness as the catalyst for the latest weekly drop in mortgage rates. Rates remain below where they were a year ago. The average 30-year FRM rate was 6.37% at that time, according to Freddie Mac. During the latest week, the average 15-year FRM rate slid to 4.69% from 4.77% the previous week and 5.91% a year ago; the average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 4.82%, down from 4.88% the previous week and 5.82% a year ago; and the average one-year Treasury ARM rate was also 4.82%, down from 4.94% the previous week and 5.17% a year ago. Average points were 0.7 for FRMs and 0.6 for ARMs.

World Alliance Financial Corp. has halted the origination of all new reverse mortgages at its Long Island-based subsidiary, Senior Lending Network, after failing to find a buyer for the division. A source familiar with the matter said a Delaware bank had agreed to buy Senior Lending Network — whose pitchman is actor Robert Wagner — but the sale fell apart last week. SLN started out several years ago selling reverse mortgage leads to loan brokers but then moved into loan production. World Alliance is owned by the Belgium-based KBC Group. SLN executive vice president Jean Noble confirmed the production shutdown but stressed that it will continue to service its portfolio of reverse loans which totals about 19,000 units. Roughly 140 workers were laid off. She said the company is continuing to look at "opportunities" and is talking to investors about raising capital. She confirmed that a sale of SLN had fallen apart but declined to name the institution. SLN originated reverses under the Federal Housing Administration Home Equity Conversion Mortgage program. SLN ceased taking new applications on July 7.

Even though the White House is trying to use Fannie Mae and Freddie Mac to prop up the residential mortgage market — including massive loan modifications — their regulator issued a new "Five Year Plan" on July 9 that leaves in place the targeted goal of shrinking each of their portfolios to $250 billion. At the end of May the two, together, boasted $1.6 trillion in on-balance sheet assets. The Federal Housing Finance Agency's five-year plan offers no new major revelations about their future. FHFA notes that Fannie and Freddie "have not met and may continue to be unable to meet many regulatory standards." The two were taken over by the government and placed into separate conservatorships in September.

Fiserv Inc. is updating its Loan Servicing Platform to make it more fully compatible with recent guidelines from the U.S. Treasury Department on home loan modifications. "From its inception the Fiserv platform was the first loan servicing system that was fully capable of supporting the Making Home Affordable modification program," the company said. But now, "in addition, several enhancements are underway, including additional deferred principal functionality, enhanced ability to gather personal financial information, and an [Home Affordable Modification Program]-specific screen to present a full picture of the modified loan," Fiserv said Wednesday. The Fiserv platform offers integrated default management tools that allow servicers to track and study loans being modified with the aim of helping servicers formulate best-option workout scenarios based on operational business rules while meeting HAMP guidelines.

Home purchase activity is at least temporarily on the rise in California, the state's Realtor association said, because of favorable prices, relatively low interest rates and consumer belief that rates will increase in the near future. According to the "2009 Survey of California Home Buyers," 68% of consumers said price declines were the motivating factor in their decision to purchase a home, while 39% said low interest rates helped them move to a better location. There were 23% who said a rate increase pushed them to buy recently. Nearly half of the sales were "traditional market sales," while 38% were real estate owned properties. Just 13% were short sale transactions. The survey also found that those buying REO had the highest level of difficulty in obtaining financing, 8.9 on a scale from 1-to-10; for traditional sales buyers it was 7.7 and for short sales buyers it was 7.6. Fixed-rate mortgages dominated in some cases, with 88% of traditional sales and 75% of short sales being financed with these loans. However, just 43% of those buying an REO property used an FRM. The California Association of Realtors survey said that financial literacy is a problem, especially among those going through the traditional sales process, with 32% saying they did not know or were not sure of their loan terms, compared with 12% of REO and 7% of short sale buyers stating the same thing. First-time buyers had an average downpayment of 19.7%, while repeat buyers put down an average of 28.3%.

After bottoming out the previous week, the Mortgage Bankers Association Market Composite Index increased by 11% on a seasonally adjusted basis, aided by a 15% increase in the refinance component and a near 7% increase in the purchase component. The MCI, an overall measure of mortgage applications, was 493.1, for the week ended July 3, up from 444.8 one week earlier; the results were adjusted for a shortened week due to Independence Day. On an unadjusted basis, the index decreased 0.5% compared with the previous week and increased 7.2% compared with the same week one year earlier. The refinance index, which had decreased by 30% for the week ended June 26, recovered about half of the loss, going to 1707.7 from 1482.2 the week before. The seasonally adjusted purchase index increased to 285.6 from 267.7 one week earlier. However, refis are still not the majority share of new applications, even though they did increase to 48.4% from 46.4% the previous week. The share of adjustable-rate mortgages applications increased to 4.4% from 4.3% for the previous week, the MBA said. The increase in refis came even though there was no downward movement in rates, as the average contract interest rate for 30-year fixed-rate mortgages remained at 5.34%, with points (including the origination fee) increasing to 1.13 from 1.12 for loans with 80% loan-to-value ratios, the association reported. The average contract interest rate for 15-year FRMs increased two basis points to 4.83%, while for one-year adjustable rate loans, it increased 6 BPs to 6.58%. The MBA can be found online at http://www.mortgagebankers.org.