Originations

Mortgage fraud-related Suspicious Activity Reports referred to law enforcement increased 36% to 63,713 during 2008, compared to 46,717 reports in 2007, according to the Federal Bureau of Investigation's 2008 Mortgage Fraud Report. While the total dollar loss attributed to mortgage fraud is unknown, financial institutions reported losses of at least $1.4 billion, an increase of 83.4% from 2007. The report showed that more than 3.1 million foreclosure filings were reported on approximately 2.3 million properties nationally during 2008, up 81% from 2007 and 225% from 2006. As of 2008, the Western region of the U.S. had the most pending FBI mortgage fraud-related investigations. According to the FBI's report, the top 10 mortgage fraud states for 2008 were California, Illinois, Texas, Georgia, Ohio, Colorado, Maryland, Florida, Missouri and New York. Rhode Island, Massachusetts, Pennsylvania and the District of Columbia were newly identified as having significant mortgage fraud problems.

Technology seems to have driven a wedge between people and their ability to interact. Face-to-face meetings and sales visits, once a staple of our profession, have been replaced by phone calls. The phone calls we used to make are now e-mails, and e-mails have evolved into text messages. It seems as we become more socially networked we are less "social" than ever before. A few days ago I conducted a workshop entitled "Relationship Selling" with 26 mortgage loan officers. Their year-to-date results ran the gamut from a couple of multi-million dollar originators to many in the group closing as few as two or three transactions a month. The sales manager invited me in to address their need for better month-to-month results and a push for purchase loan business. As a starting point, I wanted to test how well this group was "connected" to the business opportunities out there. After handing out four colored index cards to each participant (and swearing them to honesty) I asked them to answer four simple questions. Then I collected the cards and we talked about the results. Here's what we found: Question 1: How many face-to-face sales calls and visits have you made on Realtors, builders and other referral partners so far this week? Answers: Since the workshop was on a Friday morning, the group considered the previous four days. The average was zero. Yes, all 26 cards read "zero." Not one of the 26 had been out for a single sales call or client visit all week. Question 2: How many referral client appointments have you arranged for next week? Answers: Three cards said "two," four cards said "one," and the remainder said "zero." Question 3: In the past month, how many community or industry events have you attended? Answers: There were 10 cards which read "one" and 16 cards read "zero." Question 4: What percent of your loan applications are taken face-to-face with your borrowers? Answers: The high card was 90%; the low card was 20%. Some quick number crunching showed the group average right at 50%. The message of this exercise was clear; this group's results were suffering because they had lost the connection between human interaction and business opportunities. "Selling" to them was reading and typing emails and working on loan files. Instead of visiting Realtors, they were e-blasting mortgage market updates. Instead of meeting new borrowers, they were asking people to complete their own application online. Rather than going to a builder association function or community event, they were -- well -- I don't really know what they were doing. One thing was certain: If this group was to improve their production and their purchase loan numbers, they needed to get back on the streets and back in the game of interactive selling -- fast. There's no question that technology is an enabler; it allows us to do business in a faster and more precise way. Technology, however, has also proven to be a hindrance to some. More and more originators are spending more and more time in the office and away from the customers. Some have lost their edge, their presentation skills have grown weak, and their talent for interpersonal communication has rusted. They can text message 100 miles an hour, but they can't carry on an engaging five-minute conversation with another human being. And this isn't a "Gen X" or "Gen Y" problem either. This problem is getting worse with experienced, seasoned loan originators who have chosen not the best way to do business, but the easiest way to do business. An e-mail may be quicker than a phone call, but that doesn't mean it is more effective. Getting better connected doesn't mean throwing your cell phone or laptop or Blackberry in the trash can; it just means using your technology tools to support your sales efforts, not replace them. Alongside all this technology we have in the 21st Century, people are still doing business with other people. Referrals of good lenders are still passed along from friend to friend. Real estate agents continue to entrust their reputations and paychecks to lenders that they trust, like, respect and most importantly, lenders that they know. Borrowers come back to loan officers with whom they feel comfortable. The closer you get to people, the more effectively you can sell them that you are the right solution they are looking for. Yes, even today with all this technology, mortgage loan origination remains a people business. The best place to validate this claim is to look at our industry's top producers. They got to where they are, closing $50 million to $500 million a year, through strong and long relationships with people and by staying closely connected to their borrowers and referral partners. These superstars continue to thrive through good times and slow times as a result of their personal connections. They visit their clients. They meet their borrowers. They get up close and personal with their contacts. Just ask them. They'll tell you that people are the lifeblood of this business and that relationships are everything if you plan to be a success. The "people who know people who know people" have always prospered in this industry, and will continue to do so. Take time now to evaluate your sales efforts and your ability and willingness to stay connected to people. Ask yourself those same four questions I asked that group: Question 1: How many face-to-face sales calls and visits have you made on Realtors, builders and other referral partners so far this week? Question 2: How many referral client appointments have you arranged for next week? Question 3: In the past month, how many community or industry events have you attended? Question 4: What percent of your loan applications are taken face-to-face with your borrowers? If the answers are not what you want, now is the time to make some positive changes in your business strategy and in how you look at your job as a loan originator. Open up more connections and relationships and you'll open up more business opportunities, more contacts, more prospects, more referrals, and more loans.

Credit unions will partner with Maine's housing agency in a new program to aid first-time homebuyers with cash incentives of up to $5,500. When combined with federal tax credits, total incentives through the 'Gift of Green' program could be as much as $15,000. The Gift of Green offers: A grant of up to $5,000, not to exceed 4% of the loan amount, to help with the cash required for the downpayment and other closing expenses; and a coupon of up to $500 for a pre-weatherization and post weatherization home energy audit. Income and home price limits are listed at www.mainehousing.org, along with all participating lenders. Gift of Green loans will be made on a first-come, first-served basis while funds last.

Though the banking industry has a strong chance of defeating the Obama administration's call to eliminate the thrift charter, its arguments for defending it appear weaker than ever. According to a report in American Banker, two of the primary reasons for preserving the charter — stronger preemption powers and broader interstate branching rights — appear headed for the chopping block, and the third — a focus on mortgage lending — is now increasingly suspect. Many observers doubt the wisdom of keeping a charter that focuses primarily on real estate lending, arguing that thrifts caused the savings and loan crisis and helped fuel the current crisis. "Why do you need it?" said Chuck Muckenfuss, a partner at Gibson, Dunn & Crutcher LLP. "It has certain restrictions in it, and so why not just make it one better charter in which you can do whatever you want to do? That's pretty compelling."

Wintrust Mortgage Corp. originated $1.2 billion in mortgages in the first quarter and now it is expanding its correspondent channel by purchasing mortgages from members of Lenders One, a mortgage cooperative. The Lake Forest, Ill., mortgage company is a member of Lenders One and now it has become a "preferred investor" for the 125 coop members. "The transition to becoming a preferred investor of Lenders One brings opportunity for us to coordinate our efforts with the cooperative's sales team," said Valerie Moavero, WMC's vice president and correspondent lending manager. Wintrust Mortgage is a nationwide correspondent lender that offers FHA, VA and conventional loan products, including jumbo fixed-rated mortgages. Wintrust (formerly known as WestAmerica) originated $263 million in mortgages in the fourth quarter while it completed an acquisition of Professional Mortgage Partners, Downers Grove, Ill., in late December. PMP originated nearly $1.2 billion in loans in 2008.

After putting its residential correspondent loan purchase program on hold in late June, CitiMortgage has begun accepting new correspondent registrations from what it calls "select, qualified" mortgage banking customers. The bank owned mortgage firm offered few details accept to say that it will phase in remaining correspondents over the next several weeks. CitiMortgage — which declined to say how many active correspondents it had prior to the shutdown — stopped buying loans so it could work on improving its quality control procedures. Registrations for correspondent transactions began anew on Monday, July 6. Last year CitiMortgage scaled back its wholesale production by roughly 90%. According to the Quarterly Data Report, the company ranked fourth nationwide among correspondent buyers in 1Q.

Refinancings of existing mortgages accounted for 77% of all loans funded in the first quarter, the highest reading since National Mortgage News began tracking such figures in the late 1990s. The last time the refi rate was close to being this high came in the first quarter of 2003 with refis accounting for 76.7% of all fundings. (In that year mortgage bankers funded a record $3.9 trillion in home loans.) Last month mortgage rates began to tick up as the yield on the 10-year Treasury began to increase. However over the past week the 10-year has come down and at press time was yielding 3.5%. According to the Quarterly Data Report, a National Mortgage News publication, all home lenders funded $462 billion in 1Q: $355 billion in refis and just $107 billion in "purchase money" loans.

The 30-day delinquency rate on "open-end" home equity lines of credit jumped 43 basis points in the first quarter to a record high of 1.89% on a seasonally adjusted basis, according to an American Bankers Association survey. The delinquency rate on closed-end second liens jumped 49 bps to 3.52% in the first quarter -- also a new high. "The number one driver of delinquencies is job losses," said ABA chief economist James Chessen. He noted that 2 million Americans lost their jobs in the first three months of this year. "Even if home prices stop falling this year, employment will keep home equity delinquencies high for some time," he added. The Federal Deposit Insurance Corp. recently reported that charge-offs on HELOCs totaled $4 billion in the first quarter, compared to $3.3 billion in the previous quarter. Charge-offs on closed-end second liens totaled $2.5 billion, a 25% increase from the fourth quarter. Meanwhile, a new report from PMI Mortgage Insurance says that 85% of the nation's metropolitan areas are "now facing an increased risk" of lower home prices into 2011. The only good news PMI could offer is that the rate of home price declines has slowed and that falling values are making homes more affordable in many metro areas.

After being convicted of 51 counts of conspiracy, fraud and money laundering in connection with a mortgage fraud scheme, Harold Stafford of Sumner County, Tenn., has been sentenced to eight years in prison, followed by three years of supervised release. His co-defendants, Miles Jackson Black and Jeffrey Dunn Hathcock, also from Sumner County, were each sentenced to a year and a day in prison, followed by five years of supervised release. All three defendants were ordered to jointly pay $1 million in restitution and a special assessment of $5,100. According to the U.S. attorney's office for the Middle District of Tennessee, Stafford engaged in a scheme that involved the purchase of 22 luxury homes in Hendersonville, Gallatin and Goodlettsville through unqualified straw buyers. Stafford, Black and Hathcock caused the submission of false mortgage loan applications to lenders that overstated the straw buyers' income, falsely stated that the homes would be the straw buyers' primary residences and failed to disclose other recent home purchases by the same straw buyers. All of these mortgage loans ended in default and foreclosure, resulting in losses to mortgage lenders, after foreclosure, totaling $2,214,700.

The president of the Florida Association of Realtors said the availability and affordability of property insurance has an impact on the real estate market and the importance of it, not only for homeowners, potential homeowners and the owners and potential owners of commercial properties "cannot be overstated." Cynthia Shelton testified at a West Palm Beach, Fla. hearing of the U.S. House Financial Services Committee's Oversight and Investigations Subcommittee held on July 2. "Homeowners' insurance is a necessary component in securing a mortgage and buying and selling a home. If a potential homebuyer is unable to obtain or afford the required insurance, the sale will not be completed. As a result, potential homebuyers are excluded from the market," she said. Ms. Shelton also claimed that home values are directly tied to the cost of property insurance. Because homeowners are required by lenders to have property insurance, policies that are expensive or unavailable devalue real estate. She also spoke in support of a bill proposed by Rep. Ron Klein, D.-Fla., called The Homeowners' Defense Act of 2009. "The lack of a national natural disaster policy has had a measurable direct impact on the availability and affordability of property casualty insurance in many parts of the country. The inability to obtain affordable homeowners' insurance is a serious threat to the residential real estate market - and thus, our entire economy," Ms. Shelton said.

Security One Lending, San Diego, has acquired Omni Reverse, Mission Viejo, Calif., in a stock transaction whose details were not disclosed. The website for Security One describes the company as specializing in the reverse mortgage product, although it apparently does forward mortgages as well and is an approved Fannie Mae seller/servicer. Torrey Larsen, president of Security One said, "The combined entity will be well positioned to compete for market share as the industry, in my opinion, experiences consolidation during the next 18 months." The company is currently licensed in 13 states and plans to be licensed in 38 by the end of the year. Until last year, Omni Reverse was known as OmniHome Financing. Its president, David Bancroft said Omni Reverse has been looking for a partner for a long time.

The 12 Federal Home Loan Banks reported combined earnings of $345 million in the first quarter, down 50% from a year ago, as six banks took a net loss for the quarter primarily due to impairment charges on private-label mortgage-backed securities. "Other than temporary impairment" charges on the $61.2 billion in private-label MBS held by the FHLBanks reduced earnings by $516 million. The banks also recognized $4.7 billion in private-label MBS valuation losses in "accumulated other comprehensive income." Federal Housing Finance Agency director James Lockhart recently told Congress that the credit quality of the FHLBanks' investments in private-label securities has proven to be "much worse" than expected. "With ongoing uncertainty surrounding the true economic value of PLS, those investments will continue to raise safety and soundness concerns," the GSE regulator said. As of March 31, combined retained earnings totaled $5 billion while losses recognized in accumulated other comprehensive income totaled $7.4 billion. Half of the FHLBanks have suspended dividend payments to rebuild retained earnings. The 12 banks have $1.2 trillion in assets and $60 billion in regulatory capital, according to the combined first quarter report issued by the FHLBank Office of Finance.

The real estate business is one of the few bright spots in the Monster Employment Index for June, the online job search website said. The index fell from 118 in May to 117 in June; it most recent peak was in September 2008 at 160. The year-over-year decline in the index, a gauge of online job demand culled from a representative selection of corporate career websites and job boards, was 28%. But the real estate industry registered the largest monthly increase in online job demand during June. Monster noted that the rise coincides with "marginally improved statistics" on residential home sales from the National Association of Realtors. This rise, it continued, suggests a pick-up in housing sector activity "may be imminent." The index for the real estate sector went from 50 in May to 61 in June; in June 2008 it was 105.

In spite of seeing an uptick in business because of the refinance boom during the first quarter, according to data collected by the American Land Title Association, title underwriters had an operating loss of $127.5 million and a net loss of $117.4 million for the first quarter 2009. This compares to operating income of $59.9 million and net income of $224.8 million for the same period last year. The industry also did not benefit from a 49% reduction in loss and loss adjustment expenses for the quarter. The period also was the 12th consecutive quarter where title premiums written declined on a year-over-year basis. But ALTA pointed out it was the first of the 12 where the quarterly decline was less than the prior quarter's decline. In fact, the first-quarter 2009 decline of 25% was less than the first quarter 2008 decline (over 26%), the second quarter 2008 decline (almost 28%), the third quarter decline (over 30%) and the fourth quarter decline of 34%. Title insurers wrote $1.98 billion in premiums during the first quarter of 2009, compared to $2.64 billion in premiums during the same period a year ago. By market share, Fidelity National Financial was the largest group at nearly 45%, followed by First American at 28%, Stewart at 13% and Old Republic at 6%. Those four companies control 92% of the business; the largest regional player, Attorneys' Title Insurance Fund, has a market share of under 2%.

Beazer Homes USA Inc., Atlanta, has agreed to pay the United States $5 million, plus contingent payments of up to $48 million to be shared with victimized private homeowners, to resolve allegations that it and Beazer Mortgage Corp. were involved in fraudulent mortgage origination activities in connection with federally insured mortgages. The settlement resolves the following allegations: that, when Beazer Mortgage Corp. made Federal Housing Administration-insured mortgage loans for homes built by Beazer Homes, the companies fraudulently and improperly required purchasers to pay interest discount points at closing but then kept the cash and failed to reduce interest rates; that it provided cash gifts to home purchasers through certain charities so purchasers could come up with minimum required down payments, with assurances the gifts would not have to be repaid, and then increased home purchase prices to offset the amount of the gifts; that it obscured which of its branches made defaulting loans to avoid FHA detection of excessive default rates; and that it ignored stated income requirements in making loans to unqualified purchasers. Beazer Homes operates in at least 21 states.

The majority of experts are divided as to whether the downward trend seen in long-term mortgage rates this week will continue or stabilize, according to a Bankrate survey released July 2. There are 46% of the respondents who foresee a further decline while another 46% predict stability. The remaining 8% anticipate an increase. The average rate for a 30-year conforming, fixed-rate mortgage slid to 5.32% from 5.42% in the most recent week, according to the Freddie Mac Primary Mortgage Market Survey. The move brings the average 30-year rate to about one-quarter of a percentage point below its June 11 peak, said Frank Nothaft, Freddie Mac vice president and chief economist. Mortgage researchers at Credit Suisse said in a report that they believes the 30-year rate would have to drop below 5% again "to trigger a renewed refi surge." According to Freddie Mac, the average rate for 15-year FRMs and five-year Treasury-indexed hybrid adjustables also fell during the week ending July 2. The former dropped to 4.77% from 4.87%, and the latter declined to 4.88% from 4.99%. In contrast to the other mortgage rates Freddie Mac tracks, the average rate for one-year Treasury-indexed adjustable-rate mortgages rose slightly in the most recent week to 4.94% from 4.93%. All rates tracked by Freddie were down from a year ago when the average one-year Treasury ARM rate was 5.17%, the average five-year Treasury hybrid rate was 4.99%, the average 15-year rate was 5.92% and the average 30-year rate was 6.35%. Average points were 0.6 for one-year Treasury ARMs and 0.7 for the other types of mortgage rates Freddie tracks.

The Title/Appraisal Vendor Management Association has sent a three-page letter to the National Association of Mortgage Brokers stating its attacks on appraisal management companies in the fight over the Home Valuation Code of Conduct are baseless. "Everyone in the industry knows there were serious problems with the collateral valuation part of the business," said Jeff Schurman, TAVMA executive director. "Maintaining an arms-length relationship between the loan originator and appraiser is the centerpiece of the HVCC. To characterize AMCs as the centerpiece of the Code is simply false." He added that there is no tangible data to suggest that AMCs are the problem. Instead, the real issue is that New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac felt that loan originators whose compensation depended upon the loan closing were trying to improperly influence appraisers, Mr. Schurman said.

The Department of Housing and Urban Development is revising its appraisal policies on Federal Housing Administration-insured loans with respect to appraisal management companies, according to an agency spokesman. Appraisal groups have been complaining that HUD's restrictions on appraisal fees and the lenders' increasing reliance on AMCs is driving many experienced appraisers away from taking assignments that involve Federal Housing Administration-insured loans. "The loss of these seasoned professionals is adding unnecessary and substantial risk to the FHA program," according to four appraisal trade groups which sent a letter to HUD secretary Shaun Donovan. "We already have a mortgagee letter in the clearance process addressing this issue," the HUD spokesman said. FHA borrowers are expected to pay no more than the "customary fee" for an appraisal, according to a 1997 HUD mortgagee letter on appraisal management companies. To cover their management fees, AMC hires appraisers that will accept a reduced fee, according to the appraisal coalition. As a result, "the consumer is receiving a much lower level of service - often from appraisers who do not know the local market - in many cases," the coalition says in its letter to HUD. The Appraisal Institute, American Society of Appraisers, American Society of Farm and Rural Appraisers and National Association of Independent Fee Appraisers signed the letter.

Industry groups are backing an Obama administration plan to simplify mortgage disclosures and make them more consumer friendly but first the trades want the Department of Housing and Urban Development to kill a Real Estate Settlement Procedures Act rule that is due to go into effect Jan. 1, 2010. The administration has endorsed the concept of merging the RESPA disclosures and the Federal Reserve Board's Truth in Lending Act disclosures into a single document as part of its legislative proposal to reform the regulatory system. "We believe development of a simple, single RESPA/TILA disclosure is achievable, and that such an effort can be undertaken and completed far sooner than broader legislative efforts to reform regulation of the financial industry," the industry groups say in a July 1 letter to top administration officials. To move this process along, the RESPA rule should be withdrawn and HUD and the Fed should commence a joint rulemaking effort, according to the letter, which was signed by 10 associations. Signers include: American Bankers Association, American Escrow Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, National Association of Mortgage Brokers and Real Estate Settlement Providers Council.

Fannie Mae and Freddie Mac have received the green light from their regulator to refinance underwater homeowners with loan-to value ratios as high as 125%. The special refinancing plan that Obama administration officials unveiled in February limited the refinancing option to loans with LTV ratios of 80% to 105%. But the 105% LTV limit would not offer any relief for borrowers who have seen the values of their home erode by 15% to 30%. "The higher LTV refinancings will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates," Federal Housing Finance Agency director James Lockhart said. Fannie Mae said it would accept delivery of the higher LTV loans starting Sept. 1. A Freddie Mac spokesman said it would start accepting the loans "now." The GSE financing program is only available to borrowers with loans that are owned or guaranteed by Fannie and Freddie. They also have to be current on their mortgage payments. "On the 105%-125% LTV loans, lenders can either sell us the loans for cash or deliver them into an MBS execution to be sold to other investors," a Fannie spokesman said.