Originations

Recently foreclosed homes, most of them likely being sold by lenders, are taking up a decreasing portion of Orange County real estate transactions, according to a report in The Orange County Register. The newspaper, citing figures compiled by DataQuick, said that in May homes that had been foreclosed upon in the previous 12 months made up 34.2% of homes sold, excluding newly built home sales. That's the lowest percentage since August. Foreclosures' share of the home resale market peaked in January at 46%. Lenders repossessed more than 1,400 Orange County homes last August — the highest number of any month on record. Orange County — once the home of many subprime lenders — has been one of the hardest hit areas in terms of home prices declines in the state.

Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., will pay $9 million to settle a dispute with 13 states and Washington, D.C., over how the wholesale lender handled certain nontraditional mortgages. Taylor, Bean, which is awaiting regulatory approval to buy Colonial BancGroup Inc. in Montgomery, Ala., also agreed to modify loans for certain customers and to hire an independent firm to review nontraditional mortgages originated in 2006 and 2007. The settlement resolves claims that Taylor, Bean altered applicants' incomes and assets to provide nontraditional mortgages. The mortgage lender did not admit wrongdoing as part of the settlement, which was reached with regulators in Arizona, Florida, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, North Carolina, Pennsylvania, and Vermont.

The Mortgage Bankers Association has slashed its forecast of mortgage production by more than $700 billion, wiping out most of a projected increase made to that forecast in late March. The trade group is now estimating 2009 single-family originations of $2.03 trillion — $737 billion of it "purchase-money" with the balance being refinancings. All but $84 billion of the cut is due to a lower number of rate/term refinancings and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program. The March forecast of $2.78 trillion was driven by expected refis as a result of the Treasury's actions to push bond rates lower. MBA chief economist Jay Brinkmann said the group's warning that the March projection could have been too optimistic came true, as investors have shied away from Treasuries. "Given the high issuance volume of Treasuries in June, the Fed is likely approaching its self-imposed ceiling of $300 billion and may be reluctant to increase its current commitment to purchase long-term Treasuries," he said. MBA is forecasting increasing rates through the end of this year and through 2010.

Existing single-family home sales rose 1.9% in May, marking the third consecutive monthly rise, even though the purchase of foreclosed properties and first-time sales declined. The National Association of Realtors reported that sales of existing single-family homes rose to 4.25 million units (annualized) in May compared to 4.17 million in April. Compared to the same month a year ago sales fell 3%. NAR chief economist Lawrence Yun noted foreclosures and short sales accounted for roughly 33% of sales in May, down from 45% earlier in the year. Mr. Yun said the decline probably can be attributed to seasonal factors with more families entering the home buying market that are not interested in distressed properties. The percentage of buyers purchasing their first home fell to 29% of resales, down from a high of 50% in recent months. This is "puzzling" considering the availability of the first-time homebuyer tax credit, Mr. Yun said. Despite higher mortgage rates and other uncertainties in the market, NAR is still forecasting that existing home sales will be a "little better" in the second half. Meanwhile, the median price of an existing single-family home sold in May was $172,900, down 16.1% from a year ago.

Real estate agents are complaining to the National Association of Realtors that low-ball appraisals are upsetting sales transactions, blaming the recent implementation of a new appraisal code by Fannie Mae and Freddie Mac. "We are getting bombarded by members across the country who say that sales are falling apart," NAR chief economist Lawrence Yun told reporters. Realtors are blaming appraisals coming in at the last minute with "unrealistically low values." Mr. Yun said . NAR is investigating the complaints. The GSE appraisal code that went into effect in May — the Home Valuation Code of Conduct — encourages the use of appraisal management firms that do not always use local appraisers. Real agents are complaining that appraisals are being conducted by non-local appraisers who are using non-comparable properties and relying on computer models, Mr. Yun said. Mortgage brokers also are complaining that appraisals are taking longer and causing some transactions to fall through. Appraisal Institute government affairs director Bill Garber said there is a lot of frustration about market conditions and Realtors and loan brokers are unfairly blaming appraisers.

JPMorgan Chase has named Thanh Roetelle the head of warehouse lending for its bank division, putting him in charge of managing the company's five major warehouse lending clients, industry officials said. A spokesman for Chase confirmed that Mr. Roetelle is heading the effort but had little other information as National Mortgage News Online went to press. The warehouse division is based in Houston. There have been unconfirmed reports that Chase might possibly try to grow its warehouse business, even modestly, but the spokesman said he knew of no such plans. However, warehouse officials said there could be some announcement from Chase about its warehouse business at the upcoming Western Secondary conference in San Francisco. When it comes to warehouse, Chase is not funding any wholesale originators.

Commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices decreased 8.6% in April, leaving the index at 25.3% below its level a year ago and 29.5% below the peak in prices measured in October 2007. According to Moody's, the large negative return for April likely reflects that deals closed during that month were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging. "The size of April's decline, following a 5.5% decline in January, also suggests that sellers are beginning to capitulate to the realities of commercial real estate markets," says Moody's managing director Nick Levidy. The South has been the worst performing region over the last year, with an annual decline of more than 20%. Commercial real estate has performed worse in Southern California than in the Western region as a whole. In Southern California, the office market has been the worst performer, with prices dropping 22.2% in the last year.

The controversial Home Valuation Code of Conduct is "the most dangerous thing facing the housing finance industry today," NAMB president Marc Savitt warned at the NAREE conference. He called the HVCC "a train wreck" that will "cause another collapse of the housing industry if something isn't done" to stop it. The NAMB leader said that because most lenders are using appraisal management companies to comply with the new rules, the cost of a valuation has doubled, as has the time it now takes to get one completed. He also maintained that in many instances, the quality of appraisals is poor. And he charged the some appraisal management companies are owned and operated by former subprime lenders. The result, Mr. Savitt told the housing editors, is that borrowers are being overcharged to the tune of $2.8 billion a year. "That's not acceptable," he said. "Consumers are tired of paying for the mistakes and government and the industry."

A key Republican lawmaker has given his approval to the Obama Administration's proposal to require mortgage brokers and funding lenders, which sell their loans on the secondary mortgage market, to maintain a certain ownership level in their products. "Keeping some skin in the game has a wonderful cleaning effect," Sen. Kit Bond, R-Mo., said at the National Association of Real Estate Editors' Annual Real Estate Journalism Conference in Washington. The White House plan for the Consumer Finance Protection Agency would require brokers to be paid, in part, over time based on the performance of the loans they originate, and compel lenders to retain an interest in the loans that are packaged into securities and sold to investors. But Marc Savitt, the West Virginia broker who is president of the National Association of Mortgage Brokers, said the idea would never fly, if only because the accounting necessary to follow loans as they are sold and resold would be a nightmare. Mr. Savitt also reiterated NAMB's long-standing argument that brokers do not underwrite mortgages and, therefore, should not be responsible for their failure. If brokers have any part in fraudulent loan applications, he told Mortgage Wire, they can and should be prosecuted under existing federal law.

The Mortgage Bankers Association and its partner, the Warehouse Lending Project, are continuing to push for a warehouse solution that includes Fannie Mae and Freddie Mac and are asking for what they call a "constructive dialogue" with the GSEs and the government. In a letter sent to Treasury secretary Tim Geithner on Friday, the MBA and WLA included a legal opinion from Buckley Sandler LLP that says the GSEs are within their charter authority to buy participations in warehouses lines of credit. The groups have held meetings with both Treasury officials and regulators at the Federal Housing Finance Agency. The MBA/WLP project that residential fundings will total at least $2.6 trillion this year but argue there could be a $630 billion shortfall in origination capacity because of a lack of warehouse credit to non-bank lenders. The two say that depositories cannot pick up the slack, adding that, "independent mortgage banks with local market knowledge are critical to maintaining liquidity and competition in our real estate finance markets."

The 105% loan-to-value ratio limit on Fannie Mae and Freddie Mac's program to refinance underwater borrowers could be raised to increase participation, according to the GSEs' regulator. The Federal Housing Finance Agency is "looking at going significantly higher than 105%," FHFA director James Lockhart said. The 105% ceiling has kept too many borrowers on the sidelines, he told a National Association of Real Estate Editors conference. The GSEs have refinanced 80,000 homeowners under the special program that the Obama administration has promoted to help borrowers who can't qualify for a standard refinancing. The administration unveiled the refinancing program in February and estimated it will refinance at least 4 million homeowners who have loans that are owned or guaranteed by the government sponsored enterprises. The 105% LTV limit theoretically allows Fannie and Freddie to securitize the newly refinanced loans and sell them to the Federal Reserve and other investors. However, raising the LTV might force the GSEs to hold the loans on their books.

Canadian investment in U.S. real estate has more than doubled in one year to 23.5% from 11%, according to real estate investor Westward Fund, Scottsdale, Ariz. The fund said exchange rates between the Canadian dollar and the U.S. dollar in addition to falling property values in the United States have been catalysts for the increase. Arizona in particular, where values have fallen in many instances, has drawn foreign investors, said E. Patrick LaVoie, manager for the fund. The fund said investors from the United Kingdom, China, Indian and Germany also have shown strong interest in U.S. real estate.

Mission Capital Advisors LLC, New York, is marketing a portfolio of commercial mortgage loans for an unnamed commercial bank with an outstanding balance of $158 million. These are performing, sub- and non-performing assets secured by a variety of collateral types, including office, hospitality, industrial warehouse, self storage, multifamily, condominium and commercial development land, throughout multiple states. Mission Capital is initially soliciting indicative bids (on July 8) from prospective bidders for the purchase of individual loans, any combination of loans, or the entire portfolio. Overall, the package contains 12 loans secured by collateral in New York, California, Florida, and Mississippi.

The First Magnus Litigation Trust and StoneWater Mortgage have entered into a settlement that will dismiss with prejudice claims against the mortgage company, its related companies, current officers, directors and employees. Under the terms of the agreement, both sides admitted no fault. No other terms were disclosed. The lead counsel for the First Magnus Litigation Trust, Jamie R. Welton, said in a statement "the settlement reached with StoneWater is a good result for the creditors and increases the assets from which they may be paid." Among those who are involved in the settlement is current StoneWater president Doug Lemke. However former First Magnus and/or StoneWater executives Gurpreet S. Jaggi, Thomas W. Sullivan Sr., Thomas W. Sullivan Jr., Clinton W. Gaylord, Gary K. Malis, Dominick Marchetti and Karl F.W. Young are still active defendants in the lawsuit. The suit alleges the seven men stripped $300 million from First Magnus, prior to its filing for bankruptcy, to start StoneWater, which they deny.

For the first time since July 2007, there was an increase in the median sales price for Southern California home sales, according to MDA DataQuick, San Diego. The median sales price for May was $249,000, up 0.8% from $247,000 in April but down 32.7% from $370,000 a year ago. Furthermore, for the 11th consecutive month, there was an increase in home sales in the region as a total of 20,775 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties in May. That was up 1.3% from 20,514 in April and up 22.8% from 16,917 a year ago. May's sales were the highest for that month since May 2006, when 30,303 homes sold. Foreclosure resales - homes sold in May that had been foreclosed on in the prior 12 months - accounted for 50.2% of resales. That was down from 53.5% in April and from a peak of 56.7% in February. "We appear to be in the early stages of the market gradually tilting back toward a more normal balance of sales across the home price spectrum. As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we'll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose," said John Walsh, MDA DataQuick president. "Let's not forget we're into the traditional homebuying season right now, meaning more people are purchasing for all of the normal reasons, such as a new job or to get settled before school starts. Many are concerned with finding the right home in the right area, not just the most deeply discounted home."

Homeowners and mortgage investors would not be the only ones with "skin in the game" if U.S. Housing Secretary Shaun Donovan's plan for revising the nation's consumer protection laws comes to pass. The secretary of the Department of Housing and Urban Development told the NAREE conference that "fairness" would be a "fundamental principle" that the Consumer Financial Protection Agency proposed by the Obama Administration would follow. Under that heading, he said, mortgage brokers would "owe a duty of best execution" to avoid conflicts of interest between themselves and their borrower clients. In addition, yield spread premiums would be "banned outright" and prepayment penalties would be restricted. And to reward responsible lending, loan originators would be required to retain a vested interest in the mortgages they write. Brokers would be paid "over time" based on the continued performance of the loans they originate rather than at the closing table. At the same time, lenders and mortgage aggregators would be compelled to retain a 5% interest in the loans so they would be rewarded for making good loans and penalized for making bad ones. The HUD secretary said neither he nor President Obama had any desire to prescribe exactly how brokers should be paid. But they "have to have a duty" to provide affordable products. "Putting a borrower in a mortgage (the broker) knew from day one that the borrower could not afford cannot be allowed to continue," he told the conference. "There has to be a chain there to tie some responsibility to the mortgage to ensure that this kind of situation doesn't ever happen again." None of what secretary Donovan proposed is new, but it is the first time the proposals have been adopted by a key government official.

The Obama Administration expects Fannie Mae and Freddie Mac to continue playing a key role in housing finance, the government sponsored enterprises' regulator said. While exactly what structure the GSEs will eventually take is still very much up in the air, James Lockhart, director of the recently minted Federal Housing Finance Agency, said they will be reconstituted with a well-defined mission that does not involve excessive risk taking. That's likely to mean the two companies, which are now in conservatorship and under FHFA's wing, will no longer be required to meet affordable housing goals that were prescribed by their old mission regulator, the Department of Housing and Urban Development. "In retrospect," Mr. Lockhart told attendees at the National Association of Real Estate Editors' annual real estate journalism conference in Washington that the goals "caused (Fannie Mae and Freddie Mac) to do things they shouldn't have done." The federal regulator also said the GSEs should operate under "clear demarcation" of their roles in relation to the private sector, and that any risk they undertake should be explicit, at actuarial cost and in conjunction with sound insurance principles. "Clearly," he said, "it was folly to allow the enterprises to legally leverage their mortgage credit by well over 100 to 1."

Arvest Mortgage Co., Lowell, Ark., has originated $1 billion in mortgages for the seventh consecutive year. But this year, instead of reaching that mark in mid-to-late December, it accomplished this goal in the first six months of 2009. This also means the company has now surpassed its total volume for 2008. Refinancings accounted for 75% of the six-month total, but in the last few months, there has been a shift in applications to 60%/40% in favor of purchases. Helping the shift from refis to new mortgage loan applications, explained Arvest Mortgage senior vice president Todd White, is that the first-time homebuyer tax credit is stimulating consumer interested.

A majority of respondents to the first-ever mid-year version of an annual survey of foreign investors in real estate indicated they plan to invest some debt or equity in U.S. real estate before 2009 ends, even though many have not made any such investments so far. "Three quarters of the survey respondents had not yet invested in 2009; however, more than two-thirds of them plan to invest some debt or equity in U.S. real estate before the end of the year," the Association of Foreign Investors in Real Estate, Washington, said. Thirty-one percent of the respondents to the survey conducted by the University of Wisconsin-Madison's James A. Graaskamp Center for Real Estate said they were more optimistic than at the beginning of the year, while 16% said they were more pessimistic and 53% said their expectations had not changed.

How bad is the new home business in California? Pretty bad, according to the chairman of the California Building Industry Association, and it goes way beyond housing starts and sales. "Every builder I know has laid off most of their staff, and contractors and suppliers we've done business with for years have folded up shop," builder Horace Hogan II told reporters at the Pacific Coast Builders Conference in San Francisco. "I can assure you this is the worst housing recession we've ever experienced." As bad as it was last year, when builders in the Golden State pulled just 65,000 permits, "2009 looks like it might be worse," Mr. Hogan said. Currently, the Construction Industry Research Board is projecting construction will start on a mere 40,000 units this year. "California's homebuilding industry is in the worst shape ever," the industry leader said.