Originations

Sales of newly built homes sold at an annualized rate of 352,000 units in April, a meager increase from the previous month with the luxury market continuing to suffer tremendously. Compared to the same month a year ago, sales fell by 34%. However, according to government figures released on May 28, there could be two minor bright spots in the numbers: the supply of new homes for sale declined to 10.1 months, the lowest reading since August of last year, and the median sale price actually rose %mdash; to $209,700 from $202,200 in March. (The supply of new homes for sale peaked in January at 12.4 months.) As far as actual sales are concerned, 33,000 new homes closed in April with a majority of them selling at $400,000 or less. In the "jumbo" or luxury category ($750,000 and over) just 1,000 newly constructed homes sold nationwide, according to figures compiled by the Census Bureau, and Department of Housing and Urban Development. On Wednesday the National Association of Realtors reported that sales of existing single-family homes rose by 2.5% in April from the previous month.

Sales of newly built homes sold at an annualized rate of 352,000 units in April, a meager increase from the previous month with the luxury market continuing to suffer tremendously. Compared to same month a year ago, sales fell by 34%. However, according to government figures released Thursday morning, there could be two minor bright spots in the numbers: the supply of new homes for sale declined to 10.1 months, the lowest reading since August of last year, and the median sale price actually rose -- to $209,700 from $202,200 in March. (The supply of new homes for sale peaked in January at 12.4 months.) As far as actual sales are concerned, 33,000 new homes closed in April with a majority of them selling at $400,000 or less. In the "jumbo" or luxury category ($750,000 and over) just 1,000 newly constructed homes sold nationwide, according to figures compiled by the Census Bureau, and Department of Housing and Urban Development. On Wednesday the National Association of Realtors reported that sales of existing single-family homes rose by 2.5% in April from the previous month.

A new mortgage insurance company in the process of formation has secured $500 million in equity funding. Among those investing in Essent Group Ltd., a Bermuda-based holding company, are: Pine Brook Road Partners, Goldman Sachs, J.P. Morgan, PartnerRe and Renaissance Re. Essent Group and its subsidiary Essent US Holdings Inc., Radnor, Pa., are forming Essent Guaranty Inc., a monoline mortgage insurer that will be domiciled in Pennsylvania. Mark A. Casale, who was president of Radian Guaranty Inc., Philadelphia, between May 2006 and October 2007, is the president and chief executive of Essent. If successful, Essent would be the first new mortgage insurer to start to underwrite business since Triad Guaranty Insurance Co. started operations in 1987. Ironically, Triad is the first and so far only casualty of the downturn in the mortgage business, as the company is currently in run-off and no longer underwriting new policies.

Pulling the necessary building permits isn't the same as actually putting a shovel into the ground, but it's the next best thing, and California builders appear ready to start digging again. According the Construction Industry Research Board, 2,265 single-family permits were pulled throughout the state in April. That's down 33% from April a year ago, but it's up 21% from March. It also was the largest monthly total since October, when Golden State builders pulled 2,352 permits, and Robert Rivinius, president of the California Building Industry Association, says the gain is strong evidence that the $10,000 state income tax credit put into place in March is working to help clear out the old and start the new. The credit, combined with the $8,000 federal tax credit for first-time buyers, is "having the desired effect of stimulating home sales and clearing out inventory, which is helping to generate new construction and put people back to work," Rivinius said. But, with two-thirds of the $100 million set aside for the state credit already called for in the initial 12 weeks, builders now are pushing lawmakers in Sacramento to earmark $200 million more for the program to keep the momentum going. At the current rate, the research group says permits for just 40,000 units will be pulled at local zoning offices this year. That would be the lowest on record. How low? Down 38% from the record-low 64,962 units produced in 2008.

Lender groups are pressing the Federal Housing Finance Agency to make Fannie Mae and Freddie Mac purchase mortgages that banks originate to satisfy their Community Reinvestment Act obligations. "The GSEs have made it a practice of avoiding CRA-related mortgage loans," the Consumer Mortgage Coalition says in a comment letter to FHFA. "We would encourage FHFA to implement this statutory mandate even though HUD failed to do so," CMC executive director Anne Canfield says. The GSE regulator is in the process of revising Fannie's and Freddie's affordable housing goals for the first time. The National Association of Affordable Housing Lenders says the GSEs continue to ignore $50 billion of CRA-eligible multifamily loans that banks are forced to hold in portfolio. The FHFA proposal only requires Fannie and Freddie (combined) to purchase $9 billion of affordable multifamily loans in 2009. "We urge you to withdraw this proposal, and reconsider how the GSEs can better support the recovery," says Judy Kennedy, NAAHL president and chief executive.

The Department of Housing and Urban Development soon will issue guidance enabling FHA-approved lenders to provide short-term "bridge loans" to borrowers who are eligible for a one-time $8,000 first-time homebuyer tax credit. HUD issued a mortgagee letter on May 12 outlining a program that enabled borrowers to use tax credit funds toward downpayment and closing costs. But HUD took the letter off its website a few hours later — after the Office of Management and Budget objected. Apparently HUD had not consulted with OMB officials on the issue. Meanwhile, HUD has drafted new guidance that is expected to be posted any day now, according to sources. HUD secretary Shaun Donovan told the National Association of Realtors on May 12 that FHA approved-lenders, nonprofit housing groups, as well as state and local government entities would be permitted to "monetize the tax credit through short-term bridge loans." HUD expects these bridge loans will help more borrowers to become homeowners. The department also wants to prevent lenders from abusing the program by charging FHA first-time homebuyers excessive fees and rates.

The Mortgage Bankers Association Weekly Applications Survey Market Composite Index fell over 14% on a seasonally adjusted basis from last week as the refinancing component dropped by almost 19%. For the week ended May 22, the MCI, an overall measure of mortgage applications, was 786.0, compared with 915.9 one week earlier. The refinance share of mortgage activity fell to 69.3% of total applications from 73.6% the previous week. The Refinance Index fell to 3890.4 from 4794.4 the previous week; however the seasonally adjusted Purchase Index improved by 1% to 256.6 from 254.0 one week earlier. On an unadjusted basis, the Index decreased 13.8% compared with the previous week and increased 28.5% compared with the same week one year earlier. Adjustable-rate mortgages accounted for 2.6% of applications, up from 2.4% for the previous week, the MBA said. There was an increase in the average contract interest rate for 30-year fixed-rate mortgages to 4.81% from 4.69%, with points (including the origination fee) increasing by 15 basis points to 1.28 from 1.13 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

David Stevens' nomination to head the Federal Housing Administration is still in limbo. The Senate — which returns on Monday — left town for the Memorial Day recess without acting on his confirmation. Senate Banking Committee leaders are trying to sort out issues involving alleged RESPA violations by his former employer — the real estate brokerage firm of Long & Foster. Just before the recess, committee leaders were unsure whether they would be able to act on Mr. Stevens' appointment. Mr. Stevens managed Long & Foster's affiliated mortgage, insurance and title company unit. He is a former Freddie Mac and Wells Fargo Home Mortgage executive. Housing secretary Shaun Donovan still wants Mr. Stevens to run FHA and his supporters are hoping the nominee will be confirmed by the July 4th recess.

The Boston Federal Home Loan Bank has named Edward A. Hjerpe, III to be its new president and chief executive, replacing Michael Jesse who resigned April 30. The new appointee worked at the FHLBank from 1988 to 1997 first as a director of financial analysis and economic research and later as chief financial officer. Since then he served in senior positions at several community banks, including Strata Bank, Medway, Mass., where he is interim CEO. Mr. Hjerpe will join the FHLBank once a merger of Strata and Middlesex Savings Bank is complete. The new president and CEO will be taking over a FHLBank that reported an $83.4 million loss in the first quarter and an annual $73.4 million loss for 2008 primarily due to its investments on private-label securities backed by Alt-A mortgages.

Hedge fund Pennant Capital Management has ratcheted-up its proxy battle for seats on the board of mortgage banker PHH Corp., with two candidates it hopes will unseat the lender/servicer's chairman and long time CEO. The dissident candidates are Gregory Parseghian, the former head of Freddie Mac, and Allan Loren, former chairman and CEO of Dun & Broadstreet. The two would replace PHH chairman A.B. Krongard, and CEO Terence Edwards, whose director terms expire at the June 10 shareholders meeting. PHH is the nation's fifth largest residential servicer with $150 billion in housing receivables, according to the Quarterly Data Report and National Mortgage News. At last check Pennant was PHH's largest shareholder with a 9.94% stake at the end of March. The hedge fund said its candidates will help reinvigorate the company. However, compared to many of its mortgage banking competitors, PHH's share price has held up rather well: in trading Wednesday, its stock was selling for $16.36, well above its 52-week low of $4.27 and just a few dollars below its high of $19.98. PHH reported net income of $2 million for the first quarter, though it lost $254 million last year. PHH is the nation's largest private label lender/servicer and has a large base of credit union customers.

Sales of existing single-family homes rose 2.5% in April from the previous month but new figures show that the supply of existing condominiums and cooperatives for sale is continuing to grow again and now stands at 15.1 months, the highest reading since October. Condominium prices are down 17.3% from last year with single-family units declining 14.9% in value. According to figures released by the National Association of Realtors, first-time home buyers are driving the market, snatching up units at a steep discount from years past. The trade group says the national median home price is now $175,200 — a 12.4% decline from a year ago. (The figure includes both condos and single-family detached units.) In April existing homes sold at an annualized rate of 4.18 million in units, an increase from March but a 2.8% decline from April 2008. When condos and cooperatives are factored in all home sales averaged 4.68 million units, a 2.9% increase from March but a 3.5% drop from the same month last year. NAR chief economist Lawrence Yun says the housing market appears to be stabilizing but noted that the jumbo market has stalled.

The Department of Housing and Urban Development soon will issue guidance enabling FHA-approved lenders to provide short-term "bridge loans" to borrowers who are eligible for a one-time $8,000 first-time homebuyer tax credit. HUD issued a mortgagee letter on May 12 outlining a program that enabled borrowers to use tax credit funds toward downpayment and closing costs. But HUD took the letter off its website a few hours later — after the Office of Management and Budget objected. Apparently HUD had not consulted with OMB officials on the issue. Meanwhile, HUD has drafted new guidance that is expected to be posted any day now, according to sources. HUD secretary Shaun Donovan told the National Association of Realtors on May 12 that FHA approved-lenders, nonprofit housing groups, as well as state and local government entities would be permitted to "monetize the tax credit through short-term bridge loans." HUD expects these bridge loans will help more borrowers to become homeowners. The department also wants to prevent lenders from abusing the program by charging FHA first-time homebuyers excessive fees and rates.

National housing prices fell 11.5% as of March compared to a year ago, a slight improvement from an 11.7% annual decline as of February, according to new data from First American CoreLogic and its LoanPerformance Home Price Index While declines are slowing in states that have had the highest declines over the past three years, they are accelerating in places that have been experiencing only moderate decreases. "The problems are no longer confined to a handful of 'Sand States,'" said Mark Fleming, chief economist for First American CoreLogic. "Homeowners in many parts of the country are coming under stress from a loss in equity, rising delinquencies and foreclosures. This is particularly pronounced in more expensive neighborhoods where the median value of all properties is over $1 million." Roughly 33 states have exhibited acceleration in the rate of price declines in the last three months, and 14 states exhibited double-digit annual declines as of March - up from seven states a year ago. Nevada (-25.9%) remained the top ranked state for annual price depreciation, followed by California (-24.9%). Price declines in both states appear to be decelerating as California's decline was the smallest since March 2008 and Nevada's was its smallest decline in six months. Rhode Island (-21.2%) jumped to third and is currently the only state among the top five that continues to experience a consistent acceleration in price declines. Florida (-21.1%) and Arizona (-20.7%) round out the top five annual price depreciation states.

Home prices fell 18.7% in March from a year ago, according to Standard & Poor's/Case-Shiller 20-city house price index, which has declined 32.2% since the second quarter of 2006. Despite the plunge, the rate of decline in prices appears to have stabilized in the first quarter at a record 19.1%. The annual decline in January was 19% and 18.6% in February. Freddie Mac economists are forecasting that house price declines will slow in the coming quarters. They expect the S&P Chase-Shiller National HPI will decline by 14% in the second quarter and by 10% in third quarter. Overall, house prices will decline by 12.8% in 2009 and by another 3% in 2010, according to Freddie.

Freddie Mac has begun marketing its first multifamily securitization package as part of an effort to increase liquidity in the apartment loan sector. The first offering of the new Series K-003 structured pass-thru certificates involves 62 highly rated multifamily mortgages totaling $1.06 billion. Deutsche Bank Securities is the lead underwriter for the securities, that will price and be settled during the second week of June. "Freddie Mac is responding to difficult conditions in the multifamily housing finance market by finding innovative ways to link affordable rental housing to the capital markets," said Mike May, senior vice president for multifamily housing. Freddie capital markets vice president David Brickman noted that Deutsche Bank is selling the A-1 through A-5 senior classes to the public with 20% subordination. The senior classes along with A-6 (a subordinated class representing 12.5% of the deal) are guaranteed by Freddie. A subordinated bond (7.5% of the deal) was sold privately. Freddie has another $1 billion of mortgages in the pipeline but the next securitization has not been scheduled. "It is going to be a growing product of ours," Mr. Brickman said, and "people can expect a steady stream of deals."

A Taylor, Bean & Whitaker-led rescue of Colonial Bancgroup -- the nation's largest warehouse lender -- was set to be finalized by Friday evening, according to TBW chairman Lee Farkas. In an interview with National Mortgage News Mr. Farkas said "it looks like it's going to go through, yes." TBW is waiting on final signed documents from some of its partners. He noted that Colonial was preparing a press release about the deal and that TBW's other investors in the $300 million capital infusion would be revealed. With the cash infusion finalized, Colonial will then be eligible for $550 million in Troubled Asset Relief Funds from the Treasury Department. At the end of March Colonial was the nation's largest warehouse provider with $4 billion in commitments, according to NMN. Mr. Farkas likely will sit on Colonial's board. He noted that the bank will most definitely continue as a warehouse provider. "It's a good business for them," he said. "They made good money on it last year." Colonial also is a warehouse lender to TBW, the nation's eighth largest residential funder, according to the Quarterly Data Report. Over the past few weeks some analysts that follow the bank raised concerns that the deal might not go through. The Alabama-based bank reported a net loss of $168 million for the quarter ended March 31. Late this past week its shares were trading at $1.36 compared to a 52-week high of $10. It has been burned by a severe downturn in the commercial construction lending, especially in the southeast.

The first quarter financial improvements at U.S. banks, in large part driven by mortgage origination activity, will be difficult to maintain as credit losses continue to rise, a report from Fitch Ratings, New York declared. The increases in what Fitch called "market-driven revenues" that come from mortgage originations and fixed income trading are not likely to persist. "It appears that the industry is poised for another strong quarter in mortgage originations, although revenues from this business are presently expected to slow, possibly materially, in the second half of 2009," Fitch said. The rating agency added banks are likely to see continued increases in loan delinquencies, non-performing assets and net charge-offs for several quarters to come because of the uncertain economy.

The Treasury Department has agreed to invest $7.5 billion in GMAC Financial Services, the parent company of the nation's sixth largest residential servicer. Announced late Thursday, the investment is coupled with Federal Deposit Insurance Corp. approval for GMAC to sell newly issued senior unsecured debt with government backing. GMAC has already received $5 billion in TARP funds. Until the new investment was extended, GMAC was on the hook to raise $11.5 billion of capital within six months. Now it needs to raise $5.6 billion, it said. GMAC is a bank holding company. It recently changed the name of its depository to Ally Bank from GM Bank. Ally makes warehouse lines of credit to non-depository mortgage firms. Over the past year GMAC has closed the retail branch arm of its Residential Capital Corp. affiliate and exited the wholesale channel. Over the past year ResCap's owned servicing portfolio has fallen by 20% to $365 billion in housing receivables, according to the Quarterly Data Report. In other TARP-related news, a new report from Morgan Stanley says many banks will repay their government bailout funds by the fourth quarter of 2009.

The Senate confirmed Michael Barr as Treasury assistant secretary for financial institutions where he will play a key role in reforming the nation's mortgage finance system. A former professor of law at Michigan University and senior fellow at the Brookings Institution, Mr. Barr served as a special assistant to former Treasury secretary Robert Rubin in the Clinton administration. He has been working in the White House since January and is now the only confirmed Treasury official working in the agency's Office of Domestic Finance. At a congressional hearing, Treasury secretary Timothy Geithner said ODF will devise a new financial regulatory structure and work on "tough problems" including the future of Fannie Mae and Freddie Mac. Mr. Geithner also noted that Treasury plans to release proposals for regulatory reform in the coming weeks. The administration is considering the creation of a consumer protection agency that might regulate all mortgage lending with enforcement powers of all residential funders regardless of charter. But the secretary stressed that he has not committed to that concept yet.

The yield on the benchmark 10-year Treasury has been creeping up again and at mid-day was at 3.4%, putting upward pressure on mortgage rates. It's the first time in several months that the yield on the 10-year has been that high. On Thursday the 10-year closed at 3.2%. "The Treasury market suffered a severe sell off," Jefferies & Co. said in a Friday morning report. The report said some of the selling was the result of concern over Standard & Poor's decision to put the United Kingdom on negative watch from a ratings perspective, which put pressure on U.K. government bonds. Comments made by influential investment fund executive Bill Gross also hurt the market. Mr. Gross predicted that the U.S. may "eventually" suffer the same fate as the U.K.