Originations

A group of private equity investors led by former North Fork Bank chief John Kanas bought ailing payment option ARM investor BankUnited of Florida in a federally assisted transaction where the government could share in losses on up to 84% of its assets. Several different private equity funds are part of the investor group including one headed by Wilbur Ross, who has already bought two large residential servicing companies, both on the cheap. One investment banking source said BU's $4.9 billion in payment option ARMs might eventually be serviced by Mr. Ross' American Home Mortgage in Irving, Texas. Another investor in the consortium is Centerbridge Capital Partners, which owns Green Tree Servicing of Minneapolis. The Kanas group bought the $12.8 billion asset BankUnited FSB of Coral Gables (along with $8.3 billion in non-brokered deposits) Thursday night for $900 million. Other investors in the Kanas group include: Carlyle Investment Management, Blackstone Capital, the LeFrak Organization, The Wellcome Trust, Greenaap Investments, and East Rock Endowment Fund. The Federal Deposit Insurance Corp. had been entertaining bids on BankUnited for several weeks. On Thursday night the Office of Thrift Supervision officially took control of the thrift and handed it over to the FDIC. Its failure will cost the government insurance fund at least $5 billion. Two other investors bidding for the thrift included J.C. Flowers & Co., and Toronto-Dominion Bank of Canada. North Fork Bank was sold to credit card giant Capital One three years ago.

The Department of Housing and Urban Development has kicked 102 lenders out of the Federal Housing Administration single-family program for various violations and the new housing secretary is promising to get tough on lenders that do not meet the highest standards of conduct. "We expect that when they deal with an FHA-approved lender, they're dealing with a lender they can trust," HUD secretary Shaun Donovan said. In one action, HUD's Mortgagee Review Board suspended Hogar Mortgage and Financial Services from making FHA loans for five years and imposed a $151,000 civil money penalty on the Montvale, N.J. lender. The company could not be reached for comment. The Mortgagee Board determined that Hogar committed serious violations of FHA underwriting requirements. Prior to its suspension in late January, the New Jersey lender had originated 680 FHA loans over the previous two years with 19 defaulting or resulting in a claim. The average FHA default and claim rate is 4.43%, according to the FHA's Neighborhood Watch early warning system. The housing bill (S. 896) that President Obama signed on Thursday imposes stricter reviews of lenders seeking to become FHA-approved lenders. It allows HUD to levy CMP against non-approved lenders participating in FHA originations. The new law requires all FHA lenders to use their official names on advertisements as a way to deter and detect deceptive advertising.

The Nasdaq has sent a letter to Stratus Properties Inc., Austin, Tex., which said the company's common stock is subject to delisting from the exchange for failure to file its financial reports in a timely manner. Stratus did not file its 2008 10-K report by an extended deadline of May 14, nor did it file its first quarter 2009 10-Q by May 11. Stratus said it would request a hearing with Nasdaq to seek an exception period in which to complete its filings and thereby regain compliance with the listing standard. This request will automatically suspend the delisting for 15 calendar days from the deadline to request a hearing, or until June 8, 2009. However, Stratus also intends to request a further stay on the delisting of its common stock. Hearings are typically held within 30 to 45 calendar days from the request. The reason for the filing delay is that following the third quarter, Stratus determined that the manner in which it had previously accounted for certain interest costs was not in accordance with SFAS 34. Stratus had historically excluded interest costs related to financing of operating properties from interest eligible for capitalization, resulting in such interest costs being charged to expense.

Priority Mortgage, Brookfield, Wis., will merge its operations into American Foundations MortgageBanc, which also is based in Brookfield. American Foundations is a subsidiary of Generations Bancorp Inc., Pewaukee, Wis. Priority has been the mortgage partner for First Weber Group, a Wisconsin real estate firm. After the deal is completed, American Foundations and First Weber will enter into a strategic alliance. Until its acquisition by Generations, American Foundations had been known as Amerihome Mortgage LLC. American Foundations generates loans through retail, wholesale and Internet channels. Besides its Wisconsin offices, it has offices in Massachusetts and Illinois.

The average rate for the 30-year fixed-rate mortgages that dominate the market for the week of March 21 slid slightly to 4.82% from 4.86% for the previous week, according to the Freddie Mac Primary Mortgage Market Survey. Other common loan types' rates also inched downward with the exception of one-year Treasury-indexed adjustable-rate mortgages, where the average rate increased to 4.82% from 4.71%. One-year and five-year hybrid Treasury ARMs had 0.6 points on average while 30- and 15-year FRMs had 0.7 points on average. "Long-term fixed-rate mortgage rates have remained below 5% for the past 10 weeks as the U.S. Treasury and Federal Reserve ... act to keep interest rates low through security purchases," said Frank Nothaft, Freddie Mac vice president and chief economist.

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

President Barack Obama has signed two housing bills that will provide relief for troubled homeowners that need to refinance, and will crack down on mortgage fraud. The Helping Families Save Their Homes Act addresses the "administrative and technical hurdles" that make it difficult for families with underwater mortgages to use the Hope for Homeowners program and refinance into Federal Housing Administration loans, according to the President. "This bill removes those hurdles, getting folks into sustainable and affordable mortgages, and more importantly, keeping them in their homes," he said at a White House signing ceremony. The bill (S. 896) also shields mortgage servicers that modify loans from investor lawsuits. The President also praised the mortgage fraud bill (S. 386), which doubles the resources of the FBI to pursue mortgage fraud and other financial crimes. He noted the bill expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. "It expands the Department of Justice's authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes - institutions where more than half of all subprime mortgages came from as recently as four years ago," Pres. Obama said.

The Treasury Department is prepared to lend roughly $7 billion to GMAC Financial Services, the parent company of the nation's sixth largest residential servicer, according to published reports. At press time both Treasury and GMAC officials were not commenting on the matter. Wire reports say such a loan would be a step toward making GMAC a quasi-federal company. GMAC has already received $5 billion in TARP funds and needs to raise an additional $11.5 billion in equity within six months. GMAC is a bank holding company. It recently changed the name of its depository to Ally Bank from GMAC 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. The government now owns 5 million shares of GMAC and recently told the lender that it must extend financing to bankrupt Chrysler Corp.

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

The Senate has approved a housing bill that revamps the FHA Hope for Homeowners program and strengthens federal deposit insurance, clearing the measure for the President's signature. As MortgageWire went to press, President Obama was scheduled to sign the housing/FDIC bill at a White House ceremony along with a separate bill (S. 386) that clamps down on mortgage fraud and other financial crimes. The House passed the bill (S. 896) Tuesday afternoon and the Senate followed very quickly to approve the measure, which does not include a controversial bankruptcy cramdown provision. Senate leaders stressed during discussions to reconcile the House and Senate versions of the bill that they can't get a cramdown provision through the Senate. The new Department of Housing and Urban Development secretary has been waiting for Congress to act so the Federal Housing Administration can make the H4H program a viable option for underwater homeowners to refinance into a FHA loan. However, HUD secretary Shaun Donovan has warned that the H4H program is dependent on the willingness of investors to write down the principal amount of the mortgages. "I do believe, frankly — given the drop in values, given what we have seen terms in foreclosures — we are starting to see some willingness of the investors" to take writedowns, he said recently. The housing bill also gives HUD new powers to police the FHA mortgage insurance program and penalize and debar lenders. It shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. "S 896 will increase the FDIC's borrowing authority to $100 billion, enabling the agency to reduce the proposed special premium assessment on all banks," said Floyd Stoner, the American Bankers Association's chief lobbyist.

Three South Florida residents and a real estate brokerage firm have been charged with participating in a mortgage fraud scheme designed to launder drug money. Garry Souffrant, his wife, Yvonne Souffrant, his brother, Gamaliel Souffrant and Progressive Real Estate of Broward Inc., have been charged in a 59 count indictment, according to the U.S. attorney's office for the Southern District of Florida. The indictment alleges that from 2002 to 2008, Garry Souffrant, Yvonne Souffrant and Gamaliel Souffrant used Progressive Real Estate of Broward to launder millions of dollars in drug proceeds through an extensive mortgage fraud scheme by allegedly assisting drug traffickers in purchasing homes and luxury automobiles, including a 2004 Rolls Royce Phantom. The defendants allegedly arranged for and/or acted as straw buyers on behalf of the drug traffickers, which allowed the traffickers to use their drug proceeds to purchase homes and lease automobiles while concealing the source of the income. The defendants also allegedly diverted several million dollars of mortgage loan proceeds to continue to fund the scheme and for their personal use. The defendants made their initial appearances in federal court on May 18 before Federal Magistrate Judge Ted E. Bandstra in Miami. Defendant Garry Souffrant was ordered detained pending trial. The court set bond for defendants Yvonne Souffrant and Gamaliel Souffrant. All three individuals could not be reached for comment and all phone numbers listed for Progressive Real Estate of Broward have been disconnected.

Issues that arose from the North Carolina Office of the Commissioner of Banks' examination of 2007 originations by a mortgage unit that Beazer Homes shuttered last year have been settled. Under the settlement agreement, Beazer Mortgage consented, without admitting the alleged violations, to the entry of a consent order which provides approximately $2.5 million in restitution to certain borrowers in respect of the alleged violations. This amount was included in the approximately $13 million of expense Beazer previously disclosed it had recognized in the quarter ended March 31 for estimated payments related to governmental investigations, including those involving the unit. Beazer Mortgage voluntarily ceased operations in February 2008. Beazer also has had several related discussions with the U.S. Attorney for the Western District of North Carolina to negotiate a resolution of its separate investigation into Beazer Mortgage issues. The negotiations with the U.S. Attorney are continuing and Beazer said the two parties have not reached an agreement yet. "There can be no assurance that the company can conclude an agreement with the U.S. Attorney on financial or non-financial terms that are mutually acceptable," said the homebuilder in a press release.

The Federal Reserve on Wednesday cleared the way for "legacy" commercial mortgage-backed securities to be included as collateral under the government's Term Asset-Backed Securities Loan Facility (TALF) program, come July 1. The Fed issued a statement noting that the move to include CMBS as "eligible TALF collateral ... is intended to promote price discovery and liquidity for legacy CMBS." According to the central bank, the CMBS market finances 20% of outstanding commercial mortgages. It said the market came to a standstill in mid-2008. The TALF program allows investors to use government money to buy certain asset-backed bonds. (To date, the effort has focused mostly on credit cards.) In regard to CMBS, the Fed said that only "senior" (in payment priority) CMBS are eligible for TALF. The Federal Reserve Bank of New York said it "will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk."

The Senate has approved a housing bill that revamps the FHA Hope for Homeowners program and strengthens federal deposit insurance, clearing the measure for the President's signature. The House passed the bill (S. 896) Tuesday afternoon and the Senate followed very quickly to approve the measure, which does not include a controversial bankruptcy cramdown provision. Senate leaders stressed during discussions to reconcile the House and Senate versions of the bill that they can't get a cramdown provision through the Senate. The new Department of Housing and Urban Development secretary has been waiting for Congress to act so the Federal Housing Administration can make the H4H program a viable option for underwater homeowners to refinance into a FHA loans. However, HUD secretary Shaun Donovan has warned that the H4H program is dependent on the willingness of investors to write down the principal amount of the mortgages. "I do believe, frankly — given the drop in values, given what we have seen terms in foreclosures — we are starting to see some willingness of the investors" to take writedowns, he said recently. The housing bill also gives HUD new powers to police the FHA mortgage insurance program and penalize and debar lenders. It shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. "S 896 will increase the FDIC's borrowing authority to $100 billion, enabling the agency to reduce the proposed special premium assessment on all banks," said Floyd Stoner, the American Bankers Association's chief lobbyist.

The House passed by a 367-54 vote a bill that revamps the FHA 'Hope for Homeowners' program and gives the HUD secretary discretion in setting insurance premiums on refinancings of underwater borrowers. The Senate is expected to pass the measure later this week. The bill (S.896) allows the Department of Housing and Urban Development to charge an upfront mortgage insurance premium of up to 3% and an annual premium of up to 1.5%. Previously, Federal Housing Administration had to charge a set premium of 3% and 1.5% respectively. It "requires the HUD secretary to weigh both the financial integrity of the program and the bill's purposes of foreclosure prevention in setting premiums," according to a summary of the legislation Servicers are expected to reduce the principal amount of the existing mortgage to qualify borrowers for the H4H program that Congress enacted last summer. However, the program is so restrictive that FHA had endorsed only one H4H refinancing as of April 30 with 916 applications pending. The Mortgage Bankers Association and other industry groups support Congress' efforts to relax the eligibility requirements and other requirements to make the program user friendly for homeowners, servicers and investors. S.896 also shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. House and Senate leaders agreed to keep a temporary increase in the $100,000 deposit insurance limit at $250,000 through 2013.

SL Green Realty Corp., a New York-based real estate investment trust that manages Manhattan office properties, completed a public offering of 19.55 million shares of common stock at a price per share of $20.75, including 2.55 million shares issued and sold to the underwriters to cover over-allotments. Merrill Lynch & Co., Morgan Stanley, Deutsche Bank Securities, Citi, Goldman, Sachs & Co. and J.P. Morgan acted as the joint book-running managers. The net proceeds to SL Green from the offering after deducting underwriting commissions and discounts and offering expenses were approximately $387.4 million. SL Green plans to use the net proceeds from the offering for general corporate and working capital purposes.

Mortgage portfolio management services provider Digital Risk, Maitland, Fla., has named former JPMorgan Chase & Co. senior vice president Mark G. Hinshaw its chief financial officer. Separately, Digital disclosed that a private equity fund has taken a stake in the company. The company did not specify the extent of the equity stake that Century Focused Fund II took, but said that it was "significant." The fund is sponsored and managed by the Boston-based Century Capital Management, an institutional and private equity investment manager. At Chase, Mr. Hinshaw oversaw a $20 billion origination unit.

Triad Guaranty, whose MI unit is in a "run-off" mode, lost $55.2 million in the first quarter, compared to a $150 million loss in the same period last year. Company president and CEO Ken Jones said, "risk in default continued to increase as the combination of the recession and declines in home prices impacted our insured portfolio. While there were indications during the quarter that risk in default growth could be slowing on a monthly basis, we expect the challenging environment will continue for the foreseeable future." The publicly traded Triad has insurance-in-force of $60.5 billion, an 11% decline from March 31, 2008. Its shares trade for 89 cents compared to a 52-week high of $4.42 and a low of 12 cents. It is the nation's smallest MI.

Two main business units that used to make up Friedman Billings Ramsey Group Inc., Arlington, Va., are going for the full divorce. Arlington Asset Investment Corp. (the name FBR is using and expects to adopt legally after its annual meeting in June) will sell 16.7 million shares of common stock it holds in FBR Capital Markets Corp. back to that company for $72.5 million. FBR Capital became a separately traded public entity in 2007. The deal reduces Arlington's holdings in FBR Capital from 56% to 39% when it closes on June 2. Furthermore, the two sides will cooperate to facilitate the sale of Arlington's remaining holdings in FBR Capital. They also are terminating intra-company service and governance agreements. Rock Tonkel Jr., president and chief operating officer of Arlington, said the deal gives his company substantial additional liquidity and the ability to utilize its net operating loss carry-forwards and capital loss carry-forwards on a timely basis. The FBR Group was a major player in the subprime REIT IPO business, taking several firms public during the industry's boom.

Private label MBS — in particular subprime and alt-A loans — continue to be a "significant issue" for all the housing GSEs and have caused $26 billion of losses and impairments at these firms, according to a new report issued by the Federal Housing Finance Agency. In its first ever annual report to Congress, FHFA blames the previous managements of Fannie Mae and Freddie Mac for not requiring originators "to fully assess borrower capacity." It adds that, "Certain decisions, including the underestimation of risk associated with these products, coupled with changes in the economy, led to escalating increases in delinquencies, foreclosures, credit-related expenses and losses." FHFA's assessment also includes the Federal Home Loan Bank system. The government placed Fannie and Freddie into separate conservatorships in September and replaced their CEOs. The regulator says all housing GSEs face significant challenges including buying and guaranteeing mortgages with LTVs north of 80% due to declining home values and "constraints on the availability of private mortgage insurance."