Originations

Roughly one-quarter of homeowners have no savings to cover their living expenses should they lose their jobs, according to new survey results released by Wells Fargo & Co., the nation's second largest residential servicer. The bank and mortgage lender also found that anxiety over possible job losses increased significantly in the first quarter compared to the previous one. Job losses lead to higher residential loan delinquencies which currently are at levels not seen since the Great Depression. Wells says consumers are taking "drastic actions" to reduce debt and increase their savings. When the bank asked consumers what would boost their confidence in the economy, one-fourth said "an improvement in their personal situation."

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.

A decline in incurred losses at Triad Guaranty Inc., Winston-Salem, N.C., led to a first quarter 2009 loss of $55.2 million ($3.68 per share), which is much improved over the fourth quarter 2008 net loss of $122.2 million ($8.16 per share) and first quarter 2008 net loss of $150.0 million ($10.09 per share). Net loss and loss adjustment expenses were $101.9 million for the first quarter of 2009, compared with $178.1 million for the fourth quarter of 2008 and $221.3 million for the first quarter 2009. The improvement is because Triad is seeing an increased benefit from captive reinsurance programs and stop loss provisions in the contracts for its modified pool insurance policies. These risk sharing structures returned $97.4 million in benefits to Triad, compared with $66.7 million in the fourth quarter 2008 and $20.1 million in the first quarter 2009. The company, currently in run-off, had total insurance in force of $60.5 billion at the end of the first quarter 2009, a drop of 3.4% from the end of last year. The results did not address the recent meteoric rise in Triad's common stock price, which went from a close of $0.33 per share on April 30 to $0.80 per share one day later and by May 12, up to $1.39 per share.

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."

Associated Banc-Corp., Green Bay, Wisc., one of the largest in-state mortgage lenders, said its president and chief operating officer, Lisa Binder, resigned, effective Friday, May 15. No reason was given for Ms. Binder's departure. She had been with the lender for more than two years. Sandler O'Neill, which covers the publicly traded depository, said it was surprised by Ms. Binder's departure but noted, "based on our conversation with management, we believe that the decision to leave was hers and was not based on any specific incident or event." Based on rankings in the Mortgage Industry Directory, Associated is a top 20 ranked residential lender in the Milwaukee metropolitan area.

Bank of Commerce Holdings, Redding, Calif., is acquiring a majority stake in Simonich Corp., which does business as BWC Mortgage Services, San Ramon, Calif. BOCH will take a 51% stake in BWC Mortgage. According to a Securities and Exchange Commission filing, the total price of the purchase is $2.5 million, with $1.5 million paid at closing and the additional $1.0 million to be earned-out over a period of three years based upon delivering an established level of profits. It is possible to earn out the $1.0 million in a shorter period of time if the profit levels exceed expectations. Previously the two companies had an affiliated business arrangement, where BWC Mortgage underwrote or brokered mortgage products and managed the independent contractors, supporting staff and broker relationships with secondary market lenders. BOCH provided office space, equipment and marketing support. BWC Mortgage will be re-branded Bank of Commerce Mortgage, which is the name of the BOCH mortgage brokerage operation. BWC Mortgage has over 100 employees in nine branch locations. Until May 2006, BWC Mortgage was majority owned by the Bank of Walnut Creek, but as part of that company's pending acquisition by First Republic Bank, Simonich Corp. acquired all of the equity in the mortgage unit. BOCH will receive 51% of the earnings of BWC Mortgage through quarterly dividend payments.

Precision Financial, Syosset, N.Y., a mortgage banking/brokerage firm, has reportedly closed its doors, according to industry officials. It had annual originations of about $600 million. Over the past week the telephones were not being picked up at the company and e-mails were not returned. One of the company's top executives, Ira Zimmerman, did not return a telephone call about the matter. According to its website, the company has licenses to lend in several states including California, New York, New Jersey, and Pennsylvania, among others.

The Federal Home Loan Bank of Cincinnati reported $83 million in earnings for the first quarter, up from $49 million a year ago, and noted a pickup in member participation in its mortgage purchase program and strong refinancing activity. The FHLBank's MPP portfolio jumped 13% during the first quarter to $9.7 billion as more members joined the program and began selling their conventional and Federal Housing Administration single-family loans to the bank. "We approved 11 members in the first quarter," the bank said, after approving 21 members in 2008. The Cincinnati bank has seen a sharp drop in member borrowing over the past four quarters, however, and advances have dropped by 24% to $46.1 billion as of March 31. "The ability of the Mortgage Purchase Program to be countercyclical helped offset a portion of the business lost from the advance portfolio," the bank said in its securities filing. The FHLBank has only $280 million in private-label MBS and "no credit-risk related or impairment charges were required," the bank said.

The Federal Home Loan Bank of San Francisco reported a $123 million profit in the first quarter after adopting new accounting guidance that slashed its impairment charge on $25 billion in private-label MBS to $88 million. The FHLBank had a $103 million loss in the fourth quarter after taking a $569 million "other than temporary impairment" charge on $25 billion in private-label mortgage securities. Nearly $17 billion of the MBS is backed by Alt-A mortgages and the rest are prime loans. Adoption of the Financial Accounting Standards Board's new OTTI guidance allowed the San Francisco bank to take a $1.1 billion write down on the MBS and record it in "other comprehensive income," which reduces the bank's capital but not earnings. The $88 million impairment charge is for actual credit losses, which are reflected in earnings. "To continue building retained earnings and preserve the Bank's capital, the Bank did not pay a dividend for the first quarter and did not repurchase excess capital stock in April 2009," the FHLBank said.

Five Federal Home Loan Banks have delayed reporting their first-quarter financials while they grapple with new accounting rules to help minimize losses. But several of the banks continue to report big losses anyway. The Boston Bank is preparing to report an $83.4 million loss as it struggles with large holdings of private-label mortgage-backed securities. The Seattle Bank, also holding underwater private-label MBS, said Friday it expects to report a $16.2 million loss for the quarter. The FHLB Indianapolis reported a $5.9 million loss for the quarter. And the Atlanta Bank reported a $1.5 million first quarter loss on Friday. The troubles at the 12 FHLBs are similar to those being experienced at many depositories, which are struggling with distressed MBS. Last week, the Federal Housing Finance Agency, which regulates the FHLBs, issued guidance for the banks to adopt new processes for determining 'other than temporary impairment' (OTTI) and the early adoption of recently revised Financial Accounting Standards Board rules aimed at accounting for hard-to-price MBS.

The Federal Housing Administration has endorsed $143.9 billion in single-family loans in the first six months of fiscal year 2009, up 169% from the same period in FY 2008. The Department of Housing and Urban Development expects FHA endorsements will total $290 billion when the 2009 fiscal year ends on September 30. In March, FHA insured $25.4 billion in single-family loans, including $15.3 billion in refinancings, according to an FHA monthly report. The report shows that FHA has a 7.08% serious default rate as of March 31 with 347,500 loans that are 90 days or more past due. FHA had a 6.91% serious default rate back in September. Meanwhile, FHA has a 63% share of the mortgage insurance market, compared to 23% for private mortgage insurers and 13% for the Department of Veterans Affairs' loan guarantee program. This is a complete reversal from first half of FY 2008, when private insurers had a 69% market share and FHA a 24% share.

The Federal Housing Administration has endorsed $143.9 billion in single-family loans in the first six months of fiscal year 2009, up 169% from the same period in FY 2008. The Department of Housing and Urban Development expects FHA endorsements will total $290 billion when the 2009 fiscal year ends on September 30. In March, FHA insured $25.4 billion in single-family loans, including $15.3 billion in refinancings, according to an FHA monthly report. The report shows that FHA has a 7.08% serious default rate as of March 31 with 347,500 loans that are 90 days or more past due. FHA had a 6.91% serious default rate back in September. Meanwhile, FHA has a 63% share of the mortgage insurance market, compared to 23% for private mortgage insurers and 13% for Department of Veterans Affairs' loan guarantee program. This is a complete reversal from first half of FY 2008, when private insurers had a 69% market share and FHA a 24% share.

Wilbur Ballesteros, a licensed real estate agent from Lanham, Md., pleaded guilty to his role in the Metropolitan Money Store mortgage fraud scheme that targeted D.C. area homeowners facing foreclosure. Ballesteros, the ninth defendant to plead guilty in this case, conspired with others at the Lanham-based MMS to fraudulently promise homeowners help with avoiding foreclosure and repairing their credit, according to prosecutors. The homeowners were directed to allow title to their homes to be put in straw buyers' names for a year, during which time MMS promised to improve the homeowners' credit ratings, help them obtain more favorable mortgages, and eventually return title to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgages and expenses on their homes — and to repair their credit. Using the homeowners' properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and submitted fraudulent loan applications to lenders to obtain inflated loans on the properties in the straw buyers' names. At settlements, the conspirators imposed numerous fees for services that weren't performed, disclosed or explained to the homeowners. The conspirators also transferred the sale proceeds out of the escrow accounts into their own bank accounts for personal use. Ballesteros served as a closing agent on more than 60 straw buyer properties, securing title insurance, facilitating the real estate settlements and submitting fraudulent closing documentation to the lenders. He allegedly often altered or created multiple settlement statements for some properties to disburse the homeowners' proceeds to himself and MMS employees and was paid more than $100,000 in kickbacks. The total loss attributable to Ballesteros is said to be $16.9 million. Sentencing is scheduled for December.

The Federal Reserve is seeing a pickup in activity in the asset-backed securities market and more demand for its Term Asset-Back Securities Loan Facility, according to chairman Ben Bernanke. In a letter to Rep. Keith Ellison, D-Minn., the Fed chief notes that investor demand for TALF loans fell to $1.4 billion in April from $4.7 billion the previous month due to certain issues involving primary dealer banks, which now have been resolved. "In the past few weeks, investors appear to be more willing to participate in the program, and $10.9 billion in TALF loans were requested at the subscription for the May funding. Early indications are that demand for TALF loans in June will be even higher," Mr. Bernanke said. The Fed recently expanded the TALF program to include commercial mortgage-backed securities. Rep. Ellison and 10 other lawmakers inquired about the Fed's efforts to make sure the loans underlying the ABS are not predatory or fraudulent. Each issuer has to hire an external auditor to provide an opinion on the quality of the assets being rated by the credit rating agencies. But the "eligibility of consumer ABS accepted as collateral in TALF does not depend on the terms of the loans backing the ABS," the May 12 letter says.

A few days after the HUD secretary said he will implement a RESPA rule next year, industry groups headed straight to Capitol Hill in an attempt to block it. Seven financial services and settlement services providers groups are backing an amendment that would require HUD to withdraw the Real Estate Settlement Procedures Act regulation. These groups hope Sen. David Vitter, R-La., will offer the amendment to a credit card or a housing bill soon. If adopted, the Vitter amendment would block the RESPA rule and direct the Department of Housing and Urban Development to work with the Federal Reserve Board in developing compatible RESPA and Truth in Lending Act mortgage disclosures. The Vitter amendment is based on an amendment co-sponsored by Rep. Judy Biggert, R-Ill., that the House passed recently as part of a mortgage reform bill (H.R. 1728). HUD is "ignoring" congressional intent in moving ahead with the "flawed" RESPA rule, Rep. Biggert said. "HUD must suspend this rule and work with the Federal Reserve to create disclosures that work for consumers and provide the clearest and most concise information possible," she said. Meanwhile, 12 industry groups have appealed directly to HUD secretary Shaun Donovan to reverse his decision and suspend the RESPA reform, which is set to go into effect January 1, 2010.

Fidelity National Financial Inc. will be picking up another piece of the LandAmerica Financial Group estate, this time acquiring LoanCare Servicing Center Inc. FNF will pay $16.3 million for the company. The deal is subject to the approval of a bankruptcy court. LoanCare was the nation's eighth largest subservicer at the end of 2008, according to the Quarterly Data Report, with contracts totaling $12.7 billion. The Norfolk, Va., company services more than 100,000 loans for 90 companies nationwide. It had revenue of $19 million and adjusted pre-tax earnings of $4.4 million in 2008. FNF chairman William P. Foley said, "We believe that LoanCare and ServiceLink, our national lender platform, can generate substantial ancillary product revenue opportunities through the subservicing and loss mitigation platforms, including additional title and closing revenue, trustee sales guarantees, valuations and a broad range of significant default based revenues." FNF is based in Jacksonville, Fla.

Now that the Treasury Department has agreed to bail out certain life insurance companies with TARP money, speculation is that mortgage insurance companies could be next. One MI executive, requesting anonymity, told National Mortgage News that "there are more conversations going on with Treasury that are real and tangible. "He added that, "They know how important we are to Fannie and Freddie." Fannie Mae and Freddie Mac are wards of the government and the nation's seven MI firms have written billions of dollars of coverage that affect loans held in portfolio or guaranteed by the two. If the MI industry collapses, the firms might not be able to make their claim payments which in turn would hurt the GSEs — and the taxpayers which now essentially own the two. (For the full story see the Monday edition of NMN.)

Fitch Ratings has downgraded the issuer default ratings of Colonial Properties Trust, Birmingham, Ala., stating the company's first quarter operating results and the expectations for the performance of its property portfolio in 2009-2010 make its creditworthiness more consistent with a 'BB+' rating. "The rating action also reflects the fact that secured debt increased materially, with secured debt-to-total debt rising to 26% as of March 31, 2009 from 5.9% as of Dec. 31, 2008. Fitch anticipates that the position of bondholders may further weaken over the next 12-24 months in the event that the company continues to fund unsecured debt maturities with new secured debt funding," the rating agency said. Colonial was given a stable outlook rating based on its manageable debt maturity schedule and good liquidity position, which was recently bolstered by a $350 million secured credit facility originated by PNC ARCS LLC for repurchase by Fannie Mae.

Nearly six in 10 American homeowners believe their primary residence lost value during the past 12 months, according to the Zillow First Quarter Homeowner Confidence Survey. Based on its own studies, the Seattle-based firm states 80% of homes across the country lost value during the past 12 months. Additionally, 18% believe their home gained value during that time frame, and 22% believe its value remained the same. That resulted in a Zillow Home Value Misperception Index of five, which is the lowest it has been since Zillow introduced the index in the second quarter of 2008. This is down from 10 in the fourth quarter of 2008. A Misperception Index of zero would mean homeowners' perceptions' were in line with actual values. Approximately three-quarters of those surveyed felt their home would not decline in value in the coming six months, while 27% think their home's value will increase; nearly half (47% percent) believe their home's value will remain the same. Stan Humphries, Zillow's vice president of data and analytics, said, "While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well." He added one-third of survey respondents are poised to sell at the first sign of stabilization. This could bring new inventory into the market and keep home prices down.

Bond yields and Thursday's weekly rate reports paint a mixed picture for current rates as well as future rate direction. According to the Freddie Mac Primary Mortgage Market Survey for May 14, mixed employment statistics released May 8 had little effect on the average rate for fixed-rate mortgages that dominate the market, boosting it slightly to 4.86% from 4.84% the week before; but the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages and one-year Treasury ARMs dropped to 4.82% from 4.90% and 4.71% from 4.78%, respectively. Points for all these mortgage types during the week ended May 14 were 0.6. "The economy lost 539,000 jobs, less than the monthly job loss of the past five months, and the unemployment rate rose to 8.9%," said Frank Nothaft, Freddie Mac vice president and chief economist. Bankrate's national survey on May 14 indicated 30-year rates have averaged about 5.21%, down from last week's 5.27%. Credit Suisse's Mortgage Market Focus on May 14 estimated mortgage rates at 4.72%, sharply lower from 4.91% reported on May 8. The primary/secondary market spread has been about 82 basis points "but is expected to remain volatile and could move wider," Credit Suisse researchers said.