Originations

Housing secretary Shaun Donovan has decided to move ahead with a RESPA rule issued by the Bush administration that requires the industry to adopt new standardized mortgage disclosures by next January. However, the Department of Housing and Urban Development is dropping — for now — a "required use" section of the Real Estate Settlement Procedures Act rule that the National Association of Home Builders challenged in court. The RESPA rule issued shortly after the November election bans builders from offering homebuyers discounts or upgrades that are tied to the use of affiliated mortgage and title companies. "We will propose a clearer and more effective 'required use' definition that truly protects borrowers from those who force them to use affiliated businesses," said HUD secretary Shaun Donovan. The House passed a comprehensive mortgage reform bill May 7 that directs HUD to withdraw the RESPA rule and urges the department to work with the Federal Reserve Board in issuing "complimentary" mortgage disclosures. The Fed is working on updating its Truth in Lending Act mortgage disclosures.

Ginnie Mae guaranteed $34.5 billion in mortgage-backed securities in April for the second consecutive month, compared to $28 billion in February and $27.3 billion in January. "We are steadily growing," said Ginnie president Joseph Murin. Ginnie Mae single-family MBS totaled $33.8 billion and multifamily totaled $707 million in April. Ginnie I single-family MBS totaled $26.8 billion in April -- $1.4 billion less than in the previous month. However, Ginnie II single-family multiple issuer pools totaled $6.6 billion, up $1.1 billion from the previous month.

Mortgage insurers Triad Guaranty and PMI Group closed out the end of trading on Monday on high notes despite the Dow closing down nearly 156 points. Winston-Salem, N.C.-based Triad saw its stock price close at $1.10 per share, up 22.2%. PMI, Walnut Creek, Calif., ended the day at $2.36 per share, a 26.9% rise. PMI recently reported improved financial results for the first quarter 2009 over the same period last year, but the amount of new insurance written declined while the default rate increased. The company lost $115.3 million for the quarter, compared with a loss of $274 million for the first quarter of 2008.

While The PMI Group Inc., Walnut Creek, Calif., reported improved financial results for the first quarter 2009 over the same period last year, the amount of new insurance written declined while the default rate increased. The company lost $115.3 million ($1.41 per share) for the quarter, compared with a loss of $274 million ($3.37 per share) for the first quarter of 2008. The company said the loss from its continuing operations was primarily driven by continued high losses and loss adjustment expenses in the U.S. mortgage insurance business. The loss in its U.S. mortgage insurance operations was $127.6 million for the first quarter of 2009, an improvement over the $172.5 million recorded for the year ago period. The primary loans in default rate went from 8.78% for first quarter 2008 to 15.29% one year later; during the same time frame total claims paid went from $162.6 million to $202.6 million. PMI has also reached an agreement with the lenders on its revolving credit facility. If certain conditions are met and the agreement goes into effect, the facility will be reduced to $125 million and certain financial covenants and events of default will be eliminated. The conditions need to be met by May 29; otherwise an event of default could occur on May 30. If there is such an event, PMI would have to repay the facility; the company said it currently has sufficient funds to do so. Just before noon on May 11, PMI was trading at $2.72, up $0.86 per share.

The Senate has confirmed Ron Sims to be the deputy secretary and second in command at the Department of Housing and Urban Development. Mr. Sims is the former executive of King County, Washington, and has plenty of experience in urban affairs. Meanwhile, the HUD secretary continues to support David Stevens to be the new Federal Housing Administration commissioner. But the Senate Banking Committee is holding up his confirmation due to a RESPA lawsuit filed against his former employer — the real estate brokerage firm Long and Foster. Stevens' supporters are hoping he will be confirmed before the Senate adjourns for the Memorial Day recess.

American International Group reported a $4.35 billion ($1.98 per share) loss for the first quarter that included a $1.9 billion charge for restructuring costs at AIG Financial Products Corp. Over the past five quarters, AIGFP has reduced its portfolio of collateralized debt obligations (backed mostly by subprime MBS) by more than 40% to $1.5 trillion. AIG also reported that American General Finance Inc., which originates mortgages, lost $203 million in the first quarter, due to a $186 million increase in the provision for finance receivables. Meanwhile, AIG continues to own mortgage insurer United Guaranty Corp. after the split off of its property/casualty business. UGC, based in Greensboro, N.C., had $483 million in operating losses during the quarter. Overall, the first quarter results mark an improvement, compared to AIG's $7.8 billion ($3.09 per share) loss a year ago.

Massachusetts has reached a multimillion dollar settlement with Goldman Sachs & Co. concerning its role in securitizing risky subprime mortgages that are now at the center of the nation's economic crisis. At deadline state Attorney General Martha Coakley was holding a press conference on the matter. The settlement includes a monetary payment and extensive relief to homeowners. The deal with Goldman is the result of the "Attorney General's ongoing investigation of the role of investment banks in the origination and securitization of subprime mortgage loans," according to a statement issued by the AG's office. Compared to its peers on Wall Street, Goldman was not that large of player in subprime securitization - a business dominated by Bear Stearns, Citigroup, Greenwich Capital, Lehman Brothers, and Merrill Lynch.

A House-passed mortgage reform bill makes it tough for borrowers to get traditional adjustable-rate mortgages that are considered safe enough so lenders don't have to retain 5% of the credit risk when they sell or securitize the ARM. Originally the bill (H.R. 1728) provided this exemption or safe harbor only for prime fixed-rate mortgages and mortgages guaranteed by government entities. But the House expanded the safe harbor to include ARMs - provided borrowers are qualified at the fully indexed rate at the end of seven years. So a borrower taking out a 5/1 hybrid ARM with 2% annual interest rate adjustment cap must be able to afford a 9% interest rate. "There are provisions that limit consumer choice and credit availability for garden variety prime products that have not been associated with any of the problems that previously existed with subprime lending," said Robert Davis, executive vice president for the American Bankers Association. The House passed H.R. 1728 by a 300-114 vote last Thursday (May 7).

The Federal Reserve Bank of New York has invested at least $248.3 billion in MBS and debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, according to a budget addendum released Monday by the White House.The figure represents asset and debt purchases as of March 31. A spokeswoman for the New York Fed was asked to provide an updated figure for the end of April but at press time had not gotten back to National Mortgage News. The MBS (Fannie/Freddie guaranteed) bought by the government total $201.5 billion, with the debt at $46.8 billion. The debt number includes $11.1 billion in bonds issued by various FHLBs. In the new "Analytical Perspectives, Budget of the U.S. Government" the White House also discusses the future of the GSEs, mentioning — as one option — their dissolution.

The Senate has confirmed Ron Sims to be the deputy secretary and second in command at the Department of Housing and Urban Development. Mr. Sims is the former executive of King County, Washington, and has plenty of experience in urban affairs. Meanwhile, the HUD secretary continues to support David Stevens to be the new Federal Housing Administration commissioner. But the Senate Banking Committee is holding up his confirmation due to a RESPA lawsuit filed against his former employer -- the real estate brokerage firm Long and Foster. Stevens' supporters are hoping he will be confirmed before the Senate adjourns for the Memorial Day recess.

The U.S. mortgage insurance business of Genworth Financial Inc. had a net operating loss of $135 million for the first quarter, as higher captive reinsurance benefits were more than offset by higher incurred losses. The first quarter loss was substantially higher than the $36 million net operating loss the unit had in the first quarter 2008. Gross losses before the impact of captive reinsurance benefits were $522 million. The Richmond, Va., insurer benefited from $119 million (on a pre-tax basis) of captive reinsurance coverage. Paid claims were $205 million for the quarter, up by $121 million over the first quarter 2008, while average paid claim leaped to $55,500, versus $42,200 one year ago. Genworth approved approximately 5,800 workouts, which resulted in $57 million of reduced loss exposure. New insurance written was substantially down from the previous year, $3.6 billion in the first quarter 2009 ($2.5 billion flow, $1.1 billion bulk), compared with $15.1 billion (all but $0.1 billion flow) one year prior. Genworth chief financial officer Ronald Joelson expects to see an increase in new insurance written during the rest of 2009. "New business levels are expected to trend up from the first quarter as we have the capital flexibility to take advantage of strengthening market conditions," he said. The parent company lost $469 million ($1.08 per share) for the quarter.

In a hypothetical situation in which the economy is worse than expected over the next two years, the 19 bank holding companies participating in federal "stress tests" would find first-lien mortgages to be responsible for about one-sixth of the losses they would cumulatively have to absorb. This category of losses, estimated to represent $102.3 billion of a total $599.2 billion in losses under the "more adverse" scenario for the BHCs, was the largest in the Supervisory Capital Assessment Program report. The next largest category was second/junior lien mortgages, which was estimated in the scenario to potentially account for $83.2 billion of losses. Commercial real estate loans was the fourth largest category of potential losses, behind commercial and industrial loans. Potential losses tied to these categories were respectively estimated at $53 billion and $60.1 billion.

1st Metropolitan Mortgage, Charlotte, N.C., a top ranked loan broker, has confirmed that it reached a deal to merge with another lender and then become part of Hestia Financial of Dallas. Daniel Jacobs, president of 1st Metropolitan, told National Mortgage News that "we've signed a deal." The move will allow 1st Metro to become a mortgage banking firm. No price was disclosed. The deal could close within 30 to 90 days, depending on regulatory approvals. (For the full story see the Monday edition of NMN.)

Fannie Mae posted a $23.2 billion loss in the first quarter and is asking the Treasury Department for $19 billion in new assistance so it can maintain a positive net worth position as its real estate owned portfolio continues to grow dramatically. At-year end Fannie Mae owned 62,371 homes, a 44% increase over the past 12 months. It reported that its guaranty book of business has $145 billion in non-performing mortgages — a 12-fold increase from the same period last year. In posting yet another enormous loss, Fannie blamed the poor performance on the nation's housing depression which caused it to take impairments on its MBS holdings, and increased credit reserves. In the same quarter last year the GSE lost $2.5 billion. Even though the industry is in the throes of a refi boom, Fannie's guaranty fee income (money it receives from its seller/servicers) actually fell in the first quarter by 37% to $1.8 billion. In 4Q Fannie had 'g-fee' income of $2.8 billion. It blamed the decline in g-fees on revenue recognition factors, including expected prepayment rates. Fannie has been a ward of the government since early September 2008.

The Mortgage Bankers Association has developed a warehouse lending proposal that could be administrated by Ginnie Mae if the agency receives Treasury Department approval. MBA, which has been working closely with the Government National Mortgage Association in developing the proposal, has sent Treasury Secretary Timothy Geithner an outline of the program along with a term sheet. The proposal calls for Treasury to initiate a temporary lending facility administered by Ginnie Mae to provide warehouse loans to lenders making Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service guaranteed loans. "MBA would like to meet with you in order to obtain Treasury's input and refine the proposal," MBA chief John Courson says in a letter to secretary Geithner. "Treasury has not made a commitment to the proposed program," an MBA spokesman said.

A few months after announcing its exit from warehouse lending, JPMorgan Chase has decided to stay in the business after all, National Mortgage News has learned. However, the mega bank only plans to provide lines of credit to just a handful of non-bank customers that tend to sell loans to it on a correspondent basis. A warehouse borrower familiar with the about-face said "they are moving the warehouse group to their commercial banking division." (A JPM spokesman confirmed this.) For full details see the Monday print edition of NMN.

The House on Thursday passed a mortgage reform bill by a 300-114 vote that curbs incentivized payments to originators and which could totally ban yield spread premium payments — the main source of income for all loan brokers. The National Association of Mortgage Brokers is concerned that the bill "does not preserve consumers' financing options when working with a mortgage broker," NAMB president Marc Savitt said. NAMB chief lobbyist Roy DeLoach said the language in the bill is "very confusing." The wording suggests that a broker's commission and fees cannot be financed into the mortgage interest rate as a YSP and paid to the broker at the closing table. If true, the consumer would have to pay the broker with cash, which would make it very difficult for brokers to compete with banks, NAMB believes. Mr. DeLoach noted the bill still allows banks to receive servicing released premiums when they sell loans to investors and SRPs can be incentivized. "So all the incentivized payments are not going to be removed from the mortgage market," he said.

FBR Capital Markets, Arlington, Va., is projecting Radian Group Inc., Philadelphia, will return to profitability in 2010. The company provided an earnings estimate of $0.25 per share for next year. This comes on top of reducing its loss estimate for this year from $1.40 per share down to $1.25 per share. The analysis assumes that Radian will have net premiums earned in 2010 of $1.0 billion, compared with a downward revised $877 million for this year. However, the report from Steve Stelmach and Amy DeBone also notes that Radian Group has $350 million of debt coming due in 2010. Additionally, the holding company has a tax sharing payment to its subsidiary of $138 million in 2009 and a projected $300 million payment in 2010. But in terms of cash to make these payments, the company has $472 million total, consisting of $367 million in cash at the holding company and the potential for $105 million in tax refunds coming. "Should Radian not be able to make these payments, the stock would prove to be overvalued. However, capital support at the holding company (either through government capital infusions or private equity) would help mitigate this risk," FBR said.

1st Metropolitan Mortgage, Charlotte, N.C., once a top ranked loan brokerage and net branch operator, has struck a deal to merge with another lender and then become part of Hestia Financial of Dallas, industry sources confirmed to National Mortgage News. Daniel Jacobs, president of 1st Metropolitan, declined to comment. It was well known in the industry that the company was in the process of converting to a mortgage banking firm and linking up with a strong capital partner. A source noted that "a deal has definitely been signed." Little is known about Hestia Financial but a notice on a financial website for Texas companies notes that its business plan is "to combine mortgage brokers into a mortgage banking platform." Its CEO is Patrick McGeeney but there is no listing for the company in the Dallas phone book. Hestia notes that it has signed letters of intent with a mortgage banking firm, and at least one loan brokerage.

Simon Property Group Inc., Indianapolis has increased a public offering of common stock to 20 million shares and priced it at $50.00 per share. Merrill Lynch & Co., J.P. Morgan Securities Inc. and Morgan Stanley are the joint book-running managers of the offering. Simon has granted the underwriters a 30-day option to purchase 3 million additional shares of common stock to cover overallotments, if any. Simon will contribute the net proceeds of the offering to its majority-owned operating partnership subsidiary, Simon Property Group LP, which will use the amount contributed for general corporate purposes.