Originations

April was the strongest month in more than a year for home sales under $1 million in the Las Vegas-Henderson area, and the region's REO market also appears to be improving even though prices in that range have continued to fall. "The month registered gains in almost every category except price," said Rob Jenson, who works for Jenson Group, a company that specializes in Vegas's high-end market. The monthly supply of unsold houses fell, the overall number of listings declined and, perhaps most importantly, the number of real estate owned listings also slipped. In houses priced under $1 million, moreover, sales were up 7.8%. But the average price in the below-$1 million sector fell by 3.4% to $161,729. It was the ninth monthly price decline in a row, but the 3,063 sales were the most recorded in a year in the beleaguered market. Mr. Jenson also said that above $1 million, listings were up, sales were down " only 12 units priced above the million dollar benchmark sold in April, an 8% decline " but the average price rose 2% to $1.53 million.

Fitch Ratings, New York has assigned a 'BB' rating to D.R. Horton's $450 million offering of convertible senior notes due 2014 and placed a negative ratings outlook on the company. "This offering was an opportunistic access of the capital markets which might not be as accessible to homebuilders in the future. Liquidity was enhanced at a lower cost than the debt it is likely to replace with limited constraints from covenants," the ratings agency said. When Fitch issued its statement, the offering was for only $400 million; Ft. Worth-based Horton increased its size by $50 million in addition to an option for the underwriters to purchase $50 million to cover overallotments. The initial conversion rate for the notes is 76.5697 shares of Horton common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $13.06 per share of common stock), subject to adjustment in certain events. Citi acted as sole book-running manager in connection with the offering, and J.P. Morgan, UBS Investment Bank and Wachovia Securities acted as joint lead managers.

The Depository Trust & Clearing Corp. is recommending daily trade netting for to be announced mortgage-backed securities transactions. The DTCC said the move would cut what have been high costs in processing the trades and increase risk protection for the market. "The idea is to streamline the somewhat complex current `balance order' netting process," said Murray Pozmanter, DTCC's managing director, clearance and settlement/fixed income. "The industry's process today requires trading firms to allocate pools of mortgages against the TBA obligations we establish, and then to settle all those pools with multiple counterparties at different prices." He said the DTCC is recommending this be changed to a process where trades would be netted daily and the DTCC's Fixed Income Clearing Corp. subsidiary would "step in as the allocation and settlement counterparty." Currently, MBS trades are netted only once a month, beginning 72 hours prior to the monthly settlement date established for each kind of TMBA security. Because this forces trading firms to meet a netting cut-off on the "72 hour day," the number of trades incorporated in the current netting process can be limited, according to a DTCC report.

JPMorgan Chase, New York, funded $4.5 billion worth of mortgages in the hard-hit California market during the first quarter, a slight increase from the previous period, according to statements made by the company. Overall, Chase -- the nation's third largest residential funder, according to the Quarterly Data Report -- made 15,251 mortgages. Its presence in the state has been greatly bolstered by last fall's federally assisted takeover of Washington Mutual. WaMu had a huge presence in both its home state of Washington, and in the Golden State where it had been on a thrift and mortgage banking buying spree for most of the decade. JPM's mortgage unit is called Chase and is based in Iselin, N.J. A recipient of TARP money, JPM received a clean bill of health under the government's "stress tests" and would like to return that money as soon as possible.

Freddie Mac's most recent Primary Mortgage Market Survey shows the long-term mortgage rate that dominates the market has inched up However, recent benchmark bond market activity suggests the upward trend in rates could weaken slightly. As of midday on May 7, a recent notable rise in the benchmark 10-year bond yield from a point below 3.0% to points solidly above it had given up a little bit of ground and was at about 3.25%. An influential employment report due on May 8 is expected to play a role in what yields and rates do in the near future. The average rate on the 30-year fixed-rate mortgage inched up to 4.84% in the week ended May 7, according to Freddie Mac. In other rate-related news, the European Central Bank has cut the interest rate on its main refinancing operations of the Eurosystem by another 25 basis points to 1.00% and the rate on the marginal lending facility by 50 bp to 1.75%. It left the rate on its deposit facility unchanged at 0.25%.

Residential lenders funded $124 billion in second liens in 2008, a startling -- but not unexpected -- decline of 70% from the prior year, according to new figures compiled by National Mortgage News and the Quarterly Data Report. In 2006 nationwide second lien production peaked at $491 billion, the newspaper found. Up until early 2008 the second lien market continued strong, in part because of "80-10-10" or "piggyback" loan structures where lenders offered both a first and second lien to home buyers; the combination of loans had the effect of increasing the loan-to-value ratio to 80% while allowing the borrower to put only 10% down, and thus allowing them to avoid paying private mortgage insurance. Also, rapidly increasing home values allowed home owners to tap equity, but now with real estate values down by as much as 50% (or even more) in some hard hit markets, the second lien business is limping along. Some lenders have severely tightened requirements on home equity lines of credit while others have stopped making the loans altogether or through third-party loan brokers. In 2008 the top second lien funders were: Bank of America, Chase, and Wells Fargo & Co., the QDR found.

United Guaranty Residential Insurance Co., Greensboro, N.C., has had its insurer financial strength rating cut by Fitch Ratings, New York, from "AA-" to "BBB" because the mortgage insurer will remain a part of American International Group and not be spun off with AIU Holdings Inc. "While UGRIC continues to maintain explicit capital support in the form of a net worth maintenance agreement with AIG and a substantial stop-loss treaty with an 'AA-' rated insurance company of AIU, Fitch believes that the announced restructuring reduces the level of support for UGRIC and raises uncertainty as to AIG's strategic intent with respect to the U.S. mortgage insurance operations. Consequently, today's rating action reflects Fitch's assessment of UGRIC on a stand-alone basis, inclusive of current capital support agreements, the ratings agency said. Fitch put UGRIC on "Ratings Watch Evolving" because of what it said was increased uncertainty about the future of the mortgage insurer, whether AIG would maintain it as a going concern or put it into run-off.

The market share of refinancings during the week ended May 1 declined slightly but the overall number of applications received increased according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Market Composite Index, an overall measure of mortgage applications, was 979.7, an increase of 2.0% on a seasonally adjusted basis from 960.6 one week earlier. The refinance share of mortgage activity decreased to 74.4% of total applications from 75.3% the previous week. However, the Refinance Index increased 1.2% to 5169.3 from 5108.2 the previous week and the seasonally adjusted Purchase Index increased 5.0% to 264.3 from 251.6 one week earlier. On an unadjusted basis, the MCI increased 2.4% compared with the previous week and increased 43.7% compared with the same week one year earlier. Adjustable-rate mortgages accounted for 2.1% of applications for the second consecutive week, the MBA said. There was an increase in the average contract interest rate for 30-year fixed-rate mortgages to 4.79% from 4.62%, with points (including the origination fee) increasing to 1.17 from 1.14 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

It could be a challenge for Colonial Bancgroup — the nation's largest warehouse lender — to satisfy some of the conditions attached to a $300 million investment in the bank by a group led by mortgage banker Taylor Bean & Whitaker of Ocala, Fla., according to Fitch. In an interview with National Mortgage News Fitch analyst Kenneth Ritz said "there's a risk the transaction will not go through." Mr. Ritz cautioned that "there have been some positive movements" surrounding the investment by TBW and its unidentified partners. Fitch noted that a number of approvals must first take place including regulatory hurdles and a conversion to a thrift charter. Also, before TBW will invest, there must be solid guarantees that Colonial will, in fact, receive TARP money from the Treasury. The Alabama-based bank saw a net loss of $168 million for the quarter ended March 31. The bank has not reported a profit in the last four quarters. Fitch recently downgraded Colonial's issuer default rating to B- from BB. A Colonial spokeswoman declined to comment on the transaction. A TBW executive did not return a telephone call about the matter. Under terms of the investment, both parties have the right to back out of the transaction if it has not closed by July 31.

Blaming unrealized mark-to-market losses on derivatives and continuing increases in mortgage insurance defaults, Radian Group Inc., Philadelphia, lost $217.4 million in the first quarter. In the same period last year the MI — the nation's third largest in terms of policies-in-force — earned $196 million. Radian Group chief executive S.A. Ibrahim said in a statement, "We believe that our mortgage insurance franchise remains strong with sufficient capital to continue writing quality new business throughout 2009."

The mortgage markets have responded positively to the Federal Reserve's purchases of GSE debt and mortgage-backed securities, Fed chairman Ben Bernanke said, but mortgage credit is still tight."The decline in mortgage rates has spurred a pickup in refinancing as well as providing support for housing demand. However, the supply of mortgage credit is still relatively tight and mortgage activity remains heavily dependent on the support of government programs and government sponsored enterprises," Mr. Bernanke told the Joint Economic Committee. In his testimony, the Fed chief noted that that the housing market is showing signs of bottoming and sales have been fairly stable for the past few months.

Bank loan officers expect to see continued deterioration in their residential and commercial real estate mortgage portfolios for the rest of this year, according to a periodic survey conducted by the Federal Reserve. The survey of senior loan officers shows that 78% of 50 banks expect delinquencies and charge-offs on prime single-family loans will increase "somewhat" and three are bracing for substantial deterioration. Only 14 banks expect loan quality to stabilize and only two expect some improvement. More than 90% of the banks surveyed see continued deterioration in the performance of CRE loans. Only four banks said loan quality should stabilize or improve. Meanwhile, loan officers reported a "substantial" increase in demand for prime mortgages since the last survey in January. However, demand for CRE loans continue to weaken to the lowest level since 1995 when the Fed first started asking survey questions about CRE lending.

GMAC Financial Services said first quarter residential loan production rose 61% to $13.2 billion on a sequential basis at its mortgage units but declined 29% compared to the same period last year.Meanwhile, 20.79% of its servicing portfolio ($359 billion in receivables) was in some stage of delinquency at the end of March. A year ago it serviced $416 billion in mortgages, 11.73% of which were late. GMAC's home finance division — which includes Residential Capital Corp. — lost $125 million in 1Q, a significant improvement over the same period a year earlier when it dropped $859 million. However, the mortgage group benefited from a $900 million gain due to what it calls "the extinguishment of debt." (ResCap recently renegotiated its debt with bondholders.) GMAC also reported that profit margins "have improved due to higher government production and favorable interest rates." GMAC Financial Services, as a whole, lost $675 million in the quarter, compared to a $589 million loss in 1Q 08.

In yet another sign that depositories are shunning loan brokers and even correspondents, Wells Fargo & Co. said it would no longer fund "low balance" commercial mortgages through third parties.A spokesman for Wells Fargo Home Mortgage said low balance commercial mortgages range in size from $50,000 to $500,000. No annual production figures were available at press time. WFHM will continue to offer the product through its retail channel. Loan brokers have been hurt by a stampede of table funders away from the business, though of late, no wholesaler of size has exited the channel. The spokesman said "We are currently in the process of notifying correspondent and wholesale business channels" about the change. The bank is suspending the program due to "market conditions."

As Triad Guaranty's stock price dropped by 10% to 72 cents per share after Friday's meteoric rise, other mortgage insurance companies saw their stock prices record substantial gains at the close of trading on Monday. Walnut Creek, Calif.-based PMI Group Inc.'s stock went up a whopping 42% to $1.08 per share. MGIC Investment Corp., Milwaukee, ended the day with a stock price of $3.88, up 25% from the day's opening trade. Richmond, Va.-based Genworth Financial's share price went up 14.75% to $2.80 per share. Radian's stock went up 10% to $2.20. The Dow closed at 8426.74 on Monday, up more than 214 points from the day's opening.

PMI Group Inc.'s stock price shot up 34.2% Monday morning as the Dow rose 168 points to 8380.5. Though not nearly as dramatic as Triad Guaranty's meteoric leap in stock price on Friday, the Walnut Creek, Calif.-based mortgage insurer saw its share price go up to $1.02 a share on Monday morning. In late March, PMI Group announced that, due to losses in the U.S. mortgage insurance business eating into its net assets, it was seeking new capital.

The American Bankers Association secondary market program has helped its members sell more than $100 billion in single-family mortgages to preferred investors such as Fannie Mae and CitiMortgage. The trade group's 8-year-old 'Mortgage Solutions' program has "passed a milestone when total deliveries of mortgages surpassed the $100 billion mark," ABA said. In 2008, ABA members sold $9.7 billion in mortgages to their secondary market partners, which also include Freddie Mac, Farmer Mac, and Bank of America Home Loans. Participating banks accrued aggregate savings of $11.6 million last year, ABA said.

Thornburg Mortgage of Santa Fe, N.M., filed for bankruptcy protection late last week, listing debts of more than $1 billion. The filing had been anticipated. The company's fate is now in the hands of its bondholders who are expected to liquidate its assets which include on-balance sheet jumbo mortgages and bonds of at least $17 billion. Its lenders include Credit Suisse, JPMorgan Chase, Greenwich Capital, and Royal Bank of Scotland. Up until last year Thornburg was a publicly traded REIT. Its shares now trade on the "pink sheets" for about one penny. It stopped funding loans last year but continued to service jumbo and super jumbo assets held on its balance sheet.

The National Association of Realtors' 'Pending Home Sales Index' rose in March for the second consecutive month, and the trade group is hoping that this could be a sign that home sales are finally catching fire. However, housing analyst Jack McCabe cautioned this morning that "one month does not make a trend." Moreover, in recent interviews with National Mortgage News, two large lenders - Bank of America and Chase - said that refinancings were accounting for a huge percentage of their originations - and not purchase loans. Still, NAR's index increased to a reading of 84.6 in March, compared to 82 and 80.4 in February and January, respectively. In December the ratio was 87.1. NAR economist Lawrence Yun said it could take "a few months for the market to gain momentum," adding that the second monthly increase "could be the leading edge of first-time buyers responding to" favorable affordability conditions and a national first-time buyer tax credit of $8,000. (In California the tax credit is $10,000.)

The percentage of CMBS loans delinquent by 30 or more days in April skyrocketed to roughly five times its level a year ago, according to Trepp LLC. Thirty-plus day CMBS delinquencies have not ever seen a year-to-year spike like this in the history of the CMBS market, Trepp senior managing director Manus Clancy told MortgageWire. He added that CMBS delinquencies have been accelerating month-by-month since January. Delinquencies during the past two months have been at highs not seen since February 2004 and April's month-to-month jump in delinquencies was the largest seen since November 2001. When asked whether CMBS delinquencies may continue to ramp up, Mr. Clancy said he could not provide a forecast. However, he noted that, "It's a bad sign the fact that they're accelerating. In other parts of the economy people are looking for floors, but this seems to be accelerating." Despite the high delinquency rates, spreads on AAA CMBS eligible for the government's TALF program under new terms added Friday have been tightening, Mr. Clancy said.