Originations

A proposal that would allow the Government National Mortgage Association to give some type of assistance to the warehouse lending sector is moving closer to fruition, according to industry sources.At press time it was still unclear what role GNMA would play in the market but it's anticipated that it might provide certain guarantees on lines made to already approved GNMA issuers. The agency could not be reached for comment at press time. The Mortgage Bankers Association and other industry lobbyists have been working on the warehouse issue for months. One MBA official said "we are closer" on a proposal that would be sent to the Treasury and the White House. The official declined to give details. Non-banks that depend on warehouse lines have been starved for credit because many Wall Street lenders and banks have exited the market. Those that are left have been restrained in their lending because of high capital charges against outstanding warehouse lines. There are roughly 10 active warehouse lenders compared to 30 two years ago.

The 130-members of Lenders One are reporting very heavy volumes of refinancings, according to Scott Stern, the chief executive of the mortgage cooperative, who is already looking ahead for another refinancing surge. "We expect continued heavy volume at least through June," Mr. Stern said. But he is hoping the Federal Reserve succeeds in driving mortgage rates even lower. "We think another $1 trillion in refinancing volume could come if mortgage rates drop into the 4.25% and 4.5% range," the CEO told MortgageWire. He noted that his members sold nearly $10 billion in mortgages to the coop's preferred investors in the first quarter and refinancings comprised 77% of originations. "The only thing slowing down refinances is warehouse line capacity. That is a problem," Mr. Stern said. "We could be refinancing more loans, if there was more warehouse lending capacity."

Mark Anthony McBride of East Point, Georgia, pleaded guilty in federal district court to obtaining millions of dollars in fraudulent mortgages and other loans and to a bankruptcy fraud designed to stay foreclosures on dozens of fraudulently obtained properties. According to the information presented in court, immediately after being released from prison in 2001, McBride began a mortgage fraud scheme that continued through 2002, when he had to report for service of another federal prison sentence. As soon as he was released from prison again in November 2006, McBride continued his scheme by completing fraudulent mortgage loans and other extensions of credit in his name, in his aliases, in a number of stolen identities, including those of his children and in the identities of other unqualified borrowers. These fraudulent loans continued until McBride was arrested in September 2008 for violating his supervised release. Dozens of banks and other funded fraudulent loans for McBride. McBride generated mortgage loan proceeds for himself using inflated valuations for properties, securing the loans and sharing those proceeds with his straw borrowers and other conspirators. He was able to retain proceeds from the frauds by filing eight bankruptcy cases in Georgia, Alabama and South Carolina. The last such fraudulent filing was a May 2008 petition in Atlanta, filed in a phony name and stolen Social Security Number. The petition falsely stated he had never filed bankruptcy in the past. Sentencing is scheduled for July 9 before U.S. District Judge Jack T. Camp.

Analysts at FBR Capital Markets have cut their earnings per share estimates at Flagstar Bancorp, Troy, Mich., citing higher credit costs for the company that will pressure capital levels. Flagstar had a net loss to common stockholders for the first quarter of $67.4 million ($0.76 per share). But the company was able to successful raise new capital, including $566 million from private investors and the TARP program. Plus Flagstar expects to add $50 million of private capital during the quarter. FBR said the new capital is a positive for the company but would result in significant dilution to existing common shareholders. On the bad news side, the analysts said, is Flagstar's exposure to weak markets, namely California, Florida, Michigan and Atlanta, which have yet to show signs of stabilization. As a result, FBR expects credit losses to remain elevated. Like a number of banks, Flagstar benefited from a strong performance in the residential mortgage area. But the FBR report said, "Although Flagstar's mortgage banking revenues were strong this quarter, we expect the revenues to taper to more normalized levels in the coming quarters as spreads narrow."

U.S. home prices may fall further than previously expected, by another 12.5% to 2002 levels, before showing more stability in late 2010, according to Fitch Ratings. "Currently, prices are hovering around levels seen in mid 2003," Fitch said. The rating agency said it previously had expected a 10% further decline. Huxley Somerville, group managing director and U.S. residential mortgage-backed securities group head at Fitch, said reasons for the revised forecast include "very weak employment, limited refinancing opportunities and turbulent financial markets have extended into the first months of 2009." He added that "government initiated programs have yet to yield any positive benefits."

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

Automated compliance vendor Wolters Kluwer Financial Services notes that substantial regulatory changes have already been made, but lawmakers are in the process of debating additional legislation that would help protect consumers even more aggressively. Wolters Kluwer's compliance experts agree that development alone has already changed the mood within the financial services industry. "Regulators are feeling much more empowered than they were during the previous administration," said Edward Kramer, executive vice president for Regulatory Programs at Wolters Kluwer Financial Services. "More stringent regulatory exams, a rising number of enforcement actions and the growing number of financial institution closings during the first quarter of this year are evidence of that." Mr. Kramer said he believes the mortgage reform bill Congress debated last week could be the beginning of major financial services regulatory reform. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on nonprime mortgage lending and lender compensation. Perhaps more importantly, it would require lenders establish what the bill calls a "duty of care" in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit. "The proposed mortgage reform bill combined with numerous regulatory changes already scheduled to take effect this year could likely put financial institutions in a significant crunch," added Amy Downey, senior regulatory consultant at Wolters Kluwer Financial Services. "These changes are very different from those of previous years that required a simple update to a document or disclosure. Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt."

The House Financial Services Committee is scheduled to mark up a mortgage reform bill next week and industry groups are lobbying to reduce the amount of credit risk they would have to retain when selling or securitizing single-family loans. The bill (H.R. 1728) drafted by committee chairman Barney Frank, D- Mass., requires lenders to absorb 5% of the first loss on most loans that are not prime 30-year fixed-rate mortgages. As an alternative, the Financial Services Roundtable has proposed that lenders and investors (assignee) share pro-rata in the losses. If defaults lead to a $100 loss, the lenders would incur a 5% or $5 loss and the mortgage-backed securities investor would incur a $95 loss. "This ensures the lender will continue to have some 'skin in the game,' without having the unintended consequence of significantly reducing mortgage availability," FSR Housing Policy Council president John Dalton told the committee during a hearing on H.R. 1728. Roundtable officials say they are open to other risk retentions proposals that would reduce the impact on capital. Mr. Dalton also suggested that the retention requirement expire after 18 months. This would provide protection against early defaults and "avoid excessive buildup of capital depleting positions," he testified. The committee is scheduled to begin the markup on Tuesday (April 28).

The homeownership rate fell to 67.3% in the first quarter, which is the lowest level since 2000, hurting Black Americans the most. The U.S. Census Bureau reported the homeownership rate overall fell 50 basis points from 67.8% in the first quarter of 2008. During the same period, the rate of Black homeownership fell 100 bp to 46.1%, while the homeownership rate among Hispanics fell by 30 bp to 48.6%. The Census Bureau also reported that the number of vacant houses for sale fell 5% in the first quarter to 2.11 million units, down from 2.23 million in the fourth quarter. Fueled by overbuilding and rising foreclosure rates, the inventory has remained stubbornly high for nearly two years. Economists at the National Association of Home Builders closely watch this inventory number because the overhang puts downward pressure on house prices and makes it difficult to sell new homes. Over the past four quarters, homebuilders have reduced their inventory of unsold homes by 38% to 311,000 as of March 31. "Builder inventory has been falling for 23 months," according to the NAHB's director of economist forecasting, Bernard Markstein. "Once the sales pace picks [up] the inventory will fall dramatically," he said.

CitiMortgage ranked first among all jumbo lenders last year, but industry-wide residential fundings in this once hot sector fell by 57% according to new figures compiled by National Mortgage News and the Quarterly Data Report. NMN found that the nation's jumbo lenders originated just $139 billion in 2008, compared to $325 billion the year before. Citi's originations fell 32% to $23.3 billion. Bank of America ranked second in jumbo production with $15.4 billion (down 41%) followed by Wachovia Mortgage ($14.5 billion/up 78%); Chase ($12.4 billion/down 57%); and Wells Fargo & Co. ($10.5 billion/down 83%). Wachovia is now the property of Wells Fargo. Jumbo loans are above the Fannie Mae/Freddie Mac loan limit of $417,000, although there are GSE jumbo limits for high cost areas.

Bank of America is rolling out new tools and products aimed at providing transparency and responsible lending to consumers, among them a flat closing fee loan that has no application fee, and a one-page loan summary for customers taking out retail purchase and refinance loans. The latter, the Clarity Commitment, spells out the key aspects of loan terms — the monthly payment, the date it's due, the rate, what the rate and monthly payment could reset to, if it is an adjustable rate mortgage and the closing cost. BoA also said it was introducing a new interactive Home Loan Guide website as part of the rollout, done as part of its Bank of America Home Loans rebranding for mortgage operations that now include its home equity business and the former Countrywide Home Loans. Bank of America said it extended more than $85 billion in mortgage credit in the first quarter of 2009, helping more than 382,000 customers purchase a home or save money on the one they already own. Seventy-five percent of first quarter originations were for refinance. BofA is bringing two companies together when interest rates are at an all-time low and the economy is in a recession. The company has added 3,000 positions and is in the process of adding 1,000 more to its fulfillment to keep pace with the demand on the refi and purchase side.

Appraisal management companies have cornered nearly two-thirds of the single-family appraisal market and Rep. Paul Kanjorski, D-Pa., is concerned there is very little oversight of these entities. "We must establish oversight of appraisal management companies. They now touch 64% of written appraisals but are subject to little supervision," Rep. Kanjorski said. The high ranking member of the House Financial Services Committee said he is preparing a "comprehensive" appraisal reform amendment that he plans to offer when the committee meets to mark up a mortgage reform bill. The Appraisal Institute and other appraiser trade groups have warned the committee that the use of AMCs increases costs for consumers. The management firms rely on less experienced and less competent appraisers and keep "half the appraisal fee in most cases," Appraisal Institute president Jim Amorin testified. "One remedy is to direct that appraisal fees be clearly disclosed to borrowers and differentiated from the management or service fees on all relevant mortgage loan documents," Mr. Amorin said.

The House Financial Services Committee is scheduled to mark up a mortgage reform bill next week and industry groups are lobbying to reduce the amount of credit risk they would have to retain when selling or securitizing single-family loans. The bill (H.R. 1728) drafted by committee chairman Barney Frank, D- Mass., requires lenders to absorb 5% of the first loss on most loans that are not prime 30-year fixed-rate mortgages. As an alternative, the Financial Services Roundtable has proposed that lenders and investors (assignee) share pro-rata in the losses. If defaults lead to a $100 loss, the lenders would incur a 5% or $5 loss and the mortgage-back securities investor would incur a $95 loss. "This ensures the lender will continue to have some 'skin in the game,' without having the unintended consequence of significantly reducing mortgage availability," FSR Housing Policy Council president John Dalton told the committee during a hearing on H.R. 1728. Roundtable officials say they are open to other risk retentions proposals that would reduce the impact on capital. Mr. Dalton also suggested that the retention requirement expire after 18 months. This would provide protection against early defaults and "avoid excessive buildup of capital depleting positions," he testified. The committee is scheduled to begin the markup on Tuesday (April 28).

Professional appraisers are campaigning for restrictions on the use of alternative or computerized valuation methods when estimating a property value for mortgage origination purposes. Broker price opinions and automated valuation models may be used as "additional due diligence or data confirmation," not as the basis of a lending decision, said president of the Appraisal Institute, Jim Amorin in his testimony on H.R. 1728, "The Mortgage Reform and Anti-Predatory Lending Act." Speaking before the House Financial Services Committee on behalf of the Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and National Association of Independent Fee Appraisers, Mr. Amorin stressed there is an inherent conflict of interest when "an agent's primary role is to facilitate a sale of real property, not objectively develop an opinion of its value." Often real estate agents are not licensed as appraisers and have minimal training and education in appraisal methodology, he said.

Patrick M. Singletary, Robert D. Singletary and Peter J. Russo, all from Jacksonville, Florida, have been sentenced on charges related to a mortgage scheme to defraud the Federal Housing Administration of $2.5 million. Patrick Singletary was sentenced to 18 months in federal prison and ordered to forfeit $1 million. Robert Singletary and Peter Russo were each sentenced to serve one year in federal prison. Robert Singletary was ordered to forfeit $1 million and Russo was ordered to forfeit $500,000. All three defendants had pleaded guilty in October 2008. According to court documents, the defendants submitted false documentation to obtain FHA-insured loans for buyers of single-family properties in Jacksonville between 1997 and September 2004.

LaSalle Hotel Properties, a real estate investment trust based in Bethesda, Md., has priced a public offering of 10.75 million common shares at a price of $10.10 per share. Merrill Lynch & Co. is acting as sole book-running manager for the offering. Raymond James, Wachovia Securities and BMO Capital Markets are acting as co-lead managers. The underwriters have been granted a 30-day option to purchase up to over 1.6 million additional common shares to cover over-allotments if any. LaSalle intends to use the $103.8 million net proceeds of this offering to reduce amounts outstanding under its senior unsecured credit facility and under the unsecured credit facility of its taxable REIT subsidiary, LaSalle Hotel Lessee Inc., and for general corporate purposes.

Freddie Mac priced a new $4.5 billion five-year Reference Notes security at 99.781 to yield 2.547%, or 65 basis points more than five-year U.S. Treasury notes. The company had delayed the deal (CUSIP number 3137EACB3) a day in response to the death of its chief financial officer. The transaction was offered via a syndicate of dealers headed by Deutsche Bank Securities Inc., Goldman Sachs Group and Morgan Stanley.

The reverse mortgage business was a money loser in the most recent period for WSFS Financial Corp., which holds a majority stake in 1st Reverse Financial Services LLC. During the first quarter of 2009, 1st Reverse reported a pre-tax loss of $586,000, compared to a pre-tax loss of $832,000 for the fourth quarter of 2008. 1st Reverse, Westmont, Ill. recorded $556,000 in fee income during the first quarter, an increase of $107,000, over the fourth quarter of 2008. Expenses were $1.1 million during the first quarter, $142,000 below the fourth quarter of 2008. According to WSFS, 1st Reverse has modified its business plan to rely more heavily on retail loan originations, and also during the first quarter implemented cost reductions to improve expected breakeven origination volumes. It was approximately one year ago that WSFS, Wilmington, Del., acquired its stake in 1st Reverse.

Over the past three months there has been a small but noticeable acceleration in home price declines, reversing what appeared to be a stabilizing trend in the fall of 2008, the First American CoreLogic LoanPerformance Home Price Index found. The index for February 2009 marked the 24th consecutive month of home price declines. National housing prices fell 12.2% in February from a year ago. More than 700 Core Based Statistical Areas (were experiencing home price depreciation, up from 402 CBSAs experiencing depreciation just six months ago. More than 100 CBSAs were experiencing double digit declines, compared to 83 six months ago. Nevada (-26.7%) was the top ranked state for price depreciation, followed very closely by California (-26.5%), Arizona (-21.1%), Florida (-19.7%) and Rhode Island (-19.5%). The silver lining for these high depreciation states is that the rate of price declines has been decelerating the last few months. "Given that home prices are generally a lagging indicator of market health, we believe the largest declines have already taken place, but we expect home prices to continue to decline into 2010 as economic conditions and excess housing inventories dampen prices," said Mark Fleming, chief economist for First American CoreLogic.

New homes sales edged down 0.6% in March as an upward revision in the February report by 21,000 sales points to a market that may be finally bottoming out.The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 358,000 in February to 356,000 in March. The bureau originally reported 337,000 sales in February. Economists are expecting to see a bottom in home sales soon. In a speech on Monday (April 20) Federal Reserve governor Donald Kohn said "recent data suggest that the multi-year contraction in home sales and new construction may be nearing an end." He noted, however, that house prices will continue to fall for a while due to the large inventory of unsold homes on the market. Builders have an inventory of 311,000 unsold homes, which translates into a 10.7-month supply at the current sales pace, according to Census Bureau report.