Originations

Freddie Mac has delayed its pricing of a five-year Reference Note offering expected to be at least $1 billion in size due to the "unattended death" of the government-sponsored enterprise's acting chief financial officer David Kellermann — an employee of the firm for 16 years. Mr. Kellermann was found dead at his Northern Virginia home early Wednesday morning, according to police. A spokeswoman for the Fairfax County Police Department told National Mortgage News that the medical examiner will perform an autopsy on the 41-year-old Mr. Kellermann later today. The police issued a press statement saying, "there was no evidence of foul play." Freddie said it found it "appropriate" to "temporarily postpone" the pricing "at least one day" in response to the death. Mr. Kellermann had been Freddie's CFO since September, when the government placed it and its sister company, Fannie Mae, into a federal conservatorship. As acting CFO, Kellermann was responsible for the GSE's financial controls, financial reporting, tax, capital oversight and related matters. He began his career at the company as a financial analyst/auditor. He also worked in Freddie's securities sales and trading unit. One former Freddie employee who worked at the GSE when Mr. Kellermann was there described him as "a very nice man, a family man." According to his company bio, he was a volunteer board member of the D.C. Coalition for the Homeless. Back in 2003 Freddie was embroiled in an accounting scandal where its top executives were accused of under-reporting income by $5 billion. A criminal investigation ensued but no charges were ever brought. Freddie's CEO (also appointed in September), David Moffett, resigned last month. Mr. Kellermann was promoted to acting CFO when Anthony 'Buddy' Piszel resigned.

David Kellermann, the acting chief financial officer of Freddie Mac -- and an employee of the firm for 16 years -- was found dead at his Northern Virginia home early Wednesday morning in what authorities said was an apparent suicide, according to combined press reports. The 41-year-old Kellermann had been Freddie Mac's chief financial officer since September, when the government placed the mortgage investing giant and its sister company, Fannie Mae, into a federal conservatorship. A spokesman for Freddie Mac had no comment and referred all press inquiries to the Fairfax County police. As acting chief financial officer, Kellermann was responsible for the GSE's financial controls, financial reporting, tax, capital oversight and related matters. He began his career at the company as a financial analyst/auditor. He also worked in Freddie's securities sales and trading unit. Freddie's CEO (also appointed in September), David Moffett, resigned last month. The company's stock trades for 86 cents a share.

M&T Bank Corp., Buffalo, N.Y., had record residential mortgage banking revenue of $48 million in the first quarter, a 50% increase from the same period last year. The bank's origination pipeline totaled $4.4 billion at March 31, up 85% from the end of the fourth quarter. In Q4, M&T took a $5 million valuation impairment on its mortgage servicing portfolio. M&T said it has modified $216 million of mortgage loans — primarily alt-A loans, of which $106 million were classified as non-accrual. The remaining modified loans were classified as "renegotiated" loans and were accruing interest as of March 31, 2009.

U.S. Bancorp said its mortgage banking business had record revenue for the first quarter of 2009 driven by record application and production volume. The company had $233 million in mortgage banking revenues, compared with $23 million for the fourth quarter and $105 million for the first quarter of 2008. During the quarter, U.S. Bancorp had $25 billion of loan applications and $13.4 billion of loan production volume. However, the company had a $530 million credit loss provision and total net charge-offs of $788 million for the first quarter. The increase in net charge offs from $239 million for the same period one year ago was due to factors affecting the residential housing markets, including homebuilding and related industries. Residential mortgage loan net charge-offs increased from $26 million in the first quarter 2008 to $91 million for the most recent period.

Bank of America and Wells Fargo ranked first and second among all commercial/multifamily originators in 2008, according to a new ranking.Other originators in the top 10 include PNC Real Estate, Holliday Fenoglio Fowler, Wachovia, GE Real Estate, Capmark Financial Group, CBRE/Melody, Deutsche Bank Commercial Real Estate and KeyBank Real Estate Capital. The list was compiled by the Mortgage Bankers Association, which did not release the origination volumes along with its press release. National Mortgage News also publishes a list of top commercial mortgage lenders and servicers in its Quarterly Data Report product.

Trying to cut its losses, Bank of America has changed its policy on "short sales," making it easier for borrowers to sell their homes instead of going into foreclosure, according to a report in American Banker. Until a month ago, BoA's mortgage unit (which includes the old Countrywide franchise) had required that 10% of a home's sale price go toward paying off home-equity lines of credit before they would agree to a short sale. But Terry Francisco, a spokesman for the Charlotte-based lender, confirmed that the bank changed its policy last month, agreeing to accept 5% of the sale price when there is no equity available to holders of the first or second liens. The new policy "is based on the assumption that it is in the best interest of all parties involved to accept a short sale, as opposed to proceeding to a foreclosure," Mr. Francisco said. "We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale." The bank expects the change to increase the number of short sales.

Moves to encourage active and more innovative account management by servicers might bring federal efforts aimed at clearing the problem mortgage asset glut and restoring the non-agency secondary market closer to their goals, according to one MBA National Secondary Market conference panelist. Clearing problem assets should be a priority and done quickly in order to restore the market, Jeremiah Buckley, partner at BuckleySandler LLP, told this publication. He told attendees at the Chicago meeting while speaking as part of a panel discussion on secondary market impacts of government relief programs, that he believes the mortgage industry may make more progress toward this end by taking a page from the credit card industry, which manages its unsecured borrowers' payments more closely and on a monthly basis. He and fellow panelist Tom Knox, managing director in PriceWaterhouseCoopers structured finance group, told attendees that efforts like TALF and PPIP that recently have taken steps toward helping revive the non-agency secondary mortgage market currently are too preliminary or vague when it comes to how ultimately effective they will be when it comes to reaching this goal.

House Financial Services Committee chairman Barney Frank, D-Mass., might be open to exempting certain Federal Housing Administration loan products from his subprime mortgage bill. Rep. Frank told the National Low Income Housing Coalition conference that he wants the bill to restrict subprime lending and increase FHA lending. FHA currently insures one-year adjustable-rate mortgages and hybrid ARMs. The subprime lending bill (H.R. 1728) requires lenders that originate ARMs to retain 5% of the credit risk when the loans are sold or securitized. When asked about ARMs, Rep. Frank said FHA will have to be "more cautious" but added that ARMs are not a "problem for people in upper incomes." He also noted that FHA will have stronger debarment powers to deal with bad lenders. "We will be talking with FHA," Rep. Frank told reporters after speaking at the NLIHC Washington conference. He wants the committee to mark up H.R. 1728 next week or the week after.

The Mortgage Bankers Association plans to challenge a proposal that requires originators to have "skin in the game" when it testifies Thursday on Rep. Barney Frank's legislation to curb predatory lending practices. The bill, H.R. 1728, by the chairman of the House Financial Services Committee would require lenders to retain a minimum 5% economic interest in loans they sell on the secondary market. Such a provision would be a "huge call on capital," MBA president John Courson told reporters at the group's National Secondary Market Conference in Chicago. He said that it is unclear whether the Massachusetts Democrat means 5% of the loan amount, a 5% loan cap, a 5% share of the total loss, or 5% of the first loss. But anyway you look it, he said, the requirement represents a "total change of the landscape." Calling the proviso "premature," Mr. Courson said it "seem to be totally out of place with this particular piece of legislation" and should be debated as part of the discussion expected later this year to totally restructure the secondary market. "We will urge as aggressively as we can that this does not belong as part of an anti-predatory lending bill," the MBA president said.

Seven out of every 10 mortgages originated this year will be replacing loans already on the books, which means servicing "runoff" could accelerate dramatically, according to the Mortgage Bankers Association.In his forecast to the MBA's Peer Group Roundtable and the Risk Management Association in Chicago, Jay Brinkman, the group's chief economist predicted that refinancings will more than triple in 2009, from a dollar volume of $765 billion last year to $1.925 trillion in 2009. The volume of purchase money mortgages, on the other hand, is expected to decline nearly 6%, from $855 billion in 2008 to $806 billion this year. Mr. Brinkman said "plain old refis" will total $1.5 trillion while ones done under a special Fannie Mae/Freddie Mac effort that include underwater loans will reach $400 billion. The number of purchase money loans will fall only 1%, the MBA economist said. But because of shrinking loan sizes, the dollar volume will be down 5.7%. Overall, the MBA is projecting a banner year for mortgage production, $2.73 trillion.

Independent mortgage bankers counting solely on potential loan growth as a basis for their warehouse lines may find the financing particularly hard to come by, executives told attendees at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. Given the refinancing boom, some originators have been trying to convince executives to give them lines by telling them that they could use the funding to "really grow," said Ken Logan, director, residential mortgage and consumer group, Wachovia Securities. "I don't want to hear that right now. The refi boom is eventually going to end. What's going to happen to them at that point?" said the executive, whose company is now owned by Wells Fargo and represents one of the few large institutions that has committed itself to the warehouse lending game at a time when some other notable players have dropped out. He and other panelists said mortgage bankers most likely to continue receiving warehouse financing are those that have strong pre-existing balance sheets and business relationships. Others may be forced to close. The MBA has sought government assistance to deal with the warehouse crisis and has found players like Fannie Mae, Freddie Mac and Ginnie Mae to be most likely to help; but there are some hurdles standing in the way of such a move, the panelists said.

The Federal Reserve Board has no particular exit strategy in mind when it comes to leaving the MBS market once it reaches the $1.25 trillion net purchase goal it set for 2009, said former FRB governor Randall Kroszner. Speaking at the Mortgage Bankers Association's National Secondary Market Conference, Mr. Kroszner said the central bank will "do whatever it takes" to keep rates in check until the MBS market returns to some semblance of normalcy. For the most part, the central bank is now the secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, having purchased more than $300 billion worth of the bonds in the first quarter. But the MBA is worried that when the Fed reaches its goal, its exit from the market will cause mortgage rates to shoot upward. Mr. Kroszner, who spent three years at the central bank before returning to the University of Chicago in January, said, "The real challenge is to thread the needle. Whether the Fed will purchase more or less will depend on the facts and circumstances at the time." If the central bank is satisfied by 2010 that the market is coming back, it will reduce it purchases, said Mr. Kroszner, who was a member of the President's Council of Economic Advisors from 2001 to 2003, and "mortgage rates should rise at a normal pace."

Moves to encourage active and more innovative account management by servicers might bring federal efforts aimed at clearing the problem mortgage asset glut and restoring the nonagency secondary market closer to their goals, according to one Mortgage Bankers Association Secondary Market conference panelist. Clearing problem assets should be a priority and done quickly in order to restore the market, Jeremiah Buckley, partner at BuckleySandler LLP, told this publication. He told attendees at the Chicago meeting while speaking as part of a panel discussion on secondary market impacts of government relief programs, that he believes the mortgage industry may make more progress toward this end by taking a page from the credit card industry, which manages its unsecured borrowers' payments more closely and on a monthly basis. He and fellow panelist Tom Knox, managing director in PriceWaterhouseCoopers structured finance group, told attendees that efforts like TALF and PPIP that recently have taken steps toward helping revive the nonagency secondary mortgage market currently are too preliminary or vague when it comes to how ultimately effective they will be when it comes to reaching this goal.

House Financial Services Committee chairman Barney Frank, D-Mass., might be open to exempting certain Federal Housing Administration loan products from his subprime mortgage bill. Rep. Frank told the National Low Income Housing Coalition conference that he wants the bill to restrict subprime lending and increase FHA lending. FHA currently insures one-year adjustable rate mortgages and hybrid ARMs. The subprime lending bill (H.R. 1728) requires lenders that originate ARMs to retain 5% of the credit risk when the loans are sold or securitized. When asked about ARMs, Rep. Frank said FHA will have to be "more cautious" but added that ARMs are not a "problem for people in upper incomes." He also noted that FHA will have stronger debarment powers to deal with bad lenders. "We will be talking with FHA," Rep. Frank told reporters after speaking at the NLIHC Washington conference. He wants the committee to mark up H.R. 1728 next week or the week after.

Zacks Equity Research, Chicago, has designed Liberty Property Trust, a real estate investment trust headquartered in Malvern, Pa., as its Bear of the Day on April 20. "Office and industrial markets continue to weaken throughout the U.S., which is bad news for Liberty Property Trust. In the current environment, we do not favor suburban industrial/office companies as rental rates and occupancies continue their downward trend," Zacks said. Despite the economic downturn, Liberty's operations held up relatively well in the fourth quarter 2008. Zacks added Liberty has plenty of liquidity on hand to address its near-term debt issues, but it still maintained a near-term sell rating on the company due to macroeconomic factors.

VantageScore, the credit scoring algorithm developed by the three major credit repositories, has been integrated in Standard & Poor's Rating Services' Levels 6.6 mortgage analytical model. Levels analyzes a loan, or a pool of loans, and assigns a risk grade; it also determines foreclosure frequency, loss severity and credit enhancements required for securitization. A spokesman for VantageScore Solutions, the Stamford, Conn.-based company that holds the intellectual property rights to the algorithm, said that with S&P's approval, mortgage loans that were scored using VantageScore can now be included in pools analyzed by Levels. S&P managing director David Goldstein said VantageScore would provide banks greater flexibility by allowing Levels to be used as a risk management tool to monitor their mortgage loan portfolio. Previously, Fitch Ratings incorporated VantageScore into ResiLogic 2.1, its quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans.

In March the credit performance of securitized subprime and alt-A loans improved for the first time since December 2007, but the bonds are far from being out of the woods, according to a new research report by Five Bridges Advisors. Five Bridges chief Michael Youngblood warns that although there is improvement, March does not "represent a turning point in credit performance" but reflects the ability of some troubled borrowers to refinance their GSE loans or successfully use loan modification programs. Five Bridges also notes that the default rate on securitized prime loans fell to 6.33% in March from 7.07% in February. The alt-A default rate fell to 19.2% from 20.56% and the subprime rate declined to 33.15% from 34.4%. "The declines in payroll employment, increases in household unemployment rates, and declines in existing house prices that have occurred through April 2009 will fuel higher default rates in" most metropolitan areas throughout the year. Mr. Youngblood recently left Friedman Billings Ramsey to form Five Bridges, which is based in Bethesda, Md.

Despite the pleas of mortgage bankers, the government sponsored agencies have no intention of lowering their guarantee fees, their representatives said at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. "No," said Donald Bisenius, Freddie Mac's senior vice of single-family credit guarantee business, when asked by MBA chairman-elect Rob Story whether the GSEs are considering such a move. Thomas Lund, executive vice president of single-family mortgage business at Fannie Mae, said the current fee structure strikes a balance between providing liquidity to the mortgage market and protecting taxpayers from footing the bill for loans that go sour. Mr. Lund also pointed out that the guarantee fees charged by the GSEs are "still far below" those charged in the jumbo market by non-agency investors. Even though the overall credit profile of borrowers has improved, Mr. Bisenius told the meeting, the fees need to remain at their current levels because "the housing market is very, very fragile. Prices at best are flat, and still falling in many places. We need to balance against that risk." On a more positive note, the two GSE spokesmen also said that once their companies, which are in federal receivership, get up to speed on their purchase of conforming jumbo mortgages, the current 150 basis point spread in pricing "should shrink dramatically."

The Federal Housing Finance Agency "very shortly" will offer a proposed rule to lower the affordable housing goals imposed on Fannie Mae and Freddie Mac, a key agency official said at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. The FHFA took over the goal setting function when it assumed the job of regulating the GSEs mission functions from the Department of Housing and Urban Development when it was created by Congress last year. Though Edward DeMarco, the FHFA's chief operating officer and senior deputy director for housing mission and goals, said he was not at liberty to reveal the details of the forthcoming rule, he did say that the plan was to modify the goals so they would be "on par" with those set by HUD for the period from 2004 to 2006. But even at that, he added, "we recognize" that the GSEs will have to "stretch" to meet them. Mr. DeMarco also said that the affordable housing goals set for 2008, most of which were missed by Fannie and Freddie, were "unrealistic" and "not feasible," given the conditions of the housing market at that time. And noting that keeping low and moderate-income families in their homes is sound public policy, he said that Fannie and Freddie will be given credit under the proposed rule for loan modification activities as part of their new affordable housing targets.

The GMAC Bank unit of Residential Capital LLC is expanding its mortgage warehouse lending operations, a spokeswoman for the company confirmed. GMAC has hired Adam Glassner, formerly of Bank of America, to head up these efforts. ResCap shifted the warehouse business from Residential Funding Corp. to the bank more than a year ago. The spokeswoman said the company wants to significantly increase its volume of these loans, which will be funded with capital from GMAC Bank. The bank had aggressively marketed for deposits and now GMAC needs a way to use that capital. Right now, GMAC has 150 warehouse clients and will take on new relationships. There is strong demand in the market for warehouse credit, the spokeswoman said, "so we're willing to lend." GMAC is also expanding its jumbo mortgage lending program. However, the spokeswoman explained, borrowers need a credit score of 700 or above and must be willing to put between 20% and 30% as a down payment.