Originations

UBS AG said Wednesday that it expects to report a first quarter net loss of nearly $1.75 billion and that it plans to reduce its workforce by more than 11%.Three years ago the bank was a top ranked subprime securitizer and warehouse lender. In a speech at the company's annual general meeting in Zurich, Group CEO Oswald J. Grübel said the poor performance stems from continuing credit charges tied to illiquid risk positions, and valuation adjustments — most of which are tied to mortgages. Having cut nearly 11,200 jobs since it began writing down mortgage-related securities, UBS expects to reduce its staff to about 67,500 worldwide in 2010 compared to 76,200 currently employed. In addition, the banking giant announced it will exit high-risk and "unpromising businesses" and is currently reviewing which businesses it will remain active in. "We know where we have to get to work," said Mr. Grübel. "It will be a long road back to success without any quick fixes. Rather, we will move forward step by step in a rigorous and disciplined manner."

The cost to service residential mortgages is rising significantly, according to preliminary research conducted by the Mortgage Bankers Association.Speaking at a recent servicing conference MBA chief economist Jay Brinkmann said "costs per loan are way up," adding that the reason is loan modifications. Mortgage bankers with large portfolios are adding both phone lines and additional employees to rework loans, adding to expenses. MBA is working on its annual cost survey which should be released later this year. On a different topic, Mr. Brinkmann said some portfolio lenders that he's spoken with "are happy as can be" because their cost of funds (deposits) are "so low" right now.

The Senate is expected to vote on a bill next week to expand bank fraud statutes to cover independent mortgage companies and mortgage brokers for the first time.The new definitions for "financial institution" and "mortgage lending business" will ensure that mortgage brokers and mortgage companies are held fully accountable under the federal fraud laws, according to a summary of the bill (S. 386). The Senate Judiciary Committee approved the bill by unanimous vote on March 5. Senate Majority Leader Harry Reid, D-Nev., filed a cloture motion just before Congress left for its two-week spring break to counter any attempt to filibuster or block Senate consideration of the mortgage fraud bill when Congress returns next week. The Fraud Enforcement and Recovery Act also authorizes $165 million in appropriations to fund mortgage fraud investigations by the Justice Department, HUD inspector general and U.S. Secret Service.

Flagstar Bancorp, one of the nation's largest residential wholesalers, has picked StreetLinks National Appraisal Services as one of its preferred vendors.The Indianapolis-based vendor will offer evaluation services to Flagstar's retail branches as well as its brokers and correspondents. SLNAS says it is compliant with the new Home Valuation Code of Conduct (HVCC) which governs appraisal practices. Flagstar, which according to the Quarterly Data Report ranks ninth overall in residential fundings, is based in Troy, Mich.

Bank of America, which releases first quarter earnings shortly, is facing more writedowns on its Countrywide-related mortgage holdings, according to a new report from Credit Suisse.Initiating coverage of BoA with a "neutral" rating, CS analyst Moshe Orenbuch writes that when the bank bought Countrywide Financial Corp. last summer CFC's $92 billion (mostly) residential portfolio was marked down by $14.4 billion or 15.6%. In his new report he says "further headwinds could put losses in excess" of the original marks. The $92 billion includes $33 billion in home equity loans, and $26.4 billion in payment option ARMs, two of the most toxic asset classes out there. Several months after the July 1 deal closed, BoA wrote down the portfolio by an additional $750 million. Citing CFC in particular, Mr. Orenbuch says "Credit quality deterioration is fairly broad-based" at the bank.

Chase Home Finance said it will no longer fund construction-to-permanent loans for consumers who want to build their own homes.A spokesman for the lender said a decision was made three weeks ago but not publicized. It took its last application in this product line on April 7. Roughly 60 employees based in Chase's Denver office are affected by the change. Some will be offered other jobs at the company. The spokesman declined to provide construction-to-perm origination volumes. "It's not a big part of our overall business," he said. Earlier this year Chase exited the wholesale channel. It remains as a correspondent funder. Based in Iselin, N.J., Chase is a subsidiary of financial services giant JPMorgan Chase.

Servicer guidance along with the net present value (NPV) test for the Obama administration's new loan modification program will be issued "very soon," according to Federal Housing Finance Agency director James Lockhart."I'm hopeful we can get this kicked up very fast," Mr. Lockhart said in an interview with National Mortgage News Online. Fannie Mae and Freddie Mae have already issued servicer guidance for modifying loans they own or guarantee. The NPV test will be used to determine which non-agency loans qualify for a loan modification. "That is being finalized," the FHFA director said. Under the new modification program servicers are expected to reduce the homeowner's monthly mortgage payments to a 38% debt-to-income level at their own expense. To achieve a 31% DTI ratio, the government will share in the cost and reimburse the servicer. Fannie and Freddie are using an existing NPV test because they are not being reimbursed by the government, Mr. Lockhart said.

The Federal Home Loan Bank of Boston is reporting a huge impairment charge on its investments in private-label mortgage-backed securities and a net loss of $115.8 million for 2008, but the bank expects recent changes to accounting rules will mitigate the impact on its retained earnings. "The net loss eliminated retained earnings, resulting in an accumulated deficit of $19.7 million," the Boston FHLBank president Michael Jessee said. Nevertheless, the bank continues to meet its minimum capital requirements. The Boston FHLBank delayed its annual 2008 securities filing while it reviewed its "other-than-temporary impairment" analysis on $652.9 million in private-label MBS. This review resulted in a $381.7 million OTTI charge — $42.7 million larger than originally estimated. However, the Financial Accounting Standards Board recently loosened its mark-to-market accounting and OTTI guidance. These changes "will restore a significant portion of the retained earnings that were lost in 2008 when implemented in the first or second quarter of 2009," Mr. Jessee said.

Lenders say first-quarter profit margins are the widest they have seen in years, despite concerns that the refi wave could result in higher prepayment costs for servicers, according to a report in American Banker "If you're in a position to make loans, you're making historically wide profit margins, so this is a very good time to be in the lending business," said Tom Million, president and chief executive of Capital Markets Cooperative, Ponte Vedra Beach, Fla., a provider of secondary marketing services to banks. The big caveat, of course, is that some of these loans "could go bad," Mr. Millon said, and many lenders are "looking backward" at loans made in the third and fourth quarters with the same concern. Still, there has been a significant pricing shift since late last year that is boosting profits, especially for mega lenders and large aggregators such as Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo & Co. (See related stories on loan volumes.)

An analysis by federal regulators of investments held by two large corporate credit unions prior to their March 20 takeover shows that they had a vast exposure to risky subprime, Alt-A and payment option ARM mortgage securities. The two corporate CUs — U.S. Central FCU and WesCorp FCU — provided liquidity to smaller credit unions. Placed into conservatorship by federal regulators last month, U.S. Central and WesCorp accumulated billions of dollars in losses on their mortgage securities. The National Credit Union Administration analysis released Friday and based on a review by bond experts PIMCO shows that securities backed by the risky mortgages (most of them rated AAA at the time of purchase) continued to deteriorate over the past two years with defaults and foreclosures skyrocketing and forcing down the ratings on many of them to below investment-grade. At U.S. Central, where 95% of its $35 billion of holdings were rated AAA at purchase, more than half of those holdings — a staggering $17 billion — had slid below AAA, while almost one-third, $11 billion worth, were below investment grade at Feb. 23.

Genworth Financial, which controls the nation's fourth largest mortgage insurance company, said it failed to meet requirements to receive a large capital infusion under the Treasury Department's Troubled Asset Relief Program. The revelation came late last week, but on Monday Genworth's shares were hammered, falling 21% to just over $2. In a statement company CEO Michael Frazier said TARP money is only one of Genworth's options for surviving in the current economic climate. A spokesman could not be reached for comment at press time. The Richmond, Va.-based Genworth has abandoned plans to buy a small Minnesota depository, which would have served as its conduit to getting TARP money. In 2008 Genworth posted a net loss of $572 million. For years it had garnered a reputation for being the most conservative of the nation's seven MI firms.

Even though it appears that loan applications and fundings swelled in the first quarter of this year, 2008 was one of the bleakest ones on record with all of the nation's top ranked firms suffering, according to a new annual tally by National Mortgage News. NMN found that the top five residential funders — Wells Fargo & Co., Chase, Bank of America, Countrywide (pre-BoA), and CitiMortgage — suffered large declines in originations. BoA's full-year origination volume suffered the least (down 4%) — but only because it had Countrywide under its corporate umbrella in the second half of the year. (The purchase closed on July 1.) Wells ranked first among all originators with $234 billion in fundings and a market share of 13.41%, followed by Chase ($187 billion/10.69%), Bank of America ($187 billion/10.41%); Countrywide ($132 billion/7.54%), and CitiMortgage ($115 billion/6.59%). If Countrywide's first half fundings are added to BoA's it would give the latter full year production of $314 billion, far eclipsing Wells. Year-over-year, Wells' originations fell by 14%. Chase, Countrywide and Citigroup had declines of 11%, 68% and 42%, respectively.

The global law firm Morrison & Foerster LLP has created an interdisciplinary team of attorneys to represent clients in the accelerating wave of dealmaking, as real estate companies worldwide seek to deleverage, recapitalize, restructure and otherwise seek liquidity. The newly formed Real Estate Companies Solutions Group brings together experts with expertise from the firm's real estate, corporate, capital markets, tax, fund formation, bankruptcy, restructuring and litigation groups. The group will provide targeted advice to real estate companies, investors and other capital sources in entity-level transactions resulting from the current unprecedented real property and finance sector dislocations. It will represent clients to implement a broad range of options, such as M&A, tender offers, spin-offs, joint ventures, or bankruptcy including "prepackaged" bankruptcies. "The current 'perfect storm' affecting the real estate industry is creating both risks and opportunities for our clients," said Michael Cohen, a Los Angeles partner in the Corporate Finance Practice Group. Among the categories of transactions involving real estate companies, including REITs, the group expects to execute mergers and acquisitions, restructuring and workout transactions, and representing new equity in bankruptcies.

Terence Mayfield of Phoenixille, Pa., pleaded guilty before U.S. District Judge Joseph H. Rodriguez to charges stemming from his role in operating two ponzi schemes upon members of a Toms River church. The first defrauded members of the Church of Grace and Peace of more than $1 million through a phony real estate investment scheme. In this scheme, Mayfield spoke to church members about an investment opportunity he had developed through investments in income-generating real estate. He required each potential investor to pay between approximately $1,000 and $1,500 as an "entry fee" to the program and that they provide the investment funds directly to him. Mayfield neither maintained the funds in escrow accounts nor purchased investment properties, but rather used the investors' funds to repay earlier investors and to pay his personal expenses. The second scheme defrauded three sets of homeowners, who participated in three "foreclosure bailouts" purportedly involving two properties in Georgia and one in Pennsylvania, of more than $75,000. In this scheme, Mayfield solicited potential investors to buy homes facing foreclosure and lease the homes back to the homeowners for a two-year period. The homeowners would place two years' worth of rent payments into an escrow account maintained by Mayfield as a security deposit. At the closing of the foreclosure bailout transactions, Mayfield directed the homeowners to directly deposit funds intended for an escrow account into his company's bank account. He again used these funds for his own benefit. Judge Rodriguez released the defendant on a $100,000 bond pending sentencing, which is scheduled for July 14.

The securitization process that led to the subprime meltdown has been "absolutely discredited" and retention of a portion of the credit risk is one way to reform the mortgage market, according to a Senate Banking Committee staffer. Requiring lenders to retain 5% of the credit risk on nonprime loans, as proposed under a House bill, is "one way to get at the issue," said Jonathan Miller, a professional staff member. He works closely with committee chairman Christopher Dodd, D-Conn., on housing issues. He stressed that mortgage reform also should give consumers a way to get relief if mortgage lenders violate the rules. Mr. Miller spoke at a Washington meeting of Real Estate Services Providers Council and he noted his views should not be interpreted as Sen. Dodd's views. But he said the Federal Reserve Board has resisted using its consumer protection authority until recently. And the Fed could lose that authority by the time Congress passes a regulatory modernization bill.

The Federal Reserve expanded its purchases of GSE mortgage-backed securities by $750 billion in March to sustain the refinancing boom and keep mortgage rates low, according to the minutes of the last Federal Open Market Committee meeting. When the committee met in mid-March, the Fed was already on track to reach its initial target of purchasing $500 billion in Fannie Mae, Freddie Mac and Ginnie Mae MBS and $100 billion in GSE debt by the end of June. But committee members noted that the "pace of MBS issuance was likely to be especially brisk over the next few months, in part because of the Administration's new Making Home Affordable program," and they wanted to "accommodate the pattern of mortgage refinancing," the minutes say. So the committee agreed to expand the MBS purchase program to $1.25 trillion and extend it until the end of the year. The FOMC members said low mortgage rates, affordable housing prices and the Obama administration's new refinancing and loan modification programs could bring about a "sustained increase in home sales and a stabilization of house prices."

Ginnie Mae's growing mortgage-backed securities issuance has hit a record monthly high of $34.5 billion. The record was set in March. Total single-family issuance was $34.1 billion with the balance coming from multifamily issuance during the month. Within the single-family category, Ginnie I s represented $28.2 billion of the total and Ginnie II s represented the remaining $5.9 billion.

Bank of America has trimmed certain loan brokers from its active list, according to loan representatives who still use the wholesaler for table funding.However, according to Marc Savitt, president of the National Association of Mortgage Brokers, the move is really just a housecleaning effort involving unproductive brokers that rarely submit loans to BoA. "This isn't Bank of America dumping brokers," said Mr. Savitt. He noted that brokers that are removed from the active list have the right to re-apply within 60 days. But one broker who uses BoA for certain loans said the timing of list cleaning is curious. "I don't want to make it sound like a conspiracy but it's happening while refis are booming," he said. Brokers were notified of the move about two weeks ago.

Wells Fargo & Co. hit a residential home run in the first quarter with originations soaring by 51% to $100 billion, and mortgage-related commitments topping $175 billion.Released early Thursday morning, the figures were preliminary and included an earnings estimate of $3 billion, which could prove to be a record for the bank. Final numbers will be released when it discloses earnings on April 22. Wells' strong residential quarter was aided by historically low interest rates and its 2008 acquisition of Wachovia Corp., a bank with a strong (but somewhat troubled) mortgage operation. The results also indicate that the San Francisco-based bank is poised to gain a huge amount of market share in the mortgage space as other lenders either fail or sell out to stronger competitors. In the fourth quarter Wells had a loan production market share of 18.37% and a servicing share of 18.58%, according to National Mortgage News and the Quarterly Data Report. Late last year Wells received a $25 billion capital injection via the government's TARP program.

Twenty-four individuals have been charged with allegedly using a corrupt enterprise to conduct a massive San Diego-based mortgage fraud scheme involving 220 properties with a total sales price of more than $100 million dollars. U.S. Attorney Karen P. Hewitt called this "the largest mortgage fraud case ever prosecuted in the history of the Southern District of California." The lead defendants charged with running the corrupt enterprise are Darnell Bell, Michael Ivy, Stanley Gentry and Billie Bishop. The indictment alleges that Bell, allegedly a member of the Lincoln Park street gang, led the enterprise and received at least $9 million in proceeds from the conspiracy. Mr. Ivy was allegedly responsible for negotiating the purchase of real estate. Mr. Gentry, a licensed real estate broker, is alleged to have allowed the enterprise to use his broker's license to facilitate the fraudulent purchase of property in exchange for a $10,000 monthly payment and a percentage of the real estate commission and broker's fees associated with each fraudulent purchase. Mr. Bishop was an escrow officer charged with allegedly facilitating the fraudulent purchase of more than 100 properties. In addition to charging the defendants with using multiple real estate businesses to facilitate the fraudulent purchase of real estate, the indictment also charges several real estate professionals with recruiting individuals to obtain fraudulent mortgage loans and purchase properties. Bell is already in federal custody serving a sentence for the distribution of cocaine. Besides the lead defendants, the other individuals arrested in the scheme are: Joseph Lewis, Nicoele Watson, Daniel Williams, Diana Jaime, Jorge Cortez, Lorena Callu, Desiree Holiday, David Lewis, Ray Logan, Stevie Frazier, Latashia McKinney, Marcus Dozzell, Esteban Valenzuela, Anton Ewing, Randolph Hirsch, Dennis Tapia, Dexter Holiday, Keith Holiday, Gerard Holiday and Jorge Magana. All of the defendants are being detained and could not be reached for comment.