Originations

Triad Guarantee recently received a corrective order from the Illinois director of insurance, which would impact its insurance subsidiaries, Triad Guaranty Insurance Corporation and Triad Guaranty Assurance Corporation.Under the order, effective June 1, all valid claims under Triad's mortgage guaranty insurance policies will be paid 60% in cash and 40% by the creation of a deferred payment obligation. "Continuing volatility in the housing and mortgage markets, a high incidence of fraud and noncompliance with underwriting programs in the loan origination process make it very difficult to forecast Triad's future financial position and claims," said Triad CEO Ken Jones. The company said "there is more uncertainty today than when we entered run-off in July 2008." The MI, the nation's smallest, is in the process of self-liquidation. Its shares trade for just 29 cents each.

The National Reverse Mortgage Lenders Association is creating a new industry designation called the 'Certified Reverse Mortgage Professional — Loan Originator'. To receive the designation, applicants must meet certain eligibility requirements, such as a minimum two years of service originating reverse mortgages and 50 loans closed, 12 hours of continuing education and submission to a background check, before they can sit for the exam. To develop the new designation, NRMLA has financially supported a committee of a dozen industry professionals and lawyers for the past year to work on the standards. "This is some of the most important money we have ever spent," says Peter Bell, the president of NRMLA. "Our organization's viewpoint is that our first responsibility is to protect the consumer — and this new designation will provide seniors and their children with every assurance that they are dealing with educated, well prepared professionals."

Nearly one third of Federal Housing Administration foreclosures completed in 2008 involved FHA loans with seller-funded downpayment assistance, HUD secretary Shaun Donovan told senators. FHA loans where the downpayment assistance was arranged by non-profit housing groups represented only 12% of all FHA loans at the start of 2008. "Much or our recent loss activities have been attributed to the growth of seller-funded downpayment assistance," the Department of Housing and Urban Development secretary testified. Congress banned such down payment assistance on FHA loans. That ban went into effect October 1, 2008. "The termination of this program should substantially reduce FHA losses in new originations in the years ahead," Mr. Donovan testified.

Federal Housing Administration is experiencing elevated defaults and foreclosures, but FHA loans continue to outperform subprime loans, according to HUD secretary Shaun Donovan. "Although this is a challenging time for all entities in the mortgage market, FHA is unlikely to face the catastrophic losses borne in the subprime sector," the Department of Housing and Urban Development secretary told a Senate appropriations subcommittee. He noted that only 7% of FHA loans are seriously delinquent or in foreclosure, compared to 23% for subprime loans. In addition, FHA is not overexposed in high-cost markets like California because of its loan limits. The Office of Management and Budget is expected to release its fiscal year 2010 budget in a few weeks. It will include re-estimates of FHA's performance and financial strengths. It is unclear if this re-estimate will lead to losses that Congress will have to cover or force FHA to charge higher mortgage insurance premiums. "We should, within a few weeks, be able to present to you our estimates of whether it will be self financing," Mr. Donovan told a Senate appropriations subcommittee. FHA single-family insurance program has always operated without congressional appropriations.

California's real estate professionals are putting their money where their collective mouths are. The California Association of Realtors is dedicating $1 million to back a mortgage protection plan for first-time buyers. Under the group's Housing Affordability Fund, should buyers who haven't owned a home within the last three years lose their jobs, they will receive up to $1,500 a month to cover their house payments for six months. A qualified co-buyer also can participate in the program, and receive an additional monthly benefit of $750 per month for up to six months. The plan is for W-2 employees only, self-employed persons need not apply. "The Mortgage Protection Program was developed to help ease the anxiety of consumers who are concerned about potential job loss," said CAR President James Liptak, who estimated that as many as 3,000 families will benefit from the plan. There are some other requirements. A CAR member must be involved in the transaction. And the property must be located in the Golden State. The program, which will be open to rookie buyers who close by the end of the year, also includes coverage for accidental disability and a $10,000 death benefit. With 180,000 members, CAR is the largest state affiliate of the National Association of Realtors.

Mortgage companies pared their payrolls by only 200 full-time employees in February and it appears employment is finally stabilizing with the increasing demand for refinancings and loan modifications. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 271,300 in January to 271,100 in February, down 18% from a year ago. Orawin Velz, director for economic forecasting at the Mortgage Bankers Association, expects the refinancing boom will be sustainable and mortgage executives will have to begin hiring. "We should see some pickup in the coming months," Ms. Velz said. But she cautioned industry employment will rise very slowly, possibly to 300,000 by the end of the year.

Wells Fargo & Company plans to expand its presence in warehouse lending using a platform it acquired when it bought Wachovia Corp. at year-end, according to industry officials familiar with the matter. Two sources at Wells confirmed the move but at press time a spokesman could not be reached for official comment. "The good news is that not only are they going to stay in it but they're going to expand it out," said one warehouse advisor. It's believed that at year-end Wachovia had commitments of about $1 billion. Non-depositories depend on warehouse credit to make loans in the primary market. Warehouse lending has been severely restricted because many banks and Wall Street firms have left the sector because of losses, failures, or capital restraints.

Anthracite Capital Inc., New York, is still in discussions with its secured credit facility lenders and therefore the waivers granted by those lenders have been extended by such lenders from April 1, 2009 to April 15, 2009. Anthracite did not make interest payments due on March 30, 2009 on its junior subordinated notes due 2036 related to Anthracite Capital Trust III and 7.20% senior notes due 2016. Under the indentures governing these notes, the failure to make an interest payment is subject to a 30-day cure period before constituting an event of default.

Gramercy Capital Corp., New York, has entered into an amendment and compromise agreement with KeyBank NA, the administrative agent for a group of lenders, to settle and satisfy at a discount pre-existing loan obligations of approximately $174.6 million. Gramercy made a cash payment of $45.0 million and agreed to pay over time an additional $15.0 million from a portion of free cash flow generated by its collateralized debt obligations. Furthermore, Gramercy satisfied all of its obligations under a $9.5 million master repurchase facility with JP Morgan Chase Bank N.A. by making a cash payment of approximately $1.9 million to the bank. JP Morgan assumed full ownership and control of, and responsibility for, the related loan asset. Gramercy and its advisors continue to negotiate amendments of its credit facility with Wachovia Bank NA, and its master repurchase facility with an affiliate of Goldman, Sachs & Co. Clifford Chance US LLP was the restructuring counsel for these transactions, while Barclays Capital acted as the financial advisor in connection with the KeyBank transaction. Previously, Goldman, Sachs & Co. also acted as a financial advisor in connection with the KeyBank transaction.

Corporate Office Properties Trust, Columbia, Md., has priced its public offering of 2.6 million common shares at $24.35 per share. The offering is 500,000 shares larger than originally planned. COPT has granted the underwriters an option to purchase up to an additional 390,000 shares during the next 30 days. It estimates that the net proceeds from this offering, before expenses, will be approximately $63 million. If the underwriters' option to purchase additional shares is exercised in full, it will bring in approximately $73 million. The offering is expected to close on April 7, 2009, subject to customary closing conditions. The joint book-running managers for this offering are Merrill Lynch & Co. and KeyBanc Capital Markets. COPT plans to use the net proceeds from the sale to repay borrowings under its unsecured revolving credit facility and for general corporate purposes. On April 1, the day the offering was priced, COPT closed at $24.40; by midday of the next trading day, it was trading at $26.05 per share.

The 11th District Federal Home Loan District Cost of Funds Index has lost 115 basis points in three months, bringing the rate for COFI-indexed adjustable-rate mortgages to a low not seen since October 2004. The index for February 2009, as calculated by the Federal Home Loan Bank of San Francisco, is 2.003%. This marks a decline of 45 basis points from January and the second largest decline in the index's history. It comes after drops of nearly 40 basis points between November and December and 30 basis points between December and January. In comparison, the monthly average interest rate for the one-year ARMs as measured by the Freddie Mac Primary Mortgage Market Survey declined from 5.26% in November 2008 to 4.86% in March. For the 30-year fixed-rate mortgages tracked by Freddie, the monthly average interest rate has gone from 6.48% in August 2008 to 5.00% in March. COFI generally lags movements in other rates. It has not been this low since October 2004, when it was at 1.960%. COFI set its all-time low of 1.708% in May 2004.

The National Association of Mortgage Brokers has withdrawn its lawsuit against the Federal Housing Finance Agency, one day after it sent a letter to Congress asking it for help to stop implementation of the Home Valuation Code of Conduct. The trade group called the withdrawal a "strategic maneuver;" it said it wants to assess the FHFA's claim that no court may review its decisions while Fannie Mae and Freddie Mac are in conservatorship. "This issue goes beyond the bounds of this particular case," said NAMB president Marc Savitt. "All companies, investors, and trade groups should understand there may not be a court, any court, able to hear their case while FHFA is utilizing their conservatorship powers." NAMB said its options include filing suit again with revised and expanded arguments directed at FHFA's new claim.

The trustee for bankrupt subprime giant New Century Financial Corp. is suing the lender's auditor, KPMG, for $1 billion in damages, charging that it abetted the firm in misstating its true financial condition. Among other things, the trustee accuses the auditor with negligence noting that KPMG "did not act as a watchdog." The bankruptcy trustee is represented by the California law firm of Thomas, Alexander & Forrester, which filed claims in New York and California. New Century, whose shares once traded as high as $55, collapsed in the spring of 2007, wiping out shareholders. At its peak, the nation's second largest subprime lender had a market capitalization of almost $3 billion. KPMG issued a statement denying that it was responsible for New Century's collapse, saying it acted "in accordance with professional standards." The accounting firm said it would vigorously fight the lawsuits. A report issued last summer said creditors of NCFC are owed as much as $1.6 billion. KPMG's predecessor firms were sued for negligence by federal regulators during the S&L crisis. Some of those claims were settled out of court.

The average rate for a 30-year fixed-rate mortgage fell to 4.78% during the week ending April 2 hitting another survey-record low, according to the Freddie Mac Primary Mortgage Market Survey. The rate fell seven basis points from 4.85% the previous week. Freddie Mac started tracking the 30-year fixed-rate in 1971. A year ago the average 30-year FRM rate was 5.88%. "Mortgage rates followed other interest rates lower this week amid reports of slower economic growth," said Frank Nothaft, Freddie Mac vice president and chief economist. The 15-year FRM rate averaged 4.52% in the most recent week, down from the previous week when it averaged 4.58%. A year ago at this time, the 15-year FRM rate averaged 5.42%. The 15-year FRM rate has never been lower since Freddie Mac began tracking it in 1991. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.92%, down from the previous week when it averaged 4.96%. A year ago, the five-year Treasury-indexed hybrid ARM rate averaged 5.59%. This five-year hybrid rate has never been lower since Freddie Mac began tracking it in 2005. The average rate for one-year Treasury-indexed ARMs averaged 4.75%, down from the previous week when it averaged 4.85%. At this time last year, the one-year ARM rate averaged 5.19%. The one-year ARM has not been lower since the week ending Sept. 29, 2005, when it averaged 4.68%.

Concerned that "bad actors" may be originating or brokering Federal Housing Administration-insured loans, Housing secretary Shaun Donovan said the government is sending out "SWAT teams" unannounced to check up on problem lenders. In Senate testimony on April 2, Mr. Donovan acknowledged that the number of FHA-approved brokers now stands at 36,000 compared to just 16,000 in mid-2007. The number of FHA approved lenders has grown by 525% since 2006 to 3,300. Senators serving on a HUD subcommittee fear that FHA delinquency rates are rising rapidly and that problem lenders that used to fund subprime mortgages are now facilitating FHA products. Mr. Donovan admitted that early payment defaults on FHA loans "have increased substantially" but said the growth in problem loans is slower than the overall growth in FHA fundings. He blamed rising EPDs on the economy and job losses.

Lend America, Melville, N.Y., is further expanding its growing servicing efforts by launching a Fannie Mae servicing initiative. The retail lender, which produced over $450 million in new originations during the first quarter of this year, now expects it will be a $1 billion servicer by the end of the second quarter and a $2 billion servicer by year-end. Chief business strategist Michael Ashley said the $2 billion figure represents a 33% increase from the company's previous forecast. Lend America also is a Ginnie Mae servicer and already more than doubled its servicing portfolio in the first quarter 2009 to over $500 million compared to $223 million as of Dec. 31, 2008.

HUD issued another mortgagee letter that reiterates its policies on counseling for seniors who apply for a government-insured home equity conversion mortgage and adds several new requirements. That letter (ML 2009-10) repeats the admonition that lenders are "strictly prohibited" from assisting would-be borrowers in scheduling counseling. HUD says it is aware of instances in which lenders have dialed a counseling agency and then handed the phone to the borrower to schedule counseling. In other cases, the lender has entered the borrower's contact information into a web-based system, which automatically put that borrower's name in a queue to be called by a counselor. The letter says borrowers must take the initiative when it comes to contacting a counseling agency. Contact must be on the borrower's "own terms, when he or she is comfortable," HUD warns. Lenders are allowed to provide a list of possible agencies, but if they do so, the list must contain at least 10 choices and be given to each and every client.

In response to lenders' requests for additional guidance, the Department of Housing and Urban Development has published a new mortgagee letter that sets a maximum claim amount on the new HECM for Purchase product. The latest directive (ML 2009-11) says the max claim amount will be the lesser of either the home's appraised value, its selling price or the FHA loan limit. It also says the calculation applies to all one-to-four unit properties, and advises that neither the estimate of closing costs nor the initial mortgage insurance premium is to be used in determining the claim amount. HECM for Purchase, which was authorized by the Housing and Economic Recovery Act of 2008, is a form of reverse mortgage that allows seniors 62 or older to move down the housing ladder by selling one house and purchasing another while incurring only one set of closing costs. But the new memo makes it clear that borrowers can have only one principal residence. If borrowers intend to retain their existing house as a rental property, lenders are required to guard against "buy and bail" situations. In addition, major property deficiencies outlined in a previous mortgage letter — no running water, leaking roof, lack of heat and building code violations, to name a few — must be repaired prior to closing.

Home values will continue to suffer through year-end 2010 with most metropolitan statistical areas facing an increased risk of lower prices, according to a new report issued by PMI Mortgage Insurance, Walnut Creek, Calif. PMI says 21 of the nation's 50 largest MSAs "are now in the highest risk category, signifying the highest probability of lower house prices by the end of the fourth quarter of 2010" relative to year-end 2008. But there could be some good news, PMI says: 212 MSAs have a "minimal-to-low risk of lower prices in two years." (The U.S. is divided into 381 MSAs.) PMI, the nation's second largest MI as measured by policies-in-force, published its findings in its "First Quarter 2009 Economic and Real Estate Trends Report."

The private mortgage insurance industry was another beneficiary of low interest rates between January and February when members of the Mortgage Insurance Cos. of America saw an increase of nearly $1.4 billion in the total primary new insurance written. There was $8.47 billion of traditional and $14.6 million of bulk primary new insurance written in February, compared with $7.11 billion, all in the traditional channel, written in January. In February 2008, there was $19.2 billion in total primary new insurance written; this data, however, includes activity from Triad Guaranty Insurance Corp., now in run-off, and does not include Radian Guaranty, which had yet to rejoin the organization. The number of applications received fell from 71,130 in January to 73,109 in February. The amount of primary new insurance in force decreased for the second consecutive month, from $949.3 billion in January to $944.9 billion in February. The amount of new pool risk written in February was $11.8 million. The cure/default ratio was at its highest point since last March, at 75.5%, with 67,767 cures and 89,722 defaults. It is the first time since Radian's data has been added back into the report that the number of defaults for a month was under 100,000.