Originations

Congressional Democrats and Obama administration officials want to make consumer protection an integral part of any reforms to the mortgage finance system. Consumer protection needs to be at the "very heart of our system of mortgage finance, not an after-thought or relegated to second class status," said Michael Barr, counselor to the White House National Economic Council. Consumers and investors should be able to "rely on the fact that underwriting is being conducted appropriately," Mr. Barr told a mortgage reform forum sponsored by the Center for American Progress. Meanwhile, the Mortgage Bankers Association is working on reform proposals to restore confidence in the system by establishing more effective consumer protections. "We know that these proposals will constrain some in the industry, but they will also help our members and their customers in the long-run," MBA chairman David Kittle told a congressional panel last week.

Single-unit residential housing starts totaled 357,000 (annualized) in February, a slight gain from the previous month, but a 51% decline from the same month a year ago. According to new figures compiled by the Census Bureau and the Department of Housing and Urban Development, multifamily starts soared by almost 80% in February to 212,000 units but when compared to the same month a year ago, fell by 40%. Patrick Newport, an analyst with HIS Global Insight cautioned that "one should not make too much noise" over the large sequential increase in the multifamily starts, saying colder than normal weather in December and January pushed starts into February. Single-family permits rose 11% on a sequential basis but fell 42% year over year. Mr. Newport called the permit gain "good news" but noted that, "one should be careful about making inferences from this increase."

The Obama administration has created a niche outlet for certain commercial real estate loans as part of its effort to boost business lending through the purchase of Small Business Administration-backed loans. The Treasury Department has pledged to purchase $15 billion in SBA loans, including SBA '504' first-lien mortgages that are used to finance owner-occupied buildings and construction projects. (The 504 loans cover up to 50% of a project's cost but are not government guaranteed.) Treasury will begin purchasing 504 loans no later than May. SBA also is working on the development of a "secondary market guarantee program for securities issued from pooled 504 first mortgage loans," Treasury said.

Thornburg Mortgage, once a top ranked originator of "super jumbo" loans, said Tuesday it may file for Chapter 11 bankruptcy protection and has hired the law firm of Kirkland and Ellis to advise it on restructuring options.A REIT that is publicly traded on the "pink sheets," Thornburg said its lenders — which include such names as Citigroup, Credit Suisse, JPMorgan Chase, and Greenwich Capital — have agreed to give it certain forbearances on its loans "through March 31." The company was de-listed by New York Stock Exchange late last year. Its shares trade for just 2 cents compared to an all time high of $140. It has an on-balance sheet portfolio of roughly $20 billion that it services on a monthly basis and needs to finance.

Wholesale lending through loan brokers accounted for just 15% of all mortgages funded in the fourth quarter, the lowest reading ever tracked by National Mortgage News, which has been keeping figures for 15 years.Mortgage lenders originated $277 billion of home mortgages in 4Q with retail accounting for a majority of fundings (44%) and correspondent making up the balance, 41%. Several large lenders have exited the wholesale sector in the past year, including, most recently, JPMorgan Chase, a top five wholesale funder. Bank of America recently reiterated its commitment to wholesale, noting that it has 5,000 active broker relationships through the platform it inherited when it bought Countrywide Financial last July. However, at its peak, Countrywide had 40,000 approved brokers in its network.

The PMI Group, Walnut Creek, Calif., says it needs to raise capital because its U.S. mortgage insurance business is experiencing higher losses and those losses are eating into its net assets. In its 2008 10-K filing, which was made on March 16 — the same day it revealed it lost $179 million for the fourth quarter — the company declared, "Unless we raise capital to support PMI, its policyholders' position will likely continue to decline and its risk-to-capital ratio will likely increase beyond levels necessary to meet regulatory capital adequacy requirements and, if we are unsuccessful in renegotiating our revolving credit facility by April 15, 2009, meet certain credit facility financial covenants." PMI said it is "exploring capital alternatives to enhance our liquidity and capital." This includes seeking funds through the Troubled Asset Relief Program obtaining reinsurance for PMI's future book of business and/or debt or equity offerings. The 10-K added that because of those capital constraints, PMI, which had significantly cut it book of business in 2008, would continue to reduce new insurance written in 2009. The holding company also faces significant liquidity issues, the filing added.

Fitch Ratings, New York, expects that in the near to medium term, retail will represent a growing proportion of overall defaults in the commercial mortgage-backed securities sector. The rating agency said, "declining retail performance was chiefly responsible for a 13 basis point increase in delinquencies in February" when Fitch's U.S. CMBS loan delinquency index was 1.28%. "The rate of increase is consistent with Fitch's expectations that loan defaults will increase to at least 3% by year-end 2009," Fitch said.

U.S. commercial real estate loan collateralized debt obligation delinquencies may increase faster than expected this year, according to Fitch Ratings, New York. "With CREL CDO delinquencies increasing 1.3% on average over the last two months, the default rate for year-end 2009 could exceed Fitch's initial base expectation for the life of the transactions if this pace continues," said Fitch senior director Karen Trebach. U.S. CREL CDOs delinquencies increased to 5.4% in February from 3.8% in January, according to Fitch Ratings, New York.

The American Securitization Forum has extended the deadline for responses to a recent request for comment relative to certain portions of its Project on Residential Securitization Transparency and Reporting. The RFC includes updates to the ASF residential mortgage-backed securities disclosure package, the transaction supplement, the data dictionary and the market standards proposals, as well as the RMBS reporting package. "Given numerous requests for additional time to prepare comments, the comment deadline for these revised drafts has been extended until next Tues., March 24," the ASF said. Project RESTART was created as a means of trying to bring investor confidence back to the private-label securitized residential market and restore new issuance through suggested consensus guidelines for standards aimed at increasing the integrity and quality of that market's data.

Anecdotal reports from the field indicate that California's $10,000 state tax credit for new homebuyers has had a positive impact since it went into effect March 1, but sales in January by Golden State builders continued to limp along at a snail's pace. Sales in projects of 10 units or more were 64% below January 2008, according to the monthly report produced for the California Building Industry Association by Hanley Wood Market Intelligence. For the entire month, just 1,355 new houses and condominiums were sold in subdivisions tracked by the Costa Mesa-based HMWI, compared to 3,773 just 12 months earlier. The median price of the units sold fell 11%. According to CBIA president Robert Rivinius, production over the last three years has fallen from 209,000 in 2005 to 65,000 units 2008. Last year's total was the lowest level since 1954 when statewide records were first kept. CBIA says jobs generated by homebuilding fell from about 486,000 to about 123,000 during the period, while the impact the industry has had on the state's economy dropped from almost $68 billion in 2005 to a little over $23 billion in 2008.

The decline in house prices has much further to go because there are so many houses up for sale and more foreclosures are coming on the market, according to David Berson, chief economist at PMI Mortgage Insurance Co. "If we are fortunate, prices are perhaps two-thirds of the way through their decline," Mr. Berson told a joint meeting of Hispanic and Asian Realtors in Washington. "But there is a risk prices are only half way," he said. The former Fannie Mae chief economist said he is "optimistic by nature" and thinks the decline is closer to two-thirds done. He says home sales are already in the process of stabilizing but the decline in home prices will continue into 2010 and before turning up. "In 2010, the average price gain will be zero," Mr. Berson said. "That is good news given the double-digit declines that we have seen over the past two years."

With foreclosures on the rise, the share of Internet inquiries that include the keyword "foreclosure" has jumped in recent weeks, according to HitWise, an online measurement company. The week of Feb. 2 had the highest share, probably because of increased media coverage of the top foreclosure cities, said HitWise research director Heather Dougherty. But queries also jumped in the weeks ending Feb. 28 and March 7 to their second and third highest levels, respectively, in the last three years. Searches for "free foreclosure listings" and "foreclosure listings" topped the list of terms containing the word "foreclosure" for the four weeks ending March 7, which Ms. Dougherty said, "confirms" that many potential buyers are seeking bargains. The downstream sites visited following a keyword search uncovered a number of what HitWise labels as "uncategorized" sites that offer databases. Sites under that label are either too new or too small to be tracked, the Experian subsidiary says. But they nevertheless bear watching as they grow and compete for traffic.

The PMI Group, Walnut Creek, Calif., took a net loss for the fourth quarter of $178.9 million ($2.19 per share), which included a loss from continuing operations of $181.0 million ($2.22 per share). This is a vast improvement over the $1.0 billion ($12.76 per share) loss PMI posted in the fourth quarter 2007. For the full year 2008 PMI lost $928.5 million ($11.40 per share), compared with a loss of $915.3 million ($10.81 per share) in 2007. The big issue that impacted PMI's 2007 annual and fourth results was its investment in FGIC; PMI wrote off that investment in the second quarter of 2008. The company said the loss from continuing operations for the fourth quarter of 2008 was primarily due to losses and loss adjustment expenses in the U.S. mortgage insurance operations and PMI Europe, a decrease in premiums earned and higher net realized investment losses, primarily from the impairment of certain corporate preferred equity securities in U.S. MI operations' investment portfolio. The U.S. MI business had an operating loss of $174.1 million for the fourth quarter and $709.5 million for the year. One year ago, it lost $236.0 million for the quarter and $190.8 million for the year.

The payment option ARM market — once a $300 billion a year business — appears to be nearly dead. According to new figures compiled by the Alternative Products Quarterly Data Report, just one lender, Wachovia Mortgage, owned up to originating POAs in the fourth quarter. Wachovia, which is now part of Wells Fargo & Co., originated just $40 million of the loans, compared to $5.5 billion in Q407. Last year Wachovia said it would no longer offer a "negative amortization" option on its POA product. In general, a POA offers borrowers four different payment plans each month, including negative amortization which allows the consumer to keep his payments low by adding to the debt owed. POAs have been blamed for fueling the housing bubble because the neg am option allowed more consumers to become homebuyers by keeping their payments artificially low. Also, critics of the loan said consumer loan disclosures on the product did not adequately describe the risks involved with neg am. Two years ago 45 lenders actively originated and disclosed their POA volumes. Today, very few lenders offer POAs.

The Department of Housing and Urban Development has made plans to temporarily tighten its rules on FHA cash-out refinancings due to falling house prices and rising defaults on refis. Starting April 1, the loan-to-value ratio on a Federal Housing Administration cash-out refinancing cannot exceed 85% of the appraised value of the one-to-four family property, according to a HUD letter to FHA lenders. HUD had raised the cash-out limit to a 95% LTV ratio from 85% over three years so FHA could be competitive with the conventional refinancing products offered by subprime lenders. "Given the continued deterioration in the housing market and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinancings is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken," FHA commissioner Brian Montgomery says in the mortgagee letter. FHA consultant Bud Carter said a tightening has been under consideration at HUD for several months. "It is not surprising given market conditions. It really just goes back to what they had prior to October 2005," he said. Mr. Carter is with Potomac Partners in Washington.

The NAACP has filed separate class action claims against Wells Fargo Home Mortgage, and HSBC Mortgage, accusing the two of discriminatory lending policies that unfairly placed African American in higher cost subprime loans.The civil rights group claims credit-worthy African Americans were steered into subprime mortgages when they could have qualified for prime loans. Wells Fargo provided mortgage brokers with incentives to steer consumers into subprime loans, according to the NAACP, and did not undertake a "meaningful review" of applications to determine if the applicants would qualify for a prime loan. "It is time for these lenders to be held accountable. We look forward to forcing real change and real relief through this lawsuit," said NAACP president Benjamin Jealous. In a statement, Wells Fargo said, "We intend to vigorously defend these unfounded allegations. We are confident we will prevail." HSBC said it does not comment on pending litigation. "We stand by our fair lending and consumer protection practices," it said. The London-based HSBC acquired Household Finance and its Beneficial Finance subprime affiliate earlier in the decade. Prior to that HSBC was not a subprime lender.

Mortgage loan processing software provider Ellie Mae has introduced a new software program to help mortgage bankers and brokers comply with the new 'Home Valuation Code of Conduct' rules that go into effect May 1.All loans sold to Fannie Mae and Freddie Mac must comply with the new appraisal code that prohibits loan officers and mortgage brokers from selecting appraisers. The Pleasanton, Calif. company says its new HVCC-compliant appraisal services program will allow users to control which staff members can electronically order appraisals and create rules on property location and loan type. The Home Valuation Code of Conduct guidelines will require mortgage professionals to change the way they do business with appraisers, said Ellie Mae's senior vice president, Richard Roof. After May 1, originators who fail to comply with the HVCC may face penalties, the inability to sell loans, or in the case of brokers, be unable to submit their loan applications to wholesalers.

The National Association of Mortgage Brokers has responded angrily to broker-related comments made by JPMorgan chairman and chief executive Jamie Dimon at the U.S. Chamber of Commerce Capital Markets Summit. Mr. Dimon said not shutting Chase's wholesale channel sooner was the worst mistake of his career. In a statement NAMB president Marc Savitt said, "It is disappointing to once again refute senseless attacks on the mortgage brokerage industry based on misinformation. Mr. Dimon's comments clearly reflect his poor understanding of the mortgage industry and the role of the mortgage broker." NAMB said it is urging Mr. Dimon "to recognize that mortgage brokers do not create loan products, do not determine the automated underwriting systems used to qualify borrowers, do not underwrite the loans, and do not approve borrowers for those loans." The JPM chief said broker-originated loans had loss rates that were two- to three-times higher than retail funded loans. The difference, he said, is that retail mortgages were written by sales people who were sitting with the client.

Credit unions in Wisconsin and elsewhere are adding up the costs of the recent failure of Central States Mortgage Corp. of Wauwatosa, and the current tab appears to be $5 million and counting. In the fourth quarter the 25 credit union owners of CSMC charged-off almost $3 million of stock they held in the 25-year-old company, according to call report data submitted to the National Credit Union Administration. In addition, several CUs are taking hits on Central States loans they participated in. The Wisconsin CU League, also an owner, is believed to have charged-off the value of its shares.

Goldman Sachs & Co. is scaling back the lending operations of Senderra Funding, Fort Mills, S.C., in particular its wholesale division, sources told National Mortgage News. A spokesman for Goldman Sachs in New York declined to comment. Goldman acquired Senderra a few years ago when it was known primarily as a subprime wholesaler. Today, Senderra is originating FHA-backed loans, Fannie Mae products and some jumbos. (For the full story see the Monday edition of National Mortgage News.)