Originations

A lawsuit filed by the National Association of Home Builders to block implementation of a RESPA rule has been put on hold while the Department of Housing and Urban Development reconsiders its position on prohibiting builders from tying price discounts to the use of their affiliated mortgage companies."All aspects of the litigation are put on hold until HUD completes its renewed public comment process," a NAHB spokeswoman said. A U.S district court judge was scheduled to hear arguments April 3 in NAHB's suit to overturn the new "required use" provision in the Real Estate Settlement Procedures Act rule that the Bush administration issued shortly after the November elections. On March 6, HUD said it will delay the implementation date until July 16, while it solicits public comment on whether to "withdraw" the required use rule. "Proposing to withdraw this rule is the right thing to do so that home builders can offer consumers the best possible deal on the purchase of a new home. We are hopeful that HUD will do what is right for consumers and take final action to strike the rule later this year," NAHB chairman John Robson said.

The nation's remaining private mortgage insurance companies will need at least $4 billion of new capital to maintain a 15-to-1 risk capital level, according to a new white paper from Keefe, Bruyette & Woods. This total — which could grow to $6.6 billion if cumulative losses are 10% worse than analysts' projections — does not take into account needing additional capital for increasing the amount of business being written. "In the event the government decided to inject capital into the MI industry, the level would likely need to be above what we have in our matrix, because the government's goal would not just be industry stabilization from a loss perspective, but industry utilization as a method for helping more borrowers either refinance or purchase new homes," the report says. KBW analysts Nathaniel Otis and William Clark added that if the GSEs continue to operate in the future as they do now, mortgage insurers would not become obsolete. But they note: "there is also the possibility that the future structure of the GSEs will be completely different than exists today, which could threaten the need for a private mortgage insurance industry," KBW says.

The PMI Group, the nation's second largest mortgage insurer, said it will shutter its contract underwriting unit in mid-April, the first MI to pull the plug on this once lucrative side business.PMI said the move is part of its strategic plan to focus on its core mortgage insurance business. "Contract underwriting services are labor-intensive and require a commitment of resources and capital that we believe is better used elsewhere to serve our customers," said David Katkov, executive vice president and chief business officer of PMI. In years past lenders that did not have in-house underwriters (or if their in-house underwriters were busy) turned to the MIs to pick up the slack. Calls to the other mortgage insurers to see if they are considering a similar move were not returned at press time.

Freddie Mac servicers will only have to pay a 25 basis point "delivery" fee when refinancing loans under the new "Home Affordable Refinance" program mandated by the Treasury Department."We have waived all the delivery fees with the one minor exception — the across-the-board market conditions fee," said Freddie spokesman Brad German. Freddie charges the 25 bp market conditions fee on all loans it purchases from lenders. Fannie Mae has similar 25 bp fee. Fannie has not waived its delivery fees for Home Affordable refinancings. However, the GSE will allow borrowers to roll the closing costs into the new loan. They can also shop around for the best refinancing deal offered by Fannie seller/servicers. Freddie allows borrowers to roll $2,500 of closing costs into new loan, but only if they refinance through their current servicer.

The New York Federal Reserve Bank ramped up its purchase of GSE mortgage-backed securities the past two weeks due to an increase in refinancings and agency issuance of MBS.MBS issuance by Fannie Mae, Freddie Mac and Ginnie Mae increased to $97 billion in February, compared to $61 billion in January. A new Credit Suisse report says issuance could reach $130 billion in March. "The Fed's purchases of agency MBS have been very effective in lowering rates, improving liquidity in the market and spurring refis," said CS mortgage strategist Mahesh Swaminathan. From February 26 through March 11, the New York Fed purchased $57.2 billion in agency MBS compared to $44.9 billion for previous two-week period. Meanwhile, Treasury said it purchased $12.7 billion in Fannie and Freddie MBS in February, down from $22.6 billion in January.

Bank of America's top mortgage executive, Barbara Desoer, says the depository will remain in warehouse finance, even though many of its competitors are leaving the niche.In an interview with National Mortgage News, Ms. Desoer said BoA likes the warehouse lending business, has no plans to exit, but also is in no hurry to grow its current business either. "We're getting lots of inquiries about warehouse," she said, "but we're not going to bolster it. We'll do it for the right kind of clients." Scott Stern, president of the Lenders One mortgage banking alliance said BoA's Countrywide unit has expanded credit to some of its existing customers. "One member told us Countrywide saved their life," he said.

The National Association of Mortgage Brokers has responded angrily to 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. NAMB president Marc Savitt responded in a statement "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 urges 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 — Wall Street investment banks 'who are now out of business' did that." Mr. Dimon said the broker-originated product had two-to-three times the loss rates of the retail originations. The difference, he implied, is that the retail product was written by sales people who were sitting with the client.

Kara McIntosh of Bethesda, Maryland, pleaded guilty to mail fraud related to the fraudulent purchase of properties in Maryland and Washington, D.C. using false mortgage documents. According to the plea agreement, McIntosh, Timothy Reed and others recruited straw buyers to purchase houses. McIntosh knew the straw purchasers were not planning to live in the properties and did not qualify for the mortgages. Some of the straw buyers purchased multiple properties at the same time. To enable straw buyers to purchase the properties, McIntosh was paid to prepare fraudulent mortgage applications, which misrepresented the straw buyers' income and assets. McIntosh also received part of the fraudulently obtained mortgage funds. For example, at one closing, McIntosh falsely claimed $109,600 for "renovations" that her company purportedly performed. No such renovations ever occurred. Beginning in 2006, this scheme involved fraudulent loans worth more than $19 million. More than 10 individuals and banks were harmed. The loss amount foreseeable to McIntosh is between $2.5 million and $7 million. Many of the purchased properties have been foreclosed upon. U.S. District Judge J. Frederick Motz has not yet scheduled her sentencing. Her co-conspirator, Reed, pleaded guilty on Feb. 10 to the same offense. No date has been scheduled for his sentencing. To date, four defendants have pleaded guilty to their participation in this scheme.

Former loan officer Stefan M. Guerra of Lee's Summit, Missouri, and two others pleaded guilty in separate appearances before U.S. Chief District Judge Fernando J. Gaitan to charges related to part of a mortgage fraud scheme. From June 2005 to May 2007, buyers purchased the homes at inflated prices, obtaining mortgages by providing false information to lenders, then kept the extra proceeds. Guerra purchased one property and acted as broker on 11 others. The mortgages on the 12 properties totaled more than $5 million. Two Olathe, Kansas, men who also plead guilty in charges connected to the scheme — Leon T. Jones and Daryle A. Edwards — each purchased a Lee's Summit, Missouri, property as part of the conspiracy and made material misrepresentations upon which the lender relied in making the mortgages. In addition, from the purchase of one property — unbeknownst to the lender — Jones received $50,000. Edwards used a false Social Security number, address and employment and falsely claimed that he would occupy one property. Edwards also made false representations regarding the use of loan proceeds and received a $76,600 check payable to a construction company he owned, which was not disclosed to the mortgage lender or to the title company. Sentencing has not yet been scheduled.

The originators of subprime mortgages and securitizers would have to retain an interest in any securities sold to investors under a subprime lending bill House Financial Services Committee chairman Barney Frank, D-Mass., is drafting. "We are going to have originator liability," the chairman told a Washington meeting of the National Community Reinvestment Coalition. Rep. Frank said the originator will be in the first loss position and the issuer of the mortgage-backed security would be the "next one in line." The percentages for these loss positions have not been determined yet, he told reporters. He also told NCRC members the subprime lending bill will "toughen up the liability on the securitizer. We are going to put more penalties on the person who sells it." The chairman expects his committee will pass the subprime lending bill in April. Later this year when the committee takes up regulatory reform, Rep. Frank wants impose similar originator/securitizer liability on all MBS and asset-backed securities.

The weakening economy and continued credit crunch contributed to increases in commercial/multifamily mortgage delinquencies during the fourth quarter of 2008, according to a report from the Mortgage Bankers Association. "As expected, the weakening economy continues to take a toll on the performance of commercial and multifamily mortgages," said Jamie Woodwell, vice president of commercial real estate research. "But commercial and multifamily mortgages are actually performing better than just about every other type of loan. Of more than 35,000 commercial/multifamily mortgages held by life insurance companies, only 33 loans were delinquent at the end of 2008, and commercial/multifamily mortgages ended 2008 as some of the best performing loans held by commercial banks and thrifts." In addition to the Commercial/Multifamily Delinquency Report, the MBA released a research data note reviewing the performance of commercial/multifamily mortgages held by banks and thrifts. The note finds that commercial mortgages and multifamily mortgages are the best performing loans, ranking lowest among bank loans in terms of charge-off rates, second and third lowest in terms of 30-day plus delinquency rates and second and third lowest in terms of increases in delinquency rates between the third and fourth quarter. Between the third and fourth quarters, the 30-day plus delinquency rate on loans held in commercial mortgage-backed securities rose 0.54 percentage points to 1.17%. The 60-day plus delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.14 percentage points to 0.30%. The 90-day plus delinquency rate on multifamily loans held or insured by Freddie Mac stayed the same at 0.01%. The 90-day plus delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.24 percentage points to 1.62%.

The Federal Reserve Board may place restrictions on yield spread premiums because it is too difficult to explain to consumers how they are used to compensate mortgage brokers. The Fed's director of consumer affairs Sandra Braunstein told a House panel that YSPs are a very complex concept and the Fed's attempt at YSP disclosures has not worked well under consumer testing. "We are considering other options — restrictions on yield spread premiums and potentially bans on YSPs," Ms. Braunstein testified. "Everything is on the table," she added. Officials at the National Association of Mortgage Brokers doubt the Fed will ban YSPs. "If they are going to ban yield spread premiums, they need to ban any indirect compensation received by any person in the mortgage distribution channel," said NAMB executive vice president Roy DeLoach. The Fed is expected to issue a proposed rule this summer to improve its Truth in Lending Act mortgage disclosures and address the YSP issue.

The average rate tracked by Freddie Mac for a 30-year fixed rate mortgage during the week ended March 12 has dropped to 5.03% from 5.15% the previous week, giving many existing homeowners with outstanding loans what Freddie chief economist Frank Nothaft calls "a strong incentive to try and refinance." He cited Bureau of Economic Analysis statistics that show the effective mortgage rates for loans outstanding in the fourth quarter of 2008 was roughly 6.2% "or almost 1.2 percentage points above this week's average rate" and also noted that the 30-year FRM rate "remains very close to January's all-time recorded low of 4.96%." Mr. Nothaft said rates "had room to ease this week following news of a weaker jobs market." The average 15-year FRM rate fell to 4.64% from 4.72% a week ago and from 5.60% a year ago, the average rate on a five-year Treasury-indexed hybrid adjustable-rate mortgage dropped to 4.99% from 5.08% the previous week and from 5.58% last year, and the average one-year Treasury-indexed ARM rate declined to 4.80% from 4.86% a week ago and 5.14% a year ago. Average points were as follows: 0.7 for 30- and 15-year FRMs, 0.6 for five-year Treasury-indexed hybrids, and 0.5 for one-year Treasury indexed ARMs.

Bank of America, within 30 days, will make a final decision on the fate of Merrill Lynch's far flung mortgage units, which include two large subprime servicing companies, and a Jacksonville, Fla.-based division that caters to Merrill's wealthy brokerage customers. In an interview with National Mortgage News on March 12, BoA mortgage chief Barbara Desoer said "we're in the midst of making an assessment" but offered no guidance on what, exactly, the bank would do with the units. BoA — which took control of Merrill earlier this year — already owns a large servicing operation that caters to subprime customers through its ownership of Countrywide Home Loans. Merrill's subprime servicing businesses include Home Loan Services of Pittsburgh, and Wilshire Credit, Beaverton, Ore. Meanwhile, Ms. Desoer said BoA is experiencing "significantly greater" residential loan volumes in the first quarter than in the fourth but offered no guidance on fundings. According to the Quarterly Data Report, BoA funded $49.9 billion in the fourth quarter of 2008, ranking a close second to Wells Fargo & Co.

PNC Bank has decided to pull the plug on National City's warehouse lending operation, giving non-banks that borrowed from the unit 12 to 18 months to find new lenders, National Mortgage News has learned. At press time a spokesman for the Pittsburgh-based PNC confirmed that the bank was indeed exiting the warehouse sector but would not comment on a time frame or how many jobs will be lost at NatCity's unit. (PNC bought the Cleveland-based bank earlier this year.) According to exclusive survey figures compiled by NMN, National City ranks second, nationwide, in terms of warehouse commitments to non-bank mortgage lenders. At year-end NatCity's warehouse group had agreed (or committed) to lend $2.2 billion to non-bank mortgage firms. "This is really going to hurt," said one advisor who works on warehouse issues. "NatCity is a big provider." The advisor, who requested his name not be used, said five non-bank borrowers received word of the pull out today. At year-end the largest warehouse provider, in terms of commitments, was Colonial Bancgroup, Montgomery, Ala. In trading Wednesday Colonial's shares ended at 36 cents. The depository has applied for government backing under the Troubled Asset Relief Program. A few weeks ago JPMorgan Chase exited the warehouse lending arena.

Guaranty Bank, Dallas, one of the nation's largest warehouse lenders to non-banks, is reportedly telling customers that it will not renew their lines at the termination date, National Mortgage News has learned.At press time Guaranty's warehouse chief Jim Clapp had not returned a telephone call about the matter. One warehouse advisor told NMN that several of his clients were told by the bank that they were exiting the business. Scott Stern of the Lender's One cooperative said he has heard talk about Guaranty leaving the warehouse sector for weeks, calling it "bad news — as bad as National City's decision or worse." As reported by NMN on this website, PNC, NatCity's new owner, is exiting warehouse as well. (See related story.) According to NMN, NatCity ranks second in warehouse commitments, Guaranty third.

MGIC Investment Corp., the nation's largest mortgage insurer, said it would defer by 10 years an interest payment on $390 million worth of subordinated debentures, igniting a steep selloff in its stock during the morning of March 12. Originally, MGIC was scheduled to make an interest payment on April 1. The convertible debentures carry a yield of 9%. In a new public filing MGIC said, "During this 10-year deferral period interest on the debentures will not be due and payable but will continue to accrue and compound semi-annually to the extent permitted by applicable law at an annual rate of 9%." The payment delay was cited by Fitch Ratings, which promptly placed the ratings of the MI and its parent on its "Rating Watch Negative" list. However, Fitch noted that MGIC's liquidity remains "adequate to meet intermediate term needs." It noted that the company has $394 million of cash which mitigates "the risk of breaching certain covenants on the company's $200 million bank line." At midday on March 12, MGIC shares were trading down 37% to $0.78. Its 52-week high is $15.

Freddie Mac posted a $23.9 billion loss in the fourth quarter, noting that its regulator has filed a request with the U.S. Treasury for $30.8 billion in new funding to maintain the GSE's net worth position above zero. For the full year, Freddie lost a stunning $50.8 billion, a record for the company which has been operating under a federal conservatorship since last summer. Two weeks ago Freddie's fellow GSE, Fannie Mae — also a ward of the government — reported a 4Q net loss of $25.2 billion and full year loss of $58.7 billion. Freddie's new CEO John Koskinen blamed the quarterly loss on mark-to-market accounting adjustments of $13.3 billion, and problems in its derivatives portfolio, among other items. The mortgage investing giant also cited credit-related charges on its residential portfolio. The firm cited rising delinquencies, weak labor markets, and "steeper" declines in home prices. Freddie and Fannie together invested in well over $200 billion in subprime-related securities during the height of the nonprime boom.

Freddie Mac posted a $23.9 billion loss in the fourth quarter, noting that its regulator has filed a request with the U.S. Treasury for $30.8 billion in new funding to maintain the GSE's net worth position above zero. For the full year, Freddie lost a stunning $50.8 billion, a record for the company which has been operating under a federal conservatorship since early January. Two weeks ago Freddie's fellow GSE, Fannie Mae -- also a ward of the government -- reported a 4Q net loss of $25.2 billion and full year loss of $58.7 billion. Freddie's new CEO John Koskinen blamed the quarterly loss on mark-to-market accounting adjustments of $13.3 billion, and problems in its derivatives portfolio, among other items. The mortgage investing giant also cited credit related charges on its residential portfolio. The firm cited rising delinquencies, weak labor markets, and "steeper" declines in home prices. Freddie and Fannie together invested well over $200 billion in subprime-related securities during the height of the nonprime boom.

PNC Bank has decided to pull the plug on National City's warehouse lending operation, giving non-banks that borrowed from the unit 12 to 18 months to find new lenders, National Mortgage News has learned.At press time a spokesman for the Pittsburgh-based PNC confirmed that the bank was indeed exiting the warehouse sector but would not comment on a time frame or how many jobs will be lost at NatCity's unit. (PNC bought the Cleveland-based bank earlier this year.) According to exclusive survey figures compiled by NMN, National City ranks second, nationwide, in terms of warehouse commitments to non-bank mortgage lenders. At year-end NatCity's warehouse group had agreed (or committed) to lend $2.2 billion to non-bank mortgage firms. "This is really going to hurt," said one advisor who works on warehouse issues. "NatCity is a big provider." The advisor, who requested his name not be used, said five non-bank borrowers received word of the pull out today. At year end the largest warehouse provider, in terms of commitments, was Colonial Bancgroup, Montgomery, Ala. In trading Wednesday Colonial's shares ended at 36 cents. The depository has applied for government backing under the Troubled Asset Relief Program. A few weeks ago JPMorgan Chase exited the warehouse lending arena.