Originations

At least one sector of the real estate market is doing fairly well. Although the dollar volume of goods and services sold at auction last year declined by almost 1%, gross receipts from real estate increased for the sixth consecutive year, according to the National Auctioneers Association. Revenues from residential real estate sales grew by 1.1% in 2008, while receipts from land and agricultural real estate was up 0.5%, NAA reported. Only the commercial real estate category fell last year, dipping 1.4%. Real estate owned properties were "a major contributor" to the auction business's growth, NAA said. Banks frequently contract professional auctioneers to sell foreclosed properties at auction, as well as refer auctioneers to customers with troubled assets and use them to sell their own foreclosed properties. Headquartered in Overland Park, Kan., the NAA represents some 5,000 auctioneers.

Sales increased a bit in Las Vegas last month, and the number of listings declined. But the average price of houses sold also dipped, according to monthly figures supplied by Robert Jenson, a realty agent who specializes in luxury properties. In February, a total of 20,953 units were listed for sale in the city, a decline of just 19 units from January. Only 2,023 units were sold last month, an increase of 28 units. But the average sales price fell 2.2%, to $179,303, Mr. Jenson reported. Nearly half the units listed for sale were properties that have been foreclosed on by lenders (9,037) while most of the rest were listed as short-sales (7,416). Despite the glut of houses for sale, the number of luxury units priced over $1 million that sold in February increased to eight, from just three the previous month. The average selling price was $1.99 million. Mr. Jenson's data does not include sales by builders.

The yield on the benchmark 10-year Treasury dropped to 2.8% as of noon on March 6 from 3% at mid-week, a sign that mortgage rates could be headed lower soon. The yield moved below its recent range as investors — discouraged by the stock market's current bleak prospects — moved into Treasuries as a safe haven, according to a market update from Jefferies & Company. Also causing investors to flock to Treasuries, boosting prices (which move in the opposite direction from their yields) was a relatively pessimistic employment report. (See related story above.) Meanwhile, Quicken Loans is advertising a 30-year fixed-rate conventional loan at 4.7% if the consumer pays 1.6 in upfront points.

The mortgage insurance division of Genworth Financial lost $368 million in 2008 compared to a $167 million profit the year before as default claims swamped the unit.According to the Quarterly Data Report, Genworth — one of the industry's most conservatively managed MIs — ranks fourth nationwide in terms of policies-in-force with $147 billion. Genworth's shares have been trading under $1 for the past two weeks. Meanwhile, according to a recent report in Reuters, the U.S. Treasury Department has no current plans to give the ailing MI sector an injection of capital using Troubled Asset Relief Program funds. As reported by National Mortgage News, Federal Housing Finance Agency chief James Lockhart is in favor of the MIs receiving a capital injection under TARP.

Wells Fargo & Co., San Francisco, said it originated more mortgage loans in the first two months of this year than it did for all of the fourth quarter last year. The statement appeared in the same release announcing the company was slashing its quarterly common stock dividend from $0.34 per share to $0.05 per share. The move will allow Wells Fargo to retain an additional $5 billion in common equity annually, and chief financial officer Howard Atkins said the company plans to reinvest the money in its businesses "at a time when we can profitably gain market share for the long term." He added mortgage banking was one of the reasons for Wells Fargo's strong operating results in the first two months of the year. "Mortgage originations for the first two months alone were $59 billion, exceeding in two months the exceptionally strong fourth quarter of 2008, and mortgage applications were $107 billion," Mr. Atkins said.

Employment in the loan brokerage sector fell to an eight-year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year-over-year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.

Mortgage bankers funded a meager $273 billion in the fourth quarter — a 45% decline from the same period last year — as the national recession deepened and lenders continued to exit certain loan channels, according to new figures compiled by National Mortgage News and the Quarterly Data Report. For the full year, residential loan production cratered: $1.61 trillion compared to $2.65 trillion in 2007, a 39% plunge in activity. The fourth quarter was the industry's worst showing since the first quarter of 2000 when just $209 billion in loans was originated by non-depositories, banks, thrifts and credit unions. Based on the current "run-rate" industry production could total just $1.092 trillion this year. (For the full story with individual company rankings see the Monday, March 9 edition of National Mortgage News.)

Employment in the loan brokerage sector fell to an eight year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year over year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.

A report from the Federal Reserve Bank of St. Louis suggests that the number of subprime mortgage loans terminated between 2001 and 2006 outweighed the number of estimated first-time homebuyers who sought subprime mortgages. The analysis appears in the March/April issue of Review, the St. Louis Fed's bi-monthly journal of economic and business issues, and was conducted by Yuliya S. Demyanyk, a senior research economist with the Federal Reserve Bank of Cleveland and formerly of the St. Louis Fed. She focused on whether borrowers intended to keep their subprime mortgages long enough to substantiate an increase in homeownership or planned a quick exit strategy at origination, using subprime loans as bridge financing to speculate on house prices — in other words, quickly sell the house for profit after its value increased. Ms. Demyanyk found almost half the loans originated between 2001 and 2006 exited the market either through prepayment or default within the first two years of origination and about 80% did so within three years of origination. "Subprime mortgages were very risky all along," she said. "The extent of their risk, however, was hidden by the rapid appreciation in house prices, allowing termination of the mortgage by refinancing or prepayment. When prepayment became costly — with zero or negative equity in the house increasing the closing costs of refinancing — defaults took their place." The number of defaults in the limited sample of subprime purchase-money mortgages within two years of origination is almost equal to the number of first-time homebuyers who took a subprime mortgage. "If the data for the rest of the market were available," said Ms. Demyanyk, "the number of defaults would no doubt be even greater."

JER Investors Trust Inc., McLean, Va., is making a $150 million public offering of 10,000,000 shares of its class A common stock, a new class of common stock. Each share of class A common stock represents rights equal to those of 15 shares of JER's existing common stock. The company expects to use the net proceeds of the offering primarily to invest in senior investment grade tranches of commercial mortgage-backed securities. It also intends to use approximately $15.7 million of the net proceeds to repurchase all of its outstanding trust preferred securities with an aggregate liquidation amount of $60.0 million. JMP Securities LLC is acting as book-running manager and Friedman, Billings, Ramsey & Co. Inc. is acting as co-manager for the offering.

Fitch Ratings, New York, has downgraded the issuer default rating of the New York-based iStar Financial Inc. in a move driven by continued weakening of iStar's loan portfolio, pressures on liquidity, and the implications of the company potentially entering into a new secured term loan facility in the near future. The IDR was reduced to B- from BB and placed on Rating Watch Negative. For the quarter ended Dec. 31, 2008, iStar recognized approximately $250 million of loan loss provisions and $110 million of corporate loan investment impairments. For full year 2008, iStar recognized over $1 billion of loan loss provisions and nearly $300 million in asset impairments. Non-accrual loans increased from 9% at the end of 2007 to over 27% at the end of last year, and Fitch said it expects things to get worse in 2009. "Continued reduced capital availability in the commercial real estate debt capital markets has decreased the ability of iStar's borrowers to repay loans, as many borrowers historically have refinanced their loans via the secured debt markets or have sold assets. The decreased ability of iStar's borrowers to repay loans reduces the company's ability to meet its own future funding obligations and debt maturities from internally generated cash sources. This reduction in cash sources could result in iStar having a liquidity shortfall in 2009 in the absence of accessing external capital, given the magnitude of iStar's future funding obligations and debt maturities over the next 12 months," Fitch said.

River City Mortgage & Financial, Eagan, Minn., has acquired American Mortgage Corp., a privately held correspondent lender, and plans to begin originating through some of the latter's 12 offices in the Twin Cities area. Former American Mortgage offices that River City plans to begin originating through include Edina, Elk River, Coon Rapids and Eden Prairie. American Mortgage was founded in 1997 and has originated over $2.5 billion in the last 10 years. Its website lists Jim DeWall as owner and chief executive and Wes Kehe as owner and president. River City was founded in 1994 and it has produced over $3 billion in loans, including $1 billion in the last five years. It now has 55 loan officers in six offices.

The average Freddie Mac rate for a 30-year fixed-rate mortgage inched upward during the week ended March 5 when economic indicators included "only scattered, tentative signs of stabilization" in housing. "The Federal Reserve noted in its March 4 regional economic report that residential real estate markets remained in the doldrums in most areas," said Freddie chief economist Frank Nothaft, who noted that benchmark rate-indicative bond yields moved higher during the week in response to the net effect of this and other indicators. The average 30-year FRM rate during the period rose to 5.15% from 5.07% the week before but was down from a year ago when it was 6.03%. The average 15-year FRM rate jumped to 4.72% from 4.68% but was down from a year ago when it was 5.47%. The average rate for a five-year hybrid Treasury-indexed adjustable-rate mortgage inched up to 5.08% from 5.06% but was down from 5.34% a year ago. The average one-year Treasury-indexed ARM rate jumped to 4.86% from 4.81% but was down from 4.94% 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.

A General Motors bankruptcy would have a "materially adverse impact" on GMAC Financial Services, according to the latter company's 10-K filing. That filing, made on Feb. 27, was done before GM made its own 10-K filing on March 5. GM's filing included a statement of the existence of substantial doubt about the automobile maker's ability to continue as a going concern. GM owns 49% of GMACFS, with the rest held by an affiliate of Cerberus Capital Management. "We have substantial credit exposure to GM, and a GM bankruptcy could impact certain of our funding facilities." As of the end of last year, it had $2.5 billion in secured exposure and $1.9 billion in unsecured exposure to GM. GMACFS is the parent of Residential Capital LLC. In the 10-K, GMACFS said that ResCap remains heavily dependent on it for funding and capital support but there is no assurance that the parent would provide such support.

JER Investors Trust Inc., McLean, Va., is making a $150 million public offering of 10,000,000 shares of its class A common stock, a new class of common stock. Each share of class A common stock represents rights equal to those of 15 shares of JER's existing common stock. The company expects to use the net proceeds of the offering primarily to invest in senior investment grade tranches of commercial mortgage-backed securities. It also intends to use approximately $15.7 million of the net proceeds to repurchase all of its outstanding trust preferred securities with an aggregate liquidation amount of $60.0 million. JMP Securities LLC is acting as book-running manager and Friedman, Billings, Ramsey & Co. Inc. is acting as co-manager for the offering.

Fitch Ratings, New York, has downgraded the issuer default rating of the New York-based iStar Financial Inc. in a move driven by continued weakening of iStar's loan portfolio, pressures on liquidity, and the implications of the company potentially entering into a new secured term loan facility in the near future. The IDR was reduced to B- from BB and placed on Rating Watch Negative. For the quarter ended Dec. 31, 2008, iStar recognized approximately $250 million of loan loss provisions and $110 million of corporate loan investment impairments. For full year 2008, iStar recognized over $1 billion of loan loss provisions and nearly $300 million in asset impairments. Non-accrual loans increased from 9% at the end of 2007 to over 27% at the end of last year, and Fitch said it expects things to get worse in 2009. "Continued reduced capital availability in the commercial real estate debt capital markets has decreased the ability of iStar's borrowers to repay loans, as many borrowers historically have refinanced their loans via the secured debt markets or have sold assets. The decreased ability of iStar's borrowers to repay loans reduces the company's ability to meet its own future funding obligations and debt maturities from internally generated cash sources. This reduction in cash sources could result in iStar having a liquidity shortfall in 2009 in the absence of accessing external capital, given the magnitude of iStar's future funding obligations and debt maturities over the next 12 months," Fitch said.

River City Mortgage & Financial, Eagan, Minn., has acquired American Mortgage Corp., a privately held correspondent lender, and plans to begin originating through some of the latter's 12 offices in the Twin Cities area. Former American Mortgage offices that River City plans to begin originating through include Edina, Elk River, Coon Rapids and Eden Prairie. American Mortgage was founded in 1997 and has originated over $2.5 billion in the last 10 years. Its website lists Jim DeWall as owner and chief executive and Wes Kehe as owner and president. River City was founded in 1994 and it has produced over $3 billion in loans, including $1 billion in the last five years. It now has 55 loan officers in six offices.

First Bank of Beverly Hills (Calif.) will shift the focus of its asset portfolio from real estate loans and securities to a more diversified mix of mortgages and loans to non-real estate business, if the transaction between its parent company, Beverly Hills Bancorp Inc., and Orchard First Source Asset Management LLC is completed. OFS is a privately owned company that provides senior secured financing to middle market and industrial companies. Under the terms of the deal, it will receive an 80% equity stake in Beverly Hills Bancorp. OFS Funding LLC will be merged into First Bank. The transaction is intended to satisfy the terms of a cease and desist order issued against First Bank by the Federal Deposit Insurance Corp. and the California Department of Financial Institutions. Another change to First Bank will be the creation of a Small Business Administration lending program to loan to Southern California businesses. Beverly Hills Bancorp's stock is trading on the pink sheets. During the afternoon of March 3, when the deal was announced, its price rose from $0.03 per share to $0.15 per share.

The members of the Mortgage Insurance Cos. of America started off 2009 the way 2008 ended, at the low end of the spectrum in terms of new business written and in the cure/default ratio. For January 2009, there was $7.1 billion of primary new insurance written, all through the traditional channel. This is compared with $7.2 billion in December 2008 (all but $28 million through the traditional channel) and $22.2 billion in January 2008 ($496 million through the bulk channel). However the numbers for January 2008 include Triad Guaranty, whose data stopped being included in the report in July 2008 and do not include Radian Guaranty, which rejoined the group and started reporting again in December 2008. The number of applications received increased from 61,597 in December to 76,130 in January, while certificates issued increased in the same time frame from 46,605 to 59,569. The amount of primary insurance in force decreased from $952.2 billion in December to $949.3 billion in January. There was a slight improvement in the cure/default ratio, to 48.0%, with 51,093 cures and 106,484 defaults. December's cure/default ratio was 47.3%. New pool risk written in January was $6.8 million, down from $8.1 million in December.

The Market Composite Index, an overall measure of mortgage applications, decreased 12.6% on a seasonally adjusted basis to 649.7 from 743.5 for the week ended Feb. 27, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, the index decreased 2.0% compared with the previous week and 6.7% compared with the same week one year earlier. The Purchase Index decreased 5.6% to 236.4 from 250.5 one week earlier on a seasonally adjusted basis, while the Refinance Index decreased 15.3% to 3063.4 from 3618.0 the week prior. Refinancings decreased to 66.9% of applications from 69.7% the previous week, while adjustable-rate mortgages accounted for 2.3% of applications, up from 1.9% for the previous week, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.14% from 5.07%, with points (including the origination fee) decreasing to 1.05 from 1.25 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.