Originations

Zan Hamilton, former chief executive of the recently defunct Lime Financial Services of Lake Oswego, Ore., is already planning his return to the mortgage industry but isn't giving many hints about which direction he's headed. An official close to Mr. Hamilton said he has put together a "core group" of investors and is working on a "mortgage related" venture. Mr. Hamilton declined to comment. The Credit Suisse-owned Lime announced that it was closing its doors in December and officially shut its office in mid-February. It funded its last subprime loan in 2007 and then switched menus to focus on Fannie Mae and Freddie Mac products. It was in the process of receiving its FHA approvals when Credit Suisse decided to pull the plug on the company.

In yet another sign that there is no end in sight to the nation's housing depression, new home sales fell to a record low annualized rate of 309,000 units in January with the inventory measure swelling to 13.3 months. According to new figures released by the Commerce Department, single-family home sales fell 48.2% compared to the same month in 2008, and 10.2% compared to December. Based on the current sales pace, there is a 13.3 month supply of new homes on the market, the highest measure ever recorded. The median sales price fell to $201,100 in January, a 9.9% drop from December. The poor sales showing comes with the national unemployment rate climbing toward 8% but with mortgages rates — for those with good credit — hovering above their historic lows. Meanwhile, the Federal Reserve this week released figures showing that the nation's commercial banks have an overall delinquency rate of 6.92% on their residential holdings, a record. A year ago the ratio was less than half: 3.31%.

The Mortgage Bankers Association is adamantly opposed to the federal government capping the mortgage interest deduction as well as deductions for mortgage insurance payments and real estate taxes. MBA was reacting to an early read of President Obama's first budget which moves to cap itemized deductions for taxpayers who earn $250,000 a year or more. MBA believes that such a cap, if approved, would affect not only mortgage interest payments but also other itemized deductions. "We do not like a cap of any sort," said Josh Denney, vice president of public policy for MBA. "It would have an adverse impact on a market that's already in trouble." The Obama administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. The deficit would be a record in dollar terms and is the highest as a share of GDP since the 1940s.

A number of real estate-related stocks have been affected by changes to several Standard & Poor's indices that are scheduled to go into effect after the close of trading on March 3. Being removed from the S&P MidCap 400 are Hovnanian Enterprises Inc., Red Bank, N.J., and The PMI Group Inc., Walnut Creek, Calif. At the close of trading on Feb. 24, S&P said, "Hovnanian and PMI Group had market capitalizations of $74 million and $64 million, respectively, whereas the minimum market cap needed to be admitted to the S&P MidCap 400 index is currently $750 million." Ventas, a health care real estate investment trust headquartered in Chicago, will be added to the S&P 500 in the GICS Specialized REITs Sub-Industry index. Trustmark Corp., a Jackson, Miss.-based financial services company, will replace Hormel Foods in the S&P MidCap 400, which is being moved to the S&P 500. Anchor BanCorp Wisconsin Inc., Madison, Wis., is being dropped from the S&P SmallCap 600, because it had a $19 million market cap, whereas the minimum market cap for this index is currently $200 million.

Virgin Money USA, Waltham, Mass., is marketing its traditional and social mortgage lending through "Uncrunch America," a campaign with Lending Club and other personal finance companies aiming to provide viable financing alternatives to consumers who lack them due to today's high credit card rates and tighter bank credit. Virgin Money USA said its social mortgages made between people that know each other often provide greater flexibility and lower rates than a traditional mortgage. It added that it aims to offer both "fair rates" and a "timely closing" when it comes to both these and its traditional mortgages. Personal finance companies also participating in the campaign are OnDeck Capital, Credit Karma, Geezeo and Changewave. Virgin Money is owned by British conglomerate the Virgin Group.

Three former Wall Street executives have formed the Rumson, N.J.-based Loan Value Group, an independent, third-party provider of advisory services aimed at helping clients assess, evaluate and manage residential mortgage risk. The startup company's three principals are former Morgan Stanley executives Howard Hubler, Jason MacRae and Frank Pallotta. Loan Value Group's clients include mortgage and mortgage insurance companies as well as banks, funds and rating agencies. The group plans to operate at least three business lines: data aggregation, which compiles statistics from multiple sources to create a multidimensional portfolio profile; research, which focuses on identifying the main drivers of default and performance through analysis and statistical modeling; and advisory services, which are aimed at helping clients drive present value with loan modification and optimization strategies.

Waves of commercial mortgage-backed securities downgrades are following in the wake of Moody's Investors Service's review of large loan and single borrower U.S. CMBS ratings, in which the rating agency found the current economic recession is hurting cash flows and likely to lead to a marked increase in term defaults. "Due to the current economic recession, Moody's expects a significant overall decline in future property cash flows as a result of a higher incidence of tenant defaults and bankruptcies and a sharp decline in lease renewal rates," the rating agency said. "This drop in cash flows is likely to lead to a marked increase in term defaults on commercial mortgage loans particularly for those loans that were underwritten with significant upside at a peak point in the real estate cycle and valued using historically low capitalization rates."

Mortgage applications tracked by the Mortgage Bankers Association during the week ended Feb. 20 dropped 15.1% from the previous week, as refinances gave back some recent gains. The 19.1% drop in the refi index that contributed to the larger decrease "partly erased an unexpectedly large (64%) pickup a week earlier" during the President's Day holiday-shortened week, according to Barclays Capital researchers. The researchers said seasonally purchase applications, which were down 2.6% week-to-week and have so far "failed to react to ... low mortgage rates," might reflect "prospective buyers ... reluctant to enter a declining market in advance of government action to revive the housing sector." Also noted by the MBA was a 22.6% unadjusted decline in overall apps for the week and a 9.8% unadjusted increase in apps overall during the same week a year ago. The four-week moving average for the seasonally adjusted index is up 0.4%. The conventional purchase index slid 4.4% week-to-week, while the Federal Housing Administration product dominated government purchase index inched down by 0.8%. Refinance market share dropped to 69.7% of total apps from 74.2% the previous week and adjustable-rate mortgage share of activity inched up to 1.9% from 1.7%. Average contract interest rates and points (including the origination fee) as tracked by the MBA during the period were as follows: 5.07%, up from 4.99%, for 30-year fixed-rate mortgages, with points decreasing to 1.25 from 1.37; 4.71%, up from 4.66% for 15-year FRMs, with points dropped to 1.25 from 1.37; and 6.13%, up from 6.10% for one-year ARMs, with points declining to 0.21 from 0.23.

Freddie Mac saw a spike in delinquencies in the month of January along with lackluster issuance of mortgage-backed securities and portfolio activity. The mortgage giant said its serious delinquency rate shot up 26 basis points since December to 1.98%. In January 2008, the percentage of loans 90 days for more past due was 0.71%. Meanwhile, the secondary market agency issued $16.3 billion in MBS, up slightly from $15.8 billion in December. Ginnie Mae issued $26.5 billion in single-family MBS in January. Freddie also said the size of its mortgage portfolio declined slightly to $798.9 billion. The Treasury Department recently doubled its financial backing of Freddie to $200 billion to increase market confidence in the government-sponsored enterprise, which is expected to report a large loss for the fourth quarter. Treasury also increased the GSE's portfolio limit by $50 billion to $900 billion.

Single-family existing home sales fell 4.7% in January from the previous month, but Realtors are optimistic the economic stimulus package passed by Congress will boost home sales this year. National Association of Realtors found that sales of previously owned homes fell from a seasonally adjusted annual rate of 4.25 million in December to 4.05 million in January. NAR economists estimate the stimulus package, which includes an $8,000 first-time homebuyer tax credit and higher loan limits, along with lower mortgage rates, will result in 900,000 additional sales this year. Meanwhile, the median single-family sales price was $169,900 in January, down 13.8% from a year ago. A preliminary analysis by NAR suggests that house prices in traditional sales are holding up better the distressed sales involving foreclosures and short sales. However, Wellesley College professor Karl Case estimates 1 million homes were sold in auctions last year, which is one reason Standard & Poor's Case-Shiller Housing Price Index has registered steeper price declines than other indexes. In addition, the auctions were heavily concentrated in the hardest-hit states - Arizona, Florida, California and Nevada. Auctions comprised 54% of sales in those four states, Mr. Case said.

Gov. Arnold Schwarzenegger has reportedly signed into law a 90-day moratorium on California home foreclosures — but the measure carries certain exemptions for servicers. According to a report in The Orange County Register, state regulators can grant loan servicers and lenders exemptions, if they have a mortgage modification program in place that meets certain criteria. The measure covers owner-occupied homes and first mortgages originated between 2003 and 2007. The loan mod exemptions cover programs that defer a portion of the principal, lower interest rates for at least five years, or extend loan terms. Sen. Ellen Corbett, D-San Leandro, introduced the moratorium language as an add-on to the California budget package.

Buyers of new homes in California will be eligible for as much as a $10,000 credit on their state tax returns under a bill that is expected to be signed by Gov. Arnold Schwarzenegger. "The measure, which has cleared both the state's General Assembly and Senate, establishes a tax credit of 5% of the purchase price, up to a maximum of $10,000, for anyone who buys a new house between March 1, 2009 and Feb. 28, 2010, or whenever funding is exhausted, whichever comes first. A total of $100 million - the equivalent of 10,000 purchases at the maximum credit - has been allocated for the credit. A first-time buyer in the Golden State who closes before Dec. 1 of this year also will qualify for the $8,000 federal tax credit enacted earlier this month by Congress as part of the most recent economic stimulus package, for a combined benefit of up to $18,000. California's homebuilders say the state credit, which will be paid out in equal increments of up to $3,333 over three years, will result in a net gain for the state coffers "because building a new home generates some $16,000 in state tax revenue." They also expect it to push reticent prospects off the fence and back into the market, and in the process, jumpstart a homebuilding industry that recently has built the fewest housing units since records started being kept in the early 1950s. Taxpayers must repay the credit if they do not live in the home as their principal residence for at least two years.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high ranking Republicans on the House Judiciary and Financial Services Committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage-backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.

In their fight to stop bankruptcy cramdowns, financial services groups can no longer count on the support of the Realtors and homebuilders as the House prepares to vote on a housing bill that would allow bankruptcy judges to reduce or cram down the principal amount of residential mortgages. The National Association of Realtors is supporting passage of the bill (H.R. 1106) because it enhances the FHA Hope for Homeowners program that allows certain troubled borrowers to refinance and provides legal protections for servicers that engaged in loan modifications. The National Association of Home Builders recently changed its position on bankruptcy cramdowns. And the trade group is willing to accept a temporary change in the bankruptcy code to facilitate loan modifications. Meanwhile, the House is slated to vote Thursday (Feb. 26) on the housing bill and financial services lobbyists are working to narrow the negative effects of the bankruptcy provisions.

JPMorgan Chase has decided to close its warehouse lending division and is giving its non-bank customers just a few months to secure new lines. Meanwhile, mortgage advisors close to the warehouse issue say at least one more warehouse provider, a large regional bank, is seriously considering exiting the warehouse arena. Late on Feb. 24 a spokesman for JPM confirmed to National Mortgage News that the bank's warehouse business - bought from Washington Mutual last Spring - would be shuttered. Eight non-banks currently have lines of credit with JPM. (WaMu was sold to JPM in the fall with government assistance.) One advisor who has been tracking the warehouse issue, said he is not sure how large a player JPM is in terms of commitments but added, "This cannot help the industry." Earlier this year JPM began winding down its wholesale/broker division. Non-depository residential lenders that depend on warehouse credit are facing a funding crisis because so many banks and Wall Street firms have closed their warehouse divisions or scaled back credit. According to National Mortgage News there are about 10 banks or thrifts that are still active in warehouse lending compared to roughly 30 two years ago.

JPMorgan Chase has decided to close its warehouse lending division and is giving its eight current customers a few months to secure new lines. Late on Tuesday a spokesman for JPM confirmed to National Mortgage News that the business — bought from Washington Mutual last spring — would be shuttered. (WaMu was sold to JPM in the fall with government assistance.) One advisor who's been tracking the warehouse issue, said he is not sure how large a player JPM is in terms of commitments but added, "This cannot help the industry." Earlier this year JPM began winding down its wholesale/broker division. Non-depository residential lenders that depend on warehouse credit are facing a funding crisis because so many banks and Wall Street firms have closed their warehouse divisions or scaled back credit. According to National Mortgage News there are about 10 banks or thrifts that are still active in warehouse lending compared to roughly 30 two years ago.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high-ranking Republicans on the House Judiciary and Financial Services committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.

JER Investors Trust Inc., a real estate investment trust headquartered in McLean, Va., has received written notice from the New York Stock Exchange that it is not in compliance with continued listing standards. However, the firm added it already has taken action that should put it back in good standing. Under NYSE rules, JRT common stock is required to maintain a minimum average closing price of $1.00 per share over a consecutive 30 trading day period. Once it receives the notice, JRT has 10 business days to notify the NYSE on how it plans to cure the problem; otherwise the common stock would be subject to suspension or delisting. On Feb. 23, 2009, JRT notified the NYSE that it intended to cure the price deficiency by effecting a 1-for-10 reverse stock split, which was announced in a press release dated Feb. 13, 2009 and became effective on Feb. 20, 2009. The per share price of JRT common stock at market close on Feb. 23, 2009 was $2.68. The determination as to JRT's restored compliance with the continued listing standards will be made by the NYSE.

After earning a profit in the third quarter, Radian Guaranty Inc., Philadelphia, lost $250.4 million in the fourth quarter, an improvement over last year's 4Q loss of $721 million. For all of 2008 the insurer lost $410.6 million ($5.12 per share), versus a loss of $1.3 billion ($16.22 per share) in 2007. In the fourth quarter Radian's mortgage insurance business posted a net loss of $77.0 million, compared to a loss of $336.6 million in the same period one year prior. For the year, the mortgage insurance business lost $784.7 million compared to $695.4 million in 2007. In the fourth quarter Radian wrote $5 billion of primary new insurance, most of it through its flow channel. In the same quarter of 2007, it wrote $13.6 billion of new insurance, $10.4 billion of which was flow. For all of 2008 it wrote $32.5 billion in new MI, compared to $57.1 billion the year before.

The loan-to-value limit on mortgages that Fannie Mae and Freddie Mac can refinance under the President's foreclosure rescue plan could go higher than 105%, according to an industry veteran who has been advising the Obama Administration on the issue. Stressing that he was speaking for himself and not the White House, William Longbrake, a member of the board at First Financial Northwest, Renton, Wash., said it's "entirely possible" the ceiling could rise above 105% once the government-sponsored enterprises determine the procedures they will follow regarding refinancing underwater loans. Last week, James Lockhart, director of the Federal Housing Finance Agency, said the line was drawn at 105 so the new loans could still be securitized. According to the government, about 75% of the mortgages with LTVs above 80% of current value that the GSEs own or guarantee fit under that cap. Mr. Lockhart said his team did not want to push the lid any higher because of capacity issues. But mortgage professionals said the artificially low LTV limit won't help borrowers in California, Nevada and other markets where values have sagged the most. Mr. Longbrake, who has worked at the FDIC and most recently at WaMu, made his remarks at the National Association of Mortgage Brokers Legislative and Regulatory Conference in Washington.