Originations

Capital One Financial Corp., McLean, Va., has gotten a thumbs up from two of the rating agencies in how it is treating the option adjustable-rate mortgage portfolio it will acquire in its $520 million purchase of Chevy Chase Bank FSB, Bethesda, Md. Capital One will take a net credit mark of $1.75 billion for potential losses in the loan portfolio. Fitch Ratings, New York, said it believes Capital One "has made the appropriate valuation adjustments to the $11.4 billion loan portfolio, which includes $4.1 billion in option ARMs originated largely through a broker network." A statement from Standard & Poor's noted that it believes "the substantial $1.75 billion in credit marks that Capital One has factored into the price of this acquisition will buffer the firm from future loan credit losses as the gross credit mark equals 33% of the existing Chevy Chase option ARM portfolio." In addition, Capital One has a good track record of integrating institutions into its operations, especially ones with residential mortgage portfolios, S&P said, which added that on a pro forma basis, Capital One's residential mortgage portfolio will total $20.1 billion or 12.8% of total loans, equivalent to its current loan mix.

Credit card giant Capital One Financial Corp., McLean, Va., has agreed to buy Chevy Chase Bank and its B.F. Saul Mortgage unit in a stock transaction valued at $520 million. According to figures compiled by the Quarterly Data Report, the Maryland-based BFSM is the nation's 40th largest lender and 34th largest servicer with $20 billion in housing receivables. No figures were immediately available on the mortgage unit of Capital One. A few years back the card company bought the Long Island-based North Fork Bank and its residential division, Greenpoint Mortgage, a large player in the 'alt-A' market. Capital One eventually closed the unit, booking a large loss on the transaction. BFSM, until recently, funded risky payment option ARMs both nationally and in the Washington, D.C. area where it is based.

In an attempt to spark a housing recovery the Treasury Department is working on a plan that ultimately could lead to a 4.5% 30-year fixed rate loan for consumers. According to combined news reports breaking Thursday morning, Treasury would be the ultimate buyer of mortgage-backed securities that yield 4.5%. Over the past two days 30-year 'A' paper loans were yielding just over 6%. The bonds would be backed by newly originated loans that would be used by homebuyers to purchase new or existing homes. The Department would buy guaranteed MBS from Fannie Mae or Freddie Mac. The loans would meet underwriting criteria of the two GSEs and the Federal Housing Administration. The idea is still in the planning stages and at press time Treasury officials were not commenting about the idea.

Howard Gaines, an attorney and licensed title agent from Delray Beach, Fla., has been convicted of charges relating to his participation in a $10 million mortgage loan scheme to defraud mortgage lenders on properties located in Broward County. Sentencing is scheduled for Feb. 10, 2009. According to the evidence presented at trial, Gaines was a licensed title agent at Your Title Choice in Deerfield Beach, Fla. Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD-1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10 million in loans during 2004, 2005, and 2006, including $5 million in fraudulent mortgages. There were seven who were originally arrested and Gaines' conviction was the sixth conviction in this matter. The following five conspirators have pleaded guilty: Anthony Dehaney, Marcia Mestre, Angela Angela Manalaysay, Beverly Ireland and Donna Patricia Grant. The seventh defendant, Andrea Dehaney, is still pending trial.

Fitch Ratings has placed the ratings of Fidelity National Financial and its title insurance subsidiaries on "rating watch negative" status following Fidelity's proposed acquisition of LandAmerica's largest title subsidiaries. Citing concern about "leverage and capitalization ratios" that will result from the acquisition, Fitch said it will complete a review following the closing of the acquisition and taking into account the capitalization plans for for the subsidiaries. Fidelity National currently carries a "BBB" rating from Fitch, which is just two notches above junk status. Fidelity's title subsidiaries have a financial strength rating of "A-minus."

Fitch Ratings said it will now seek and evaluate third-party loan-level reviews on all residential mortgage pools it is asked to rate in order to better identify poor underwriting practices. The ratings agency said the reviews will be conducted by a "due diligence" company prior to Fitch providing ratings on the transactions. Fitch said an independent company with no ties to the loan originator, the issuer of the notes, or the security underwriter must be used in conducting reviews. Companies conducting reviews also "will need to have the appropriate company and management experience for the type of loans being reviewed and have the procedures and controls, staff experience levels, technology, and tools to adequately conduct and report on the reviews," the ratings agency said.

Integrated Mortgage Solutions of Houston, TX has launched Asset Disposition and Management Services, a new division created to further expand the company's ability to serve as a one-stop-shop loss mitigation center, ADAM, as executives call it, will help reduce short sale costs and increase process efficiency in times when lenders face rising real estate owned inventory costs. The goal is to list a property as sold and closed within 90 days. ADAM is an addition to what IMS already offers, such as loss draft, inspections and preservation, hazard claims processing, property repair, loss mitigation and consulting for mortgage servicers dealing with defaulted and damaged properties. "We are excited to offer a service we think is unique in the marketplace," IMS president Cheryl Lang said. "We are licensed to do so in 50 states and that calms a lot of the nerves as far as lawsuits go. We want to be that good neighbor who keeps the borrower in the house and helps avoid foreclosure, which is the best thing for everybody."

Thornburg Mortgage of Santa Fe, once a top ranked jumbo lender, said it will not appeal a decision by the New York Stock Exchange to delist the company. It's expected that Thornburg will be officially kicked off the NYSE before the market opens on this Friday. The company - whose shares trade for about 25 cents compared to a 52-week high of $140 - will trade, instead, on the OTC Bulletin Board or "pink sheets." In a recent interview with National Mortgage News, company CEO Larry Goldstone said TM has "four to five months" to find alternative financing for its $21 billion portfolio. TM no longer funds new loans. In the third quarter the company posted a net profit of $140 million but only because the value of some of its liabilities fell. Mr. Goldstone said TM - which as of September 30 had just 300 delinquent loans - "is seeing a noticeable increase in our defaults." The interview took place in late November. The publicly traded REIT narrowly escaped bankruptcy in April thanks to a new fundraising plan and a renegotiation of its bank lines.

The Federal Housing Administration just completed one of its best years ever in terms of loan originations and the mortgage insurer's auditor expects the surge in FHA originations to continue for several years. FHA endorsed a record 154,240 single-family loans in FY 2008 and it is projected to endorse 280,400 loans in FY 2009 and 331,100 in FY 2010, according to a FY 2008 actuarial review. However, declining house prices are expected to undermine the performance of FY 2008 loans and result in high claims rates. The independent auditor pegged the economic value of the FY 2008 book of business at a negative $3.6 billion over the life of the loans. The auditors also reduced the estimated economic value of the FHA Mutual Mortgage Insurance fund by 39% to $12.9 billion. This reduction, combined with a 29% increase in the number of insured FHA loans, decreased the capital ratio of the MMI fund to 3% from 6.4% in FY 2007. The auditors estimate that loans originated in the current year (FY 2009) will perform better and have a positive $2.4 billion economic value.

Seasonally adjusted refinance applications tracked by the Mortgage Bankers Association skyrocketed in the week ending Nov. 28 by 203% as a result of falling mortgage rates sparked by the Federal Reserve's plan to buy housing government-sponsored enterprises' mortgage-backed securities and debt. "When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they started to rebound," said Orawin Velz, associate vice president of economic forecasting at the MBA. Seasonally adjusted purchases also rose during the week by 28% and the seasonally adjusted Market Composite Index that combines both refis and purchases jumped 112%. On an unadjusted basis, the composite index was up 51.4% compared to the previous week and down 21.9% from a year ago. Refis dominated the market, representing 69% of apps compared to 49.3% the previous week. The seasonally adjusted four-week moving averages for the composite, purchase and refi indices were respectively up 29.7%, 9.5% and 56.1%. In the latest week, conventional purchases jumped 37.4% while government purchases increased by 39.2%. Adjustable-rate mortgage activity decreased to 1.4% of applications from 3.0% the week previous. Average contract interest rates for 30-year fixed rate mortgages, 15-year FRMs and one-year adjustable-rate mortgages with 80% loan-to-value ratios respectively slid to 5.47% from 5.99%, to 5.13% from 5.78% and to 6.61 from 6.87%. Average points, including the origination fee, fell to 1.16 from 1.23 for 30-year FRMs; to 1.28 from 1.29 for 15-year FRMs and to 0.52 from 0.64 for one-year ARMs.

Mortgage Network Inc., Danvers, Mass., has temporarily suspended its wholesale and correspondent originations in order to cope with a federal policy-driven spike in refinance applications that an executive at the company said has strained market-wide warehouse line capacity in the channels. "We still love wholesale and correspondent, it's just the ... lines [are] restricted," executive vice president Brian Koss told National Mortgage News. He said the company is exploring several options to try to address the problem before January. He said the retail arm of the company and the institution as a whole remains sound. "You want to leave your loan with us, we're fine as an institution, we've just had too much capacity," Mr. Koss said. The company, which also does business as MNET Mortgage, will continue to process any loans currently in the pipeline as of Dec. 1. It said loans in a floating status must be locked by Dec. 3 and loans in the pipeline must close and fund no later than Dec. 31.

A Federal Reserve Board study discovered that banks and thrifts made only a small percentage of subprime loans in their Community Reinvestment Act assessment areas and these findings refute critics who claim CRA lending contributed to the subprime crisis. "Only 6% of all higher-priced [subprime] loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas," Fed governor Randall Kroszner said. This evidence does not support the view that CRA contributed in any substantial way to the subprime mortgage crisis, he added. In examining foreclosure data, Fed researchers also discovered that foreclosure filings have increased at a faster pace in middle-income and higher-income areas than in lower-income areas served by CRA lenders.

Fifth Third Bank has named Steven Alonso as executive vice president and head of the company's mortgage and consumer lending lines of business. Mr. Alonso previously was founder, chairman and chief executive officer of Oakstreet Mortgage LLC, Indianapolis. Prior to that he served as president and CEO of Bank One's Consumer Finance Group. At Fifth Third, Mr. Alonso will develop strategy for the mortgage, consumer lending, student loan and collections areas and will work with his direct reports to implement that strategy.

The Treasury Department, to date, has spent $150 billion of taxpayer money investing in preferred shares of 52 different institutions, outgoing secretary Henry Paulson said Monday afternoon. Mr. Paulson noted that hundreds of banks have applied for Troubled Asset Relief Program money, adding that, "we will work through the remaining applications in the coming weeks and months." He said the agency is continuing "to examine potential foreclosure mitigation ideas" that could use TARP funds. He also complemented the FDIC's loan modification effort at IndyMac Bank, Pasadena, Calif., calling it "effective." IndyMac is expected to be sold by the Federal Deposit Insurance Corp. this month. It's anticipated that whichever investor buys IndyMac will continue the loan modification program.

Mortgage delinquencies will not peak until early 2010 after reaching their highest level in decades, according to projections from credit reporting bureau TransUnion. TransUnion, which reported that 3.96% of home loans were 60 or more days delinquent in the third quarter, believes the 60-day delinquency rate will rise to 4.66% in the fourth quarter, up 55% from a year earlier. TransUnion projects that by the fourth quarter of next year, 7.17% of home loans will be at least 60 days past due. Ezra Becker, principal consultant in TransUnion's financial services group, told MortgageWire that lenders should expand collection efforts and add to loss reserves in response to current conditions. But he also said lenders shouldn't overlook the opportunity to make good loans to low risk customers in the current low interest rate market. "For the first time in recent memory, demand for credit outstrips the supply of credit," he said.

The Federal Reserve Board could take further actions to reduce mortgage rates, including purchases of longer-term Treasury and government sponsored enterprise debt, according to Fed chairman Ben Bernanke. He noted that that the response to the Fed's decision to purchase up to $500 billion in Fannie Mae and Freddie Mac mortgage-backed securities and $100 billion in GSE debt over the next few quarters has been positive. "It is encouraging that the announcement of that action was met by a fall in mortgage interest rates," the Fed chief told the Austin (Tex.) Chamber of Commerce. However, he noted that housing markets "remain weak," house prices are falling and an eventual stabilization of the housing market would be a plus for the economy. "The Fed could purchase longer-term Treasury or agency securities in the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand," Mr. Bernanke said.

The Eleventh Federal Home Loan District Cost of Funds Index rose significantly in the latest reported month to a point above 3.0%. The index for October is 3.125%, an increase of more than 35 basis points from September's 2.769%, according to the Federal Home Loan Bank of San Francisco. COFI is known as a lagging indicator, reflecting movement in other interest rates on a three-to-six month delay.

The benchmark 10-year Treasury yield had fallen to record lows and was at 2.83% as of late Monday morning. "The Treasury market continues to move to record low yields as preservation of capital and expectation of deep global recession dominates psychology," according to a Monday morning report by Jefferies & Co.'s fixed income division. Historically, a drop in the 10-year Treasury yield has been indicative of low mortgage rates and a refinancing boom but expectations for these have been muted in the recent environment by generally wider spreads to mortgage product, tight underwriting and illiquidity. The latest Mortgage Bankers Association's application index registered a slight decrease in refinancing but it is a lagging indicator that may not yet have reflected a recent drop in mortgage rates. During the week ended Nov. 21, the index showed refis slightly lower compared to the previous week as well as on a seasonally-adjusted four-week moving average basis. But refis still represented close to half of all applications. Purchases also were down slightly.

With the pace of bank failures quickening, the Federal Deposit Insurance Corp. is going outside the banking community to line up investors to bid on the assets and deposits of failed banks and thrifts. "FDIC recognizes that investors not organized as an FDIC-insured depository institution or holding company may potentially be interested in bidding on a failing institution," according to the agency. The FDIC has designed an expedited application process to get conditional approval for deposit insurance and to get on the FDIC's bidders list. However, investors still have to get preliminary regulatory approval for a bank charter. Applicants should have a business plan that is compliant with the Community Reinvestment Act, readily available capital and an identified management team, the FDIC said. There are 171 institutions on the FDIC's problem bank list with $115.6 billion in assets.

Fannie Mae's use of HomeSaver advances to cure delinquent loans in securitized pools peaked in June and July and two-thirds of the personal loans went to nonprime borrowers, according to a report by the Federal Housing Finance Agency. Fannie launched the HomeSaver program in February and it had made more than 45,000 advances totaling $301 million as of Sept. 30, according to the company's latest financial report. The average size of these unsecured loans is $6,700 and it has helped the mortgage giant fix the loans without purchasing them out of pools and recognizing a loss. From February through August, Fannie made 36,415 HomeSaver advances and 23,177 went to alt-A and subprime borrowers. Fannie made 11,725 advances in June and 10,599 advances in July. Advance activity dropped to 7,914 in August, according to the government-sponsored enterprise regulator.