Originations

The Treasury Department has provided Freddie Mac with a $13.8 billion infusion to wipe out a capital deficit and keep the government sponsored enterprise afloat. In exchange for this infusion, the mortgage giant issued $13.8 billion in senior preferred stock to Treasury. Freddie reported a $25.3 billion loss for the third quarter and a $13.8 billion capital deficit, which triggered Treasury's response. Treasury officials pledged to prevent Freddie and Fannie Mae from operating with negative net worth when the GSEs where placed in conservatorships on Sept. 7. Under separate senior preferred stock purchase agreements, Treasury agreed to provide Freddie and Fannie each with up to $100 billion in net worth assistance. Fannie reported a $29 billion loss in the third quarter and revealed its net worth had dropped to $9.4 billion as of Sept. 30. The Fannie executives warned in their quarterly securities filing that the GSE may have negative net worth by the end of the fourth quarter if "housing and financial market trends continue to worsen and we have a significant loss in the fourth quarter of 2008."

Sales of new homes fell 5.3% in October to the lowest level since 1991 and homebuilders don't expect a turnaround unless Congress provides more incentives to stimulate home sales. The U.S. Census Bureau saw sales of new single-family homes fall from a seasonally adjusted annual rate of 457,000 in September to 433,000 in October. The National Association of Home Builders is forecasting that new home sales will turn up in the first or second quarter of 2009 if Congress makes the homebuyer tax credit more attractive and enacts an interest rate buy-down program. Even with all the moves by the Treasury Department and Federal Reserve, "I don't think that is quite enough to help turn this market around," said NAHB director of forecasting Bernard Markstein. He noted the inventory of newly constructed homes has declined by 190,000 units since the peak in 2006 to 385,000 in October. "We are making progress," he said, but the current inventory still represents an 11-month supply at the current sales pace. Single-family housing starts won't turn up until the inventory gets down to 300,000, Mr. Markstein said.

Canada's RBC Mortgage Co. has agreed to pay the United States more than $10.7 million to resolve allegations arising under the False Claims Act concerning 219 Federal Housing Administration loans, according to the U.S. Department of Justice. The government had alleged that, between 2001 and 2005, the subsidiary of the Royal Bank of Canada falsified documentation in support of loan applications, violated due diligence underwriting requirements and improperly submitted loans for endorsement by the Department of Housing and Urban Development that were not eligible for FHA insurance. "The settlement reached between RBC and the United States resolves these allegations," the DoJ said. In addition to the settlement, RBC also has agreed to pay $264,000 to resolve administrative claims with respect to 39 federally insured loans, according to the Justice Department.

Fannie Mae issuance of mortgage-backed securities fell to $28.6 billion in October, the lowest level since February 2001, and Ginnie Mae edged out the mortgage giant by issuing $29.2 billion in single-family MBS in the same month. Fannie's monthly activity report shows it purchased $13 billion of its own guaranteed MBS and its mortgage portfolio grew by $15.7 billion to $777.1 billion as of Oct. 31. The government-sponsored enterprise has been hampered by high funding costs in providing more support for the mortgage market. But the Federal Reserve Board's new initiative to purchase GSE debt and MBS should give Fannie a boost in the months ahead and hopefully lower mortgage rates. Meanwhile, the delinquency rate (90 days or more past due) on Fannie guaranteed mortgages rose to 1.72%, up from 1.52% in September and 0.78% in October 2007.

The government-insured share of new mortgage applications continues to grow relative to conventional home loan applications, according to the weekly application survey of the Mortgage Bankers Association. During the month of October, 33% of home loan applications were for government-insured loans, the MBA said. That compares to 10% in October of 2007. The October high water mark for Federal Housing Administration and Veterans Affairs loans is the highest government-loan share of the market seen since 1991. The government share hit a low of 6% in August of 2005.

A new effort by the Treasury Department to revive the market for asset-backed securities could include "non-agency" mortgages, the government said today. Treasury secretary Henry Paulson cautioned that any effort in regard to non-prime would involve "highly rated residential MBS." Treasury said the Federal Reserve Bank of New York will spend up to $200 billion to revive the ABS market. (Treasury is pitching in $20 billion to kick start the program.) The money will be used to finance buyers of ABS through non-recourse loans. Initially, the effort will focus on ABS backed by automobile loans, credit cards, student loans and small business loans. At a press conference Tuesday Mr. Paulson said the effort could be expanded to also include ABS backed by commercial mortgages. Only AAA-rated paper will be considered. The ABS market, according to Treasury, ground to a halt in 3Q with very few deals coming to market.

Seniors will be able to use Federal Housing Administration reverse mortgages in conjunction with the purchase of a new home under new guidelines issued by the Department of Housing and Urban Development. Starting Jan. 1, seniors that want to downsize or move to a new location can use the proceeds from the sale of their home and an FHA Home Equity Conversion Mortgage to purchase a new residence. "Proceeds from sale of their former home can be combined with funds from a reverse mortgage on the new home, allowing the home purchase to be made without any future responsibility of monthly mortgage payments," said Peter Bell, president of the National Reverse Mortgage Lenders Association. This new feature of the FHA HECM program also avoids the expense of taking out a regular mortgage on the new residence and then getting a HECM.

While home prices continue to depreciate at a double-digit level, there seems to be some regional stabilization, according to the latest First American CoreLogic HPI report. "In September nominal home prices declined 11.2% from a year ago and our October early preview data indicates a decline of 10.5%," said Mark Fleming, chief economist for First American CoreLogic. "Home prices have now maintained an annualized depreciation rate of between 10% and 11% for eight months in a row. Thirty-four states experienced annual price declines as of September, but the geographic breadth of the declines seems to have stabilized. Our early estimate of October sales transaction volumes has declined substantially, which is not a surprise given recently released economic data and events in the credit and financial markets." The five areas with the most depreciation between last September and this September are: Oakland-Fremont-Hayward, Calif., down 29.07%; Riverside-San Bernardino-Ontario, Calif., down 28.56%; Los Angeles-Long Beach-Glendale, Calif., down 28.46%; Miami-Miami Beach-Kendall, Fla., down 27.38%; and Las Vegas-Paradise, Nev., down 26.20%. On the other hand, four Texas markets showed price appreciation over the 12-month period: Austin, followed by Houston, San Antonio and Dallas.

Freddie Mac is reducing its delivery fees on jumbo mortgages and is discontinuing purchases of stated-income loans. Freddie is eliminating the extra delivery fees that it charged on fixed-rate purchase and "no cash-out" refinancings jumbo mortgages, beginning Jan. 2, when the maximum loan limit for the government sponsored enterprise is scheduled to drop from $729,750 to $625,000. The GSE also is reducing its delivery fees on fixed-rate, cash-out refinancings of jumbo loans, according to a Freddie Bulletin to seller/servicers. Fannie Mae and Freddie began purchasing jumbo loans earlier this year when Congress the raised the maximum loan limit from $417,000 to $729,750 as part of an economic stimulus bill. Freddie also used the bulletin to tell lenders that is "discontinuing the purchase of all mortgages originated with stated income and stated assets, including Loan Prospector Accept Plus Mortgages."

Freddie Mac, a ward of the government since early fall, bought just $19.27 billion worth of mortgages during October, its worst showing of the year. Meanwhile, the delinquency rate on its single-family portfolio rose to 1.34% in October, a 10% increase in late payments from September. A year ago just 0.54% of its holdings were considered delinquent. Its retained portfolio increased to $763.66 billion, a 4% gain from the pervious month. Compared to the same month last year, its portfolio has increased 9%. Two weeks ago the GSE received a $13.8 billion cash injection from the government after posting a record $25.3 billion loss in the third quarter. Like many mortgage investors the company has been forced to slash the value of its massive mortgage holdings in the wake of rising loan delinquencies.

In a related move, Fitch Ratings, Chicago, has downgraded the insurer financial strength of LandAmerica's insurance subsidiaries to 'BB' from 'BBB+'. Fitch has also downgraded the issuer default rating to 'B' from 'BBB-' and placed the company on Rating Watch Negative. Fitch said the downgrade "considers LandAmerica's deteriorating financial condition, constrained liquidity and consequences from not meeting the renegotiated covenants of its credit agreements." The rating agency noted LandAmerica has already taken a $225 million write-off of goodwill and could take more in the fourth quarter. "LandAmerica faces serious liquidity constraints now that the acquisition plans have fallen through," said Fitch, pointing to $290 million invested in auction-rate securities. LandAmerica is also believed to be in violation of covenants on its $250 million of bank debt and thus unable to access the remaining $50 million it has on a line of credit. "Lastly, Fitch estimates consolidated statutory surplus at the title underwriting subsidiaries to be $300 million as of Sept. 30, 2008, down from $426 million at year-end 2007. Surplus has been depleted by operating losses and dividends to the holding company and consequently, Fitch's estimate of LandAmerica's risk-adjusted capital ratio is substantially below 100%," the rating agency said.

Fidelity National Financial Inc., Jacksonville, Fla., has terminated its merger agreement with LandAmerica Financial Group Inc., Richmond, Va. In a terse statement, Fidelity said it took the action "pursuant to its contractual due diligence termination right." It had the right to cancel the deal on or prior to Nov. 21. In its own statement, LandAmerica chairman and chief executive Theodore L. Chandler Jr. said, "We are disappointed with Fidelity's decision; however, our attention remains focused on strengthening LandAmerica's business and exploring strategic alternatives during these incredibly difficult economic times."

Freddie Mac said in a public filing Friday it received notice that it may lose its listing on the New York Stock Exchange because its share price has been under $1 for more than 30 days. In a filing with the Securities and Exchange Commission, the mortgage investing giant -- now a ward of the government -- said it received the notice on Monday. The NYSE requires that the average closing price of a stock remain above $1 per share. The company continues to buy mortgages from its seller/servicers. Its regulator seized control of the GSE in September. The company is, more or less, owned by the government, though its shares still trade on the NYSE. It recently hit a low of 25 cents.

The average rate on a 30-year fixed rate mortgage fell to 6.04% during the week ending November 20 from 6.14% the week before and 6.20% the same week a year ago, according to Freddie Mac. The average rate on a 15-year FRM dropped to 5.73% from 5.81% the previous week and from 5.83% a year ago, the average rate on a five-year Treasury-indexed hybrid adjustable-rate mortgage slipped to 5.87% from the previous week's 5.98% and 5.88% a year ago, and the average rate on a one-year Treasury-indexed ARM slipped downward to 5.33% from 5.29% a week ago and 5.42% a year ago. Average points were 0.7 for 30- and 15-year FRMs, 0.6 for five-year hybrids and 0.5 for one-year ARMs. Freddie Mac can be found online at http://www.freddiemac.com.

Goldman Sachs predicted on Friday that the yield on the 10-year Treasury -- which mortgages are pegged to -- could fall to 2.75% by the end of the first quarter. On Friday morning the 10-year Treasury was yielding 3.24%. In years past, when the 10-year fell so too did mortgage rates but because of the housing recession lenders -- as well as Fannie Mae and Freddie Mac -- are charging extra points, fees and higher rates to compensate for the worst housing market since the Great Depression.

The Federal Deposit Insurance Corp. is offering to share its playbook on streamlined loan modifications with all residential servicers. The process was developed at IndyMac FSB, now a ward of the government. FDIC said it will share its "Mod in a Box" guide to provide servicers with the "necessary tools to facilitate streamlined and systematic loan modifications." According to FDIC chairman Sheila Bair, the IndyMac approach is effective in dealing with mortgages in portfolios and securitized pools. "I would encourage all industry participants to adopt the FDIC loan modification program as the standard approach in dealing with the grave problems facing us with continued mounting foreclosures," she said. FDIC inherited 60,000 delinquent mortgages when IndyMac was placed into conservatorship in July. Under the program FDIC mailed 23,000 loan modification proposals to borrowers and completed more than 5,300 transactions after verifying the borrowers' income. On average, the modifications cut a borrower's monthly payment by $380 or 23%.

Federally regulated thrifts -- excluding the failed Washington Mutual and IndyMac -- originated $66 billion in one- to four-family loans in the third quarter, a 49% decline from the same period last year, according to new figures released by the Office of Thrift Supervision. Meanwhile, the nation's remaining 800 or so thrifts set aside $7.9 billion for loan loss reserves in the quarter, reporting a $4 billion loss. In the second quarter the industry lost $1.7 billion. The failures of IndyMac and WaMu reduced thrift industry assets by more than 20%, but did not improve earnings or loan performance trends of the surviving 818 thrifts, OTS officials said. WaMu was purchased by JPMorgan Chase, a bank. IndyMac is in the process of being auctioned off by the government. Non current construction and land loans (90 days or more past) jumped from 6.5% in the second quarter to 7.8% in the third quarter, while charge-offs nearly doubled to 1.23%. Thrifts charged off $546.3 billion in construction loans in the third quarter. Meanwhile, non-current single-family loans rose 11 basis point to 3.39% in the third quarter and charge offs fell 10 bp to 0.24%. But OTS officials warned that one quarter is not a trend. Thrifts charged off $2.8 billion in 1-4 family loans in the third quarter. In the second quarter, OTS-regulated thrifts, including WaMu and IndyMac, originated $107 billion in single-family loans and reported a $5 billion loss after setting aside $14 billion in loan loss reserves.

Regional banks are the most exposed to a slide in commercial real estate values and have been hurt by the Treasury's recent decision not to buy troubled mortgage assets under the 'TARP' program, according to a new report issued by Citigroup Global Markets. CGM analyst Keith Horowitz says, "Spreads on the CMBX index have blown out in recent days in part due to Treasury Secretary Paulson's statements that TARP will not be used to buy troubled assets, which had helped serve as a price floor on these assets." The CMBX is a tradable instrument based on 25 tranches of commercial mortgage-backed securities, each with different credit ratings. Mr. Horowitz says commercial real estate losses are high but not as bad as in the early 1990s during the last banking crisis. The CRE market has been hurt by the deteriorating economy: the downturn reduces the need for businesses -- office, retail, industrial -- to lease space. Citi says the four banks with the highest commercial delinquency/non-accrual ratios include: Fifth Third Bancorp, Huntington Bancshares, National City, and Regions Financial. TARP stands for 'Troubled Asset Relief Program.'

Mortgage bankers originated just $333 billion in one- to four family loans in the third quarter, the industry's worst showing since the fourth quarter of 2000, according to exclusive survey figures compiled by National Mortgage News and the Quarterly Data Report. Compared to the same quarter a year ago, originations plunged 45%. Among the nation's top ten lenders, the companies with the steepest origination declines include Washington Mutual (-70%), Wachovia Mortgage (-64%), and CitiMortgage (-46%). WaMu failed and was sold to JPMorgan Chase at the end of September. Wachovia is in the process of being sold to Wells Fargo Bank. CitiMortgage's parent, Citigroup, is considering putting itself up for sale.

Federally regulated thrifts -- excluding the failed Washington Mutual and IndyMac -- originated $66 billion in one- to four-family loans in the third quarter, a 49% decline from the same period last year, according to new figures released by the Office of Thrift Supervision. Meanwhile, the nation's remaining 800 or so thrifts set aside $7.9 billion for loan loss reserves in the quarter, reporting a $4 billion loss. In the second quarter the industry lost $1.7 billion. The failures of IndyMac and WaMu reduced thrift industry assets by more than 20%, but did not improve earnings or loan performance trends of the surviving 818 thrifts, OTS officials said. WaMu was purchased by JPMorgan Chase, a bank. IndyMac is in the process of being auctioned off by the government. Non current construction and land loans (90 days or more past) jumped from 6.5% in the second quarter to 7.8% in the third quarter, while charge-offs nearly doubled to 1.23%. Thrifts charged off $546.3 billion in construction loans in the third quarter. Meanwhile, non-current single-family loans rose 11 basis point to 3.39% in the third quarter and charge offs fell 10 bp to 0.24%. But OTS officials warned that one quarter is not a trend. Thrifts charged off $2.8 billion in 1-4 family loans in the third quarter. In the second quarter, OTS-regulated thrifts, including WaMu and IndyMac, originated $107 billion in single family loans and reported a $5 billion loss after setting aside $14 billion in loan loss reserves.