Originations

Jose Serrano of Stockton, Calif., has been sentenced to 15 months in prison and ordered to pay more than $219,000 in restitution to Washington Mutual Bank for his role in a mortgage fraud scheme involving the purchase of numerous residential properties in the Stockton area between 2003 and 2005. According to Matthew Stegman, assistant U.S. attorney for the Eastern District of California and prosecutor of the case, the investigation has also resulted in charges against other defendants, including Iftikhar Ahmad, Manpreet Singh, John Ngo, William Bridge and Paul Bridge. Each of these defendants has entered guilty pleas to various charges and awaits sentencing. Another defendant, Joel Blanford, has been charged and awaits trial.

Revis Otto Willis, a former mortgage broker from Houston, has been sentenced to 121 months in federal prison without parole followed by three years of supervised release for his leadership role in a mortgage fraud scheme. According to Tim Johnson, U.S. attorney for the Southern District of Texas, Willis was a mortgage broker who owned and operated Advanced Mortgage Services in Houston. Between October 2004 and May 2008, Willis recruited straw buyers to make false statements about their income, employment and bank account balances on loan applications to purchase residential properties in the Houston area. He encouraged the buyers to apply for mortgages in amounts greater than the actual sales price of the home. The loan applications containing the false statements were submitted to various financial institutions that traded mortgages on the secondary market. The difference between the actual sales price and the exaggerated loan amount was divided among Willis and others involved in the scheme. Almost all the loans secured as part of the scheme were defaulted upon and resulted in foreclosures. Willis' scheme involved 21 different residences and resulted in $2 million in losses.

Borrowers who are refinancing out of a one-year adjustable rate mortgage or a hybrid-ARM are overwhelmingly replacing those loans with fixed-rate loans, according to Freddie Mac. In total, 94% of prime borrowers who originally had a one-year, conforming ARM chose a conforming fixed-rate loan when refinancing in the third quarter, according to Freddie Mac's survey. 82% of prime borrowers who initially had a hybrid ARM refinanced into a conforming fixed-rate mortgage. Freddie Mac chief economist Frank Nothaft said that elevated interest-rate volatility in the third quarter has discouraged borrowers from seeking ARM loans. "When borrowers see so much change in interest rates it highlights the payment risk that they may face from future rate increases," he said.

The falling benchmark 10-year Treasury yield had accelerated its decline Thursday morning and had plummeted to a low below 3.2% that has not been seen in some time, but the move appears unlikely kick off a refinancing wave to the extent it has in the past. Today's tight lending standards and relatively wider spreads in mortgages are likely to prevent the kind of refi spike that a lower benchmark yield has been indicative of historically, said Art Frank, director and head of mortgage-backed securities research at Deutsche Bank. However, the Mortgage Bankers Association's index has indicated somewhat of an uptick in refis recently; and in March, around the time the benchmark yield was last relatively low, the index did register somewhat of a jump in refinancing, he said. The benchmark yield has been falling in recent days due to what fixed income strategists at Jefferies & Co. Inc. said has been a flight-to-quality into the U.S. government bond stemming from general uncertainty in the larger market.

CTX Mortgage of Dallas is in the process of closing its remaining retail branches, shifting its originations to a call center-like production center that caters only to consumers that are buying homes from its parent company. CTX Financial Services CEO Wayne Norton told MortgageWire that he expects the transition from branches to mortgage/call center to be completed by March at the latest. CTXFS is a subsidiary of the publicly traded Centex Homes. Area managers and mortgage counselors will work in the field to funnel customers to the mortgage center in Dallas. Offering GSE and FHA products, CTX will originate home mortgages in 21 states where it has Centex subdivisions. The production center will employ between 70 and 80 people.

The Financial Services Roundtable is urging the Treasury Department to "explicitly" guarantee Fannie Mae and Freddie Mac debt and reverse falling demand for the mortgage-backed securities issued by the two enterprises. FSR president and chief executive Steve Bartlett told a House panel the financial markets are "confused" about the extent of federal support for the government-sponsored enterprises. "Treasury should eliminate market confusion" by "explicitly guaranteeing GSE debt in a manner identical to the FDIC support for bank debt," Mr. Bartlett testified before the House Financial Services Committee. Treasury also should purchase GSE debt and MBS on a "more systematic and public basis," he said, which would reduce mortgage rates and stimulate the housing market.

After operating a residential mortgage scam that defrauded four Phoenix seniors of more than $400,000, Rick Thomas McCullough, a Phoenix mortgage broker, has been sentenced to three-and-a-half years in prison along with seven years probation and ordered to pay $343,811 in restitution. According to court documents, McCullough was the president of licensed mortgage broker CactusCash. In 2005 and 2006, he used this position to persuade four seniors, two single women and one couple, to refinance their homes through him for amounts far greater than the balance of their existing mortgages. McCullough also convinced them to invest their net refinancing proceeds with him, effectively obtaining for himself much of the equity that these elderly clients had in their homes. He claimed he would invest the victims' funds in real estate and personally guaranteed the loans. According to the terms of their investments, McCullough agreed to make monthly payments between $650 and $3,150 to the victims when in fact he lacked the assets to guarantee any of the loans and failed to make payments to three of the victims after several months. In one case, he failed to make any payments at all. Instead, McCullough used the money to make personal purchases.

Brian Tray of Pittsburgh has been sentenced in federal court to 41 months of imprisonment and five years of supervised release for his connection with a mortgage fraud scheme. According to information presented in the court, Tray worked as a loan officer for, among other places, America's Mortgage Outlet and Single Source Mortgage. In connection with numerous loans, Tray submitted loan applications on behalf of borrowers that he knew contained false information related to the borrowers' income and financial condition. In addition, Tray submitted fraudulent documents to the lending institutions, including fraudulent verifications of employment, verifications of rent and appraisals.

A market research firm is projecting that mortgage origination volume will be between $1.28 trillion and $1.35 trillion next year. iEmergent, based in Des Moines, Iowa, predicts that the industry will make 4.3 million home purchase loans next year for an aggregate amount of $708 billion. The firm predicts that refinancing volume will range from $575 billion to $640 billion. The firm's forecast for mortgage volume suggests that total volume will fall 5% in 2009 from the firm's estimated 2008 year-end total. iEmergent's economists predict that home purchase lending will reach a bottom in late 2009.

The Mortgage Bankers Association's Market Composite Index during the week ended Nov. 14 fell 6.2% on a seasonally adjusted basis from the week before as the purchase index component dropped to a level not seen since late 2000 but refinances increased. On an unadjusted basis the composite index dropped 7.2% compared to the previous week and was down 41.3% year-to-year. Refinances increased 2.6% from the previous week and seasonally adjusted purchases fell 12.6% from one week earlier. This brought the purchase index to a low not seen since December 2000, according to Barclays Capital researchers. Conventional purchases fell 15.3% week-to-week while government purchases (a category comprised primarily of Federal Housing Administration loans) fell 6.5% from the previous week. The four-week moving average for seasonally adjusted purchases is down 2.7%. This average rose 2.5% for refinances. Refis represented 49.9% of applications in the most recent week, up from 45.1% the previous week. The adjustable-rate mortgage share of activity inched up to 2.6% from 2.3% the week before. The average contract interest rate for 30-year fixed-rate mortgages fell to 6.16% from 6.24% the week previous. This rate for 15-year loans dropped to 5.87% from 5.90% the week before and for one-year adjustable-rate mortgages it rose to 6.80% from 6.77% from the week previous. For mortgages with an 80% loan-to-value ratio, points and fees (including the origination fee) increased over the course of the week to 1.24 from 1.17 and 1.12 for 30-year and 15-year mortgages, respectively. For ARMs with an 80% LTV, equivalent points and fees increased to 0.63 from 0.43.

Construction of new one-to-four family homes fell to an annualized rate of just 531,000 units in October with the nation's largest homebuilding trade group describing the market as a crisis situation. According to figures compiled by the U.S. Census Bureau and the Department of Housing and Urban Development, the results were the lowest since 1959. The previous low was January 1991. Compared to the same month in 2007, starts fell by 40%. The sequential decline was a more modest 3.3%. "The housing downturn has already cost America three million jobs in construction and related industries, and this downward momentum cannot be stemmed without substantive government intervention," said NAHB's new chief economist David Crowe. Not surprisingly, NAHB's Builder Confidence index now stands at its lowest level since January 1985 when the trade group first launched the measurement. Multifamily starts fell to 247,000 units during the month, a 30% decline from a year ago.

Fitch Ratings has revised its surveillance methodology for evaluating subprime residential mortgage-backed securities to reflect higher loss expectations on loans originated between 2005 and 2007. Fitch now expects more than half of the remaining loans in subprime RMBS from those years to go into foreclosure. Specifically, Fitch predicts that of the remaining loans in transactions from 2005, 2006 and 2007, the shares that will go into foreclosure are 49%, 60% and 52%, respectively. When loss severity is added to the equation, Fitch estimates that investors will lose 30% of the remaining principal balance on 2005 transactions, 39% on 2006 transactions and 34% on 2007 transactions.

The National Credit Union Administration has come up with a plan to refinance billions of dollars of at-risk mortgages by funneling new loans to credit unions through the Central Liquidity Facility, the lending arm of the NCUA. NCUA chairman Michael Fryzel said the agency has allocated $2 billion in loans to facilitate the Credit Union Homeowners Affordability Relief Program, or CU HARP, which could be expanded if its proves successful. Refinanced mortgages could carry rates as low as 1.75%, according to a report in The Credit Union Journal. "My principal reason for advancing CU HARP is simple," said Mr. Fryzel, "The consumer must not be left out of the broader government efforts to mitigate the housing and credit market dislocations." (Member credit unions own the CLF, which exists within the NCUA.) Credit unions believe they are not eligible for the Treasury's capital purchase program since they are nonprofits.

The Department of Housing and Urban Development, in rewriting the RESPA rules, has clamped down on builder discounts that are tied to use of the homebuilder's mortgage company. Starting Jan. 16, builders won't be able to offer $10,000 discounts on the purchase price if the homebuyer uses their affiliated mortgage or title company. The final Real Estate Settlement Procedures Act rule issued by HUD on Nov. 17 says these referral arrangements are potentially "problematic" under RESPA. "RESPA and this final rule limit tying such a discount to the use of an affiliated settlement provider," HUD says. Homebuilders, Realtors, mortgage bankers and other industry groups opposed this rule change. The National Association of Home Builders contends the change will eliminate significant savings for homebuyers. But a NAHB spokesman said the builders are not ready to comment on HUD's action. RESPA attorney Phillip Schulman said builders will have to change the way they promote their affiliates. "They won't be able to link the incentive to the use of the affiliate," the K&L Gates partner said.

HSBC Mortgage Corp., Depew, N.Y., in an internal memo Tuesday said it is officially ceasing originations through its wholesale and third-party correspondent channels, and 325 of the corporation's 1,500 employees will lose their current jobs as a result. Mortgages in these categories registered as of Nov. 18 will be processed and floating wholesale and correspondent loans registered on that date must be locked by Dec. 2, according to the memo. Mortgages from these channels will have until Jan. 20, 2009 to fund and the corporation will not fund any wholesale or correspondent loans after Jan. 21, 2009. One hundred account executives nationwide and 225 mortgage lending specialists and support personnel in Depew will face cuts, a spokeswoman said. However, the majority of the 1,100 positions in Depew remain intact and an undetermined number of internal placements may be made. Affected employees have received 60 days notice and are to be individually informed about severance and benefits. The move comes a little more than a year after the corporation's European-owned corporate parent shut down the Decision One subprime wholesale unit operated by its HSBC Finance arm and said it would be working to refocus its mortgage business on the direct-to-consumer retail origination channel.

A market research firm is projecting that mortgage origination volume will be between $1.28 trillion and $1.35 trillion next year. iEmergent, based in Des Moines, Ia., predicts that the industry will make 4.29 million home purchase loans next year for an aggregate amount of $708 billion. The firm predicts that refinancing volume will range from $575 billion to $640 billion. The firm's forecast for mortgage volume suggests that total volume will fall 5% in 2009 from the firm's estimated 2008 year-end total. iEmergent's economists predict that home purchase lending will reach a bottom in late 2009.

HSBC Mortgage Corp., Depew, N.Y. in an internal memo Tuesday said it is officially ceasing originations through its wholesale and third party correspondent channels, and 325 of the corporation's 1,500 employees will lose their current jobs as a result, according to a spokeswoman. Mortgages in these categories registered as of Nov. 18 will be processed and floating wholesale and correspondent loans registered on that date must be locked by Dec. 2, according to the memo. Mortgages from these channels will have until Jan. 20, 2009 to fund and the corporation will not fund any wholesale or correspondent loans after Jan. 21, 2009. One hundred account executives nationwide and 225 mortgage lending specialists and support personnel in Depew will face cuts, the spokeswoman said. However, the majority of the 1,100 positions in Depew remain intact and an undetermined number of internal placements may be made. Affected employees have received 60 days notice and are to be individually informed about severance and benefits. The move comes a little more than a year after the corporation's European-owned corporate parent shut down the Decision One subprime wholesale unit operated by its HSBC Finance arm and said it would be working to refocus its mortgage business on the direct-to-consumer retail origination channel.

August Blass, a former wholesale mortgage executive, has started a company that will provide quality control, risk assessment, and fraud prevention services to banks and lenders. The Walnut Creek, Calif., company, National Loan Auditors Inc., said Monday that it will "assist loan modification professionals, review loan documents for errors or misrepresentations and help in reducing the high foreclosure rates that have overcome the real estate market." Mr. Blass is a former Western regional correspondent manager for Wholesale Lending Online in Millbrae, Calif. In the 1990s he wrote "Internet Strategies for the Mortgage Banking Industry," published by Faulkner & Gray, which is now part of NMN's publisher SourceMedia Inc. "There is a need in the current market to provide an in-depth look at loan portfolios and financial documents to find potential errors and expose hidden liabilities," Mr. Blass said in a press release Monday. National Loan Auditors "will help financial institutions save millions in foreclosure dollars by providing them with an accurate report of which loans present the most risk."

The National Reverse Mortgage Lenders Association has launched an electronic resource guide that it said provides extended technical knowledge about reverse mortgages. The group introduced its NRMLAPedia at its 2008 Annual Meeting & Expo in Los Angeles. The guide has 100 user-requested topics, among them appraisals, disclosures, marketing and sales, processing, underwriting and servicing. The group expects the list to grow in response to further lender and borrower user requests. The association said it plans to initially sell NRMLAPedia to member on disks for a nominal fee and later make it available on the NRMLAOnline.org website. Various contributors will update information as needed.

The National Association of Mortgage Brokers has vowed to pull out all the stops in an effort to kill the final rule implementing changes in the Real Estate Settlement and Procedures Act. "We are not going to stand for this," President Marc Savitt said at the NAMB West regional conference in Las Vegas. The West Virginia broker wouldn't reveal the group's exact strategy but said "nothing is off the table," including legal action against the Department of Housing and Urban Development. "We have several ideas up our sleeves but we'll wait for the new administration to take over before we do anything," Mr. Savitt said. NAMB has numerous issues with the new RESPA regulations, but its main complaint is the method HUD has chosen to disclose yield spread premiums - first as a borrower paid item and then as a broker credit back to the borrower. "We thought that dog was dead but it came back to life," Mr. Savitt said, referring to the fact that the disclosure plan first surfaced in 2002. The final RESPA rule takes effect Jan. 1, 2010.