Originations

Home sales should bottom out by mid-2009, but house prices will continue to decline, according to a survey of 50 members of the National Association of Business Economists. The panel of 50 economic forecasters expects the Federal Housing Finance Agency house price index will decline by 6% this year and 3.5% on 2009. "When asked to identify the bottom in home sales, the panel is evenly split between the current quarter and next two quarters. Thus, the general expectation is that home sales should trough by mid-2009, as should housing starts," the November NABE Outlook report says. NABE president Chris Varvares said the business economists "became decidedly more negative on the economic outlook" since the October survey. And nearly all (96%) of the economists "believe that a recession has begun."

The Federal Housing Administration has set aside $12.2 billion in reserves to cover expected losses on its single-family program after closing the books on a record fiscal year in which lenders originated $171.8 billion in FHA-insured loans. The FHA insured portfolio jumped to $479.6 billion in the fiscal year ended Sept. 30, 2008, up from $351.8 billion in FY 2007. And its reserves jumped to $19.7 billion, up from $7.5 billion in FY 2007. The annual FHA management report attributes the sharp rise in "loan guarantee liability" to high default rates on loans with downpayment assistance and house price declines. The nationwide decline in house prices "results in increased claims and lower proceeds from the sale of foreclosed properties," the report says. The FHA report also shows that the capital ratio for the single-family insurance fund fell to 3% in FY 2008, down from 6.4% in the previous fiscal year. By statute, FHA must maintain a 2% capital ratio.

Mission Capital Advisors, New York, is accepting bids on behalf of an unnamed seller for all or part of a more than $260 million distressed commercial mortgage portfolio. The properties collateralizing the nonperforming and subperforming loans are in Florida, Georgia, Nevada, Arizona and California. Among the collateral property types are multifamily, condo-conversion, retail, office, single-family residential, residential development land, marinas, a restaurant and an auto dealership. Mission Capital can be found online at http://www.missioncap.com.

There will not be a recovery in the home market until all the "five timers" are out of their homes, said Bob Simpson, the president of IMARC, a Newport Beach, Calif.-based mortgage fraud investigations firm. The fact that those who owe five times more than what they make are still in their homes means the bottom has not been reached, he said, speaking at NAMB/West in Las Vegas after having made similar comments at the SourceMedia Mortgage Fraud Conference. The "five timers" need to turn in their house keys and move into something they can afford. "You're not qualified" is a phrase mortgage originators have to start using again, Mr. Simpson said. At NAMB/West, he made an analogy to the markers casinos give to high rollers. In the lending industry, those markers have now gone bad. The origination process was not about cost but about monthly debt service; originators sold payments. Compounding the problem, Mr. Simpson said, is lenders no longer required borrowers "have skin in the game" in the form of a downpayment. He added that he was not a fan of downpayment assistance programs. There need to be barriers to homeownership and the borrower's ability to save is important, Mr. Simpson said.

The Home Valuation Code of Conduct is "potentially the most dangerous regulation" with the effect of cutting the mortgage broker out of the origination process, declared Dave Biggers, the chief executive of appraisal technology firm a la mode, Oklahoma City. While the intent of the HVCC, which is actually a legal settlement, is good, he told attendees at NAMB/West in Las Vegas, it singles out mortgage brokers as the source of pressure on appraisers to deliver a certain value. It "drives a wedge between you and the lending process," he reiterated. Under the settlement, a firewall has to be created between the lender and appraiser. In many cases, that has taken the form of the lender hiring an appraisal management company. Mr. Biggers called the situation "absurd" because the lawsuit that resulted in the HVCC was filed against an appraisal management company. Whether or not the HVCC takes effect, many lenders will likely adopt its terms, he said. A number of Federal agencies, including the Federal Reserve Board, have just introduced their own regulation that could trump the HVCC, Mr. Biggers said. Unlike the HVCC, the regulation will not cut the mortgage broker out of the appraisal ordering process. The broker also will be able to have contact with the appraiser but will not be allowed to discuss a target value.

The National Association of Mortgage Brokers contends it is "unfair" that brokers have to disclose their indirect compensation on the newly revamped good faith estimate differently from banks and other competitors. "It is basically unfair to have direct competitors disclosing differently," said Joe Falk, a former NAMB president. The new Real Estate Settlement Procedures Act rule issued by the Department of Housing and Urban Development re-characterizes the yield-spread premium on the GFE as a charge or credit in relation to origination fees. Meanwhile, lenders' indirect compensation is "hidden at the bottom of a page and without relation to any other fees," Mr. Falk said. The American Bankers Association also said it is "disappointed" with many aspects of the RESPA rule and the new disclosure of YSPs. "ABA believes the new formulation [of YSPs] will be confusing to consumers," ABA's weekly newsletter says.

The First American Corp., Santa Ana, Calif., said it has introduced what it believes is the first "reverse mortgage score," a data-based numerical value designed to help servicers quantify the likelihood that struggling senior borrowers can avoid foreclosure on their current loans by qualifying for government-insured Home Equity Conversion Mortgages. The score, introduced at the National Reverse Mortgage Lenders Association conference in Los Angeles, examines factors specific to the government reverse mortgage program such as the new $417,000 HECM national loan limit, the number of borrowers on the loan and their ages, living trusts and powers of attorney. It also examines homeowner and property information from First American's data repository. The combined examination of these factors results in a weighted average score ranging from one to five in which "one" indicates the borrower is "least likely" to qualify for a HECM and "five" indicates the loan is "most viable," an external spokesman said. The spokesman also said score may be helpful to originators as well as servicers.

Genworth Financial - after recently posting a large third quarter loss - struck a deal over the weekend to buy a $1 billion thrift in Minnesota, which it will use to file an application for a capital infusion under the $700 billion bailout bill. Genworth of Richmond, Va., also owns a mortgage insurance division, which it is considering selling. At press time a Genworth spokesman had not returned a telephone call about the thrift purchase. In conjunction with its planned purchase of InterBank FSB of Maple Grove, Minn., Genworth also has filed a savings and loan holding company application with the Office of Thrift Supervision. To participate in the Treasury's capital purchase program, it must first file an application with OTS. Last week Genworth said it has borrowed $930 million of a $1.7 billion credit line.

Chevy Chase Bank of Bethesda, Md., a top 40 ranked residential funder, could be in play, according to combined press reports. In a statement, the thrift's executive vice president, Thomas H. McCormick, declined to comment on the reports, saying, "Not surprisingly rumors have risen from time to time over the years about the interest of other banks in seeking" to acquire the lender/servicer. Among servicers, CCB ranks 36th nationwide, according to the Quarterly Data Report. The depository is privately held, controlled mostly by developer B.F. Saul and members of his family. The Saul family fortified the thrift's capital position two decades ago during the height of the S&L crisis.

The key to combating mortgage fraud is "regulation, regulation, regulation," the director of research and policy for the Community Law Center told attendees at SourceMedia's Mortgage Fraud Conference in Las Vegas. Robert J. Strupp said part of the problem is that existing laws were not enforced. He warned against what he called "self-proclaimed" loss mitigation specialists and "certified" foreclosure consultants. No state certifies foreclosure consultants, Mr. Strupp declared, adding, "In my opinion, this whole industry needs to be regulated and it is not." Rodney Nelsestuen, research director for TowerGroup, took an opposite position on increased and detailed regulation. At first, he said, it can be prescriptive in dealing with the problem, but in the end it will fail because the prescription will provide fraudsters with a road map to get around the problem. Any solution to fraud needs to be principal-based, Mr. Nelsestuen said.

Residential loan modifications could be ripe for mortgage fraud, according to panelists speaking at a SourceMedia mortgage conference in Las Vegas. Gary Lacefield, executive vice president and director of compliance at WR Starkey Mortgage of Texas, said part of the problem is that lenders are modifying loans, keeping homeowners in a product that was not suitable for them in the first place. The modification continues the predatory pattern and practice, he said. Al Macdonald, chief executive and founder of NominoData, when asked about borrowers who were involved in mortgage fraud, said before just simply modifying the loan, the originator should re-screen the borrower to make sure there was not fraud. He later said that technology is merely a tool to help catch fraud. Lenders need to be constantly monitoring their systems to make sure technology is filling the role that was originally intended.

Genworth Financial - which posted a large third-quarter loss - said it has borrowed $930 million of a $1.7 billion credit line. Among other things, Genworth is considering selling its mortgage insurance division, one of the largest in the U.S. Formerly a division of General Electric, Genworth offers not only mortgage insurance but life, long-term care, retirement and other policies. In the third quarter, the publicly traded company lost $258 million, compared to net income of $339 million in the same period last year.

Realtors, homebuilders and mortgage bankers are asking Congress to extend and make permanent, before year-end, the $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans. Congress increased the loan limits in high-cost markets back in February as part of a stimulus bill to revive lending in the jumbo loan market. The increase, though, expires on Dec. 31. Without an extension, the loan limit will fall to $625,500 on Jan. 1. "Specifically, we ask that Congress eliminate the forthcoming decreased limit for high cost areas," the Mortgage Bankers Association said in a Nov. 13 letter to House and Senate leaders. MBA also wants Congress to increase the conforming loan limit from $417,000 to $625,000 to provide a "broader range of secondary market support.

Freddie Mac posted a $25.3 billion loss in the third quarter, admitted that its negative net worth now totals almost $14 billion, and mentions in a new filing that unless it receives a cash infusion it could be placed into receivership. The company, however, fully expects that Treasury will lend money to bolster its net worth, bringing the firm into a positive cash position. "We expect to receive such funds by Nov. 29," it says in a new filing with the Securities and Exchange Commission. It notes that maintaining a positive net worth "could constrain some of our business activities," including buying residential loans from banks, mortgage companies and other originators. Freddie and its "sister" company Fannie Mae have been operating under a government conservatorship since Sept. 6. The GSE blamed its third-quarter loss on money set aside to deal with its deferred tax assets ($14.3 billion) and $15.1 billion in charges and impairments on "available-for-sale" MBS and other holdings. Earlier this week Fannie Mae posted a $29 billion third-quarter loss and said it was having trouble rolling over its debt.

Senate Banking Committee chairman Christopher Dodd, D-Conn., said he will try to pass a change to bankruptcy laws during the lame-duck session that would allow a judge to restructure a mortgage on a primary residence in foreclosure. At a committee hearing, Sen. Dodd indicated the bankruptcy change would be temporary - possibly three to five years - but is necessary to deal with the nation's foreclosure crisis. Wells Fargo Bank executive vice president Jon Campbell warned that investors would likely demand higher downpayments and pricing on home loans to offset cramdowns. Sen. Dodd said he has heard arguments that such a bankruptcy change would affect credit availability for primary residences. "But I just don't see the evidence of that," he said, stressing that cramdowns would be temporary. Congress returns on Monday to consider a stimulus package that would bailout the auto industry. Some observers expect the legislative session will continue into December but note it's impossible to predict if anything will pass in a crisis environment.

The Federal Deposit Insurance Corp. hopes to complete a deal to sell a majority of IndyMac Federal Bank in December, according to an agency spokesman. "Our intent is to sell as much of it as possible to one buyer," the spokesman said. It's unclear that if sold, what will happen to the FDIC's loan modification efforts at the thrift. One source said he expected continuation of the loan-mod program to be a pre-condition of a sale. An investment banking source familiar with the transaction said at least two parties are involved in the latest round of bidding for the Pasadena, Calif.-based thrift, once a top player in the alt-A market. The investment banker described the parties as "consortium bids" that have syndicated out their financing. He said there is one lead negotiator for each consortium. The FDIC spokesman declined to discuss the bidding process except to say, "We'll be conducting bidding later this month." The FDIC placed IndyMac into a conservatorship this past summer. The company was formed two decades ago by Countrywide Financial founder Angelo Mozilo.

According to the Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending November 7, 2008, applications were up. The Market Composite Index, a measure of mortgage loan application volume, was 425.0, an increase of 11.9% on a seasonally adjusted basis from 379.9 one week earlier. On an unadjusted basis, the Index increased 10.5% compared with the previous week and was down 40% compared with the same week one year earlier. Similarly, the Refinance Index increased 16.1% to 1248.4 from the previous week and the seasonally adjusted Purchase Index increased 9% to 284.4 from one week earlier; the Conventional Purchase Index increased 6.5% while the Government Purchase Index (largely FHA) increased 15.3%. However, the four week moving average for the seasonally adjusted Market Index is down 3.7%.

Commercial and multifamily mortgage loan originations remained low in the third quarter, according to the Mortgage Bankers Association's quarterly survey of commercial/multifamily mortgage bankers originations. Third quarter originations were 53% lower than during the same period last year. The year-over-year decrease was seen across all property types and most investor groups. Decreases in total commercial/multifamily mortgage originations continued to be led by a drop in commercial mortgage-backed security conduit loans and loans for commercial bank portfolios.

The Department of Housing and Urban Development has unveiled a new, streamlined Real Estate Settlement Procedures Act rule that revamps the good faith estimate and HUD-1 settlement forms. Based on consumer testing, HUD officials said in a news conference that they believe consumers will save $700 per loan on average because the new disclosures make it easier to choose the lowest cost loan product. Federal Housing Commissioner Brian Montgomery said testing showed that consumers choose the loan with the most favorable terms 92% of the time using the new, standardized GFE. The new rule also requires that costs on the HUD-1 form, which discloses fees at closing, cannot exceed the GFE numbers by more than 10%. In a nod to industry protests, the final rule eliminates a proposed script that closing agents would have been required to read aloud to consumers at closing.

The industry saw a 2.1% decline in house prices on a national level in September, with an annual decline of 13.3%, but certain counties have seen month-to-month gains, according to the latest IAS360 House Price Index for September 2008 from Integrated Asset Services LLC. However, according to the report, the data also show bright spots at the individual county level with 75 of the 360 counties showing month to month improvement in September. "Housing prices at the national and MSA levels are still seeing declines, but we're seeing positive signs at the county level, and even more encouraging signs at the neighborhood level," said Dave McCarthy, president and CEO of Integrated Asset Services. The index, which tracks 15,000 neighborhoods, shows the national picture continues to look challenging. At the census region level, results for September show all four U.S. Census regions experiencing declines in house prices, with the South and West experiencing double-digit declines annually of 11.2% and 19%, respectively. Compared to September 2007, Western and Midwestern housing prices improved slightly while the Northeast and the South continued to weaken. In September, at the census division level, all nine U.S. Census divisions posted declines. West South Central led the way with a decline of 4.5% and New England, the South Atlantic and Pacific posted declines of 3%, 2.5% and 1.9%, respectively.