Originations

A group of Idaho appraisers have filed a class-action lawsuit against the Bank of America-owned Countrywide Financial Corp., claiming the lender used strong arm tactics, intimidating appraisers to generate reports and "blacklisted" some for not cooperating with the company. The lawsuit, filed in U.S. District Court in Seattle, claims Countrywide forced appraisers to use improper appraisal techniques that benefited the lender. BoA/Countrywide is the nation's largest residential lender, according to figures compiled by the Quarterly Data Report. The lawsuit claims Countrywide's actions caused "substantial damage to thousands of appraisers on top of distorting real estate prices in the marketplace." At press time, a spokesman for BoA had not returned a telephone call about the matter.

ForeclosureRadar reports banks filed 904 notices of default in Orange County in September, down 64% from August and 25% from a year ago, according to a story in The Orange County Register. But the dramatic decline in defaults (which initiate the foreclosure process), is due to Senate bill SB 1137, according to ForeclosureRadar. The bill's foreclosure provision enacted on September 8 stipulates that servicers must contact a homeowner at least 30 days before filing a NOD and explain what options the borrower has to avoid foreclosure. Sean O'Toole, president of the company, has noted that the drop in foreclosure starts would be temporary as banks adjust to the new law, calling it a paperwork issue.

Single-family housing starts dropped 12% in September to a level not seen in 26 years and construction activity has fallen by 70% since the peak of the housing boom in January 2006. The U.S. Census Bureau reported that single-family housing starts, on a seasonally adjusted annual rate, declined to 544,000 units in September compared to 618,000 in August. Compared to the year ago starts are down a stunning 42%. The multifamily sector has held up well. Single-family construction has not been this weak since the 1982 recession. The National Association of Home Builders is calling on Congress to pass another economic stimulus package with a "real" tax credit to stimulate home buying and reduce inventories. The $7,500 first-time homebuyer tax credit that Congress passed in July is really an interest-free loan that the buyer has to pay back to the government. NAHB executive vice president and chief executive Jerry Howard said fixing the tax credit and raising it to $10,000 is his group's top priority. "We want to make it a little bit richer, drop the recapture and extended it to all buyers," Mr. Howard said.

Federal Housing Administration lender and Ginnie Mae issuer Lend America, Melville, N.Y., said it is finalizing a "structured transaction" designed to help "a major global financial institution" refinance a roughly $1 billion pool of sub-performing loans into mortgages with more affordable terms. Lend America declined to name the client. The effort is being done through the government's new "Hope for Homeowners" program. The company said the move is part of a new effort to help first-lien holders, including Wall Street banks and hedge funds, "maximize principal recapture and help homeowners avoid foreclosure" by tapping the new government program. Lend America said it has 300 FHA mortgage specialists in a central location who receive a mandatory 10 hours of H4H classroom training and certification. It said these specialists are able to "contact delinquent borrowers, assess affordability and work under appropriate guidelines to refinance a mortgage within as little as 10 days." Under the H4H program, lenders can refinance struggling borrowers -- who obtained mortgages prior to January 2008 -- into more affordable loan programs.

To counter rising mortgage rates, the National Association of Realtors is urging the Treasury Department to "aggressively" increase its purchase of Fannie Mae and Freddie Mac mortgage-backed securities. "We believe that more active MBS purchases will reduce spreads and therefore mortgage interest rates and help bring more homebuyers into the market," NAR says in a letter to Treasury secretary Henry Paulson. Treasury purchased $5.1 billion in agency MBS in September and has pledged to purchase more in an effort to increase market liquidity. Fannie and Freddie also are expected to increase purchases of their MBS. But so far, market watchers say the impact has been minimal. The trade group says that "investment is flooding away from agency MBS to bank credit products" now that the Federal Deposit Insurance Corp. has guaranteed unsecured bank debt. This "unintended" consequence, NAR says, has pushed mortgage rates up to 6.5%. "For this reason, we urge Treasury and Federal Housing Finance Agency to more aggressively participate in the MBS market by increasing purchases of agency MBS." The FHFA regulates Fannie and Freddie.

"Lackluster" is the word used by California's homebuilders to describe new home sales in their state. The latest monthly CBIA/Hanley Wood Market Intelligence New Home Sales and Pricing Report shows sales in August were 39% below August 2007. The decline was smaller than the 57% year-over-year dive recorded in July. But August 2007 was a particularly bad month last year, which makes the comparison look less dire, the report noted. A total of just 2,518 new homes were sold during the month, compared to 4,102 in August 2007. Jonathan Dienhart, director of published research for HWMI, Contra Costa, laid the blame for much of the downturn on credit, or the lack thereof. "Until credit markets begin to get back to a more normal level of activity, it will be difficult for the pace of home sales to begin to recover," Mr. Dienhart said.

Residential real estate markets "remained weak" in September and lenders continued to tighten credit standards on residential and commercial real estate mortgages, according to the Federal Reserve's Beige Book. Home sales and construction activity "moved lower" in a majority of Federal Reserve bank districts. However, residential markets in the Cleveland, Atlanta and Kansas City districts "showed some signs of stabilizing," the Beige Book says. In addition, inventories of unsold homes declined in "areas of the Boston and Atlanta districts, as well as in Philadelphia and Cleveland." Most district banks said commercial real estate leasing and construction has "slowed" with New York, San Francisco and Dallas reporting the "sharpest declines." CRE construction projects are being put on hold or canceled in several districts "due to tighter credit conditions and increased economic uncertainty," the Beige Book says.

Mortgage Industry Advisory Corp. is auctioning off a $536 million portfolio of performing alt-A whole loans on behalf of what it calls an "east coast money center bank." The New York-based advisory firm declined to name the seller. "It may come as a surprise to some people but the portfolio is totally performing," said Dan Thomas, managing director of assets sales for MIAC. The servicing rights are included along with the whole loans. According to the offering circular, the portfolio has an average loan-to-value ratio of almost 78%. The average FICO score is 707 and the coupon is just over 7%. The average loan size is $376,075. Over the past year the alt-A market has suffered higher delinquencies but not in the range of subprime lates, which are north of 30%, according to figures compiled by the Quarterly Data Report. Alt-A loans are "nonprime" in nature but have higher FICO scores than A- to D loans. In years past some lenders considered 'stated-income' loans to be in the category of alt-A. The bid deadline is Friday, October 24.

The National Association of Realtors is calling on Congress to return after the elections and pass a housing stimulus bill that makes the Fannie Mae, Freddie Mac and FHA maximum $729,750 loan limit permanent and fixes the first-time homebuyer tax credit so it stimulates sales. "It is vital to the economy that Congress take specific actions to boost the confidence of potential homebuyers in the housing market and make it easier for qualified buyers to get safe and affordable mortgage loans. We are asking Congress to act right away," NAR president Richard Gaylord said. NAR wants Congress to eliminate the repayment requirement on the tax credit and make it a real tax credit that it is available to all homebuyers. The maximum limit on Fannie and Freddie and Federal Housing Administration loans is scheduled to drop down from $729,750 on Dec. 31 to $625,500 on Jan.1. "Housing has always lifted the economy out of downturns, and it is imperative to get the housing market moving forward as quickly as possible," Mr. Gaylord said.

Downey (Calif.) Savings and Loan Association FA has closed its wholesale loan department as well as the loan processing centers supporting that department. The troubled thrift also said it is contracting its retail production operations as well. These changes will affect approximately 200 employees. "The Downey Savings' board and management team have been evaluating, and will continue to evaluate, our long-term business plan in light of the challenges facing the company, the banking sector and the entire economy," said Charles R. Rinehart, chief executive. "We have determined that a wholesale lending channel is no longer a necessary component of the plan. In addition, while we will continue to originate loans through our retail lending channel, we are scaling back our retail loan department to better reflect the industry-wide contraction in retail lending."

Citigroup, which has suffered billions in losses from it's A- to D securitization business, still has $27.9 billion in subprime CDO exposure on its books, though almost $10 billion of that is hedged. According to the company's third quarter earnings statement, the bulk of its exposure is in what it calls "older vintage, high grade" asset-backed security CDO (collateralized debt obligations). A CDO is a security made up of other securities, in Citigroup's case, subprime MBS or ABS. But Citigroup - which recently slashed its wholesale mortgage network by 90% - also has other residential-related problems. In the third quarter it took a $1.2 billion writedown on alt-A mortgages (net of hedges) and suffered a $192 million loss on a hedge tied to its mortgage servicing portfolio. CitiMortgage, at June 30, ranked fourth among all residential servicers with an $816 billion portfolio, according to the Quarterly Data Report. In the third quarter Citigroup lost $2.8 billion overall. It entered the subprime business earlier in the decade when it bought Associates First Capital Corp. of Texas.

The Bear of the Day on Oct. 15 for Zacks Equity Research, Chicago, is Cleveland-based KeyCorp, because of its exposure to commercial real estate. This designation came in advance of KeyCorp's financial results being released on Oct. 21. Zacks said that although KeyCorp has taken steps to reduce its exposure to the CRE residential properties segment, the Cleveland-based company still anticipates higher losses in this portfolio in the coming quarters, particularly in view of its sizeable exposure to the difficult markets of California and Florida. "Ahead of the earnings release, we are maintaining our sell rating on the shares of KeyCorp, with six-month price target of $6.00 per share," Zacks said. The website for Zacks is http://www.zacks.com.

Two privately held title agencies, Kensington National Land Services and Vanguard Title Agency, have merged to create Kensington Vanguard National Land Services LLC, New York. The combined company employs 70 persons. Annually, Kensington alone handled over 10,000 new orders. Vanguard specialized in New York commercial and high-end residential transactions. Brian Cooper and Jarett Fein, co-chief executives and principals, head the combined company. "At a time when many in our industry are cutting back, we feel now is the time to combine resources and invest in the creation and growth of KV National Land, a superior platform to support an ever-expanding roster of the most prestigious local and national clients," Mr. Fein said. "Brian and I recognized right at the onset that our different, yet complementary companies share common perspectives, values and business philosophies centered on professionalism, service and efficiency. We also share a vision of how together we can create the perfectly balanced company, capable of handling all client and transaction types on a local and national basis."

Existing home sales in California are on the upswing for 2008 as a whole, a trend that will continue into next year, the Golden State's Realtors are predicting. But with the "ongoing pressure from distressed sales," the 175,000-member California Association of Realtors believes prices will continue to fall, though by not nearly as much as they have this year. Leslie Appleton-Young, CAR's chief economist, said sales should post a 12% gain in 2008, and a 12.5% gain on top of that in 2009. But next year's pickup won't be evident until the spring, which is the next big homebuying season. "The next couple of quarters will be marked by seasonal decreases in activity," Ms. Appleton-Young said. However, at 445,000 units, next year's total sales will be almost 200,000 units greater than the 265,000 sales registered in 2007. Prices are another story, though. The state's median is expected to dive 32.7% this year, from $558,100 to $381,000. But the descent will slow to only a 6% decline in 2009, to $358,000, the group is projecting. CAR President William E. Brown said he expects sales of distressed properties to peak in early 2009. The sale of foreclosed properties "directly impacts the time frame for stabilization," he said.

The Market Composite Index, an overall measure of mortgage applications, increased from 465.5 to 489.3 on a seasonally adjusted basis during the week ended Oct. 10, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index decreased from 314.5 to 313.5 on a seasonally adjusted basis, while the Refinance Index increased from 1345.8 to 1514.2. Refinancings represented 46.4% of total applications, up from 43.4% the previous week, while adjustable-rate mortgages accounted for 2.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased 48 basis points from 5.99% to 6.47%, and points (including the origination fee) increased from 1.09 to 1.14 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

JPMorgan Chase & Co. booked $663 million in charge-offs on its home equity loan portfolio in the third quarter, a stunning increase of 342% from the year ago quarter. Until earlier this year, JPM's mortgage division heavily marketed its HELOC product, particularly through loan brokers and correspondents. JPM also was one of many lenders that played in the "80-10-10" market where HELOCs were originated along with firsts so customers could avoid paying private mortgage insurance. With home prices suffering, those loans have since gone out of favor. (HELOC delinquencies are on the rise throughout the lending and servicing industry.) JPM's mortgage unit also suffered $273 million in subprime charge-offs compared to $40 million a year ago. The bank holds $94.8 billion in HELOCs, up 3% from the year ago. It funded $2.6 billion in HELOCs during the quarter, a 77% decline from 3Q 2007. Overall, JPM, as a company, earned $527 million compared to $3.4 billion a year ago. It is one of nine banks that the Treasury has slated to partially "nationalize" by purchasing preferred shares in the firm.

Veterans that want to get out of subprime mortgages will find it easier to refinance into Department of Veterans Affairs guaranteed loans thanks to a bill recently passed by Congress and signed by President Bush on Oct. 10. The Veterans' Benefits Improvement Act allows veterans with conventional mortgages to refinance into a zero-down VA loan with a loan limit of $729,750. Previously, lenders could only offer to refinance those veterans into a $144,000 loan with 10% down and still get the full benefit of VA's 25% loan guarantee. "With these changes to the refis we can help more veterans -- where we couldn't before. So I am really pleased," said Judy Caden, director of the VA home loan program. The VA benefits bill (S. 3023) also extends VA's authority to guarantee 1-year adjustable rate mortgages and hybrid ARMs to September 30, 2012.

Banco Santander SA, Madrid, has agreed to acquire the remaining 75.66% of Sovereign Bancorp Inc., Philadelphia, it does not already own. Santander will pay $1.9 billion or $3.81 per share; for the 19.9% stake in Sovereign it purchased in 2005, Santander paid $2.4 billion (it grew the stake to just under 25% through open market purchases). Santander purchased the stake in a controversial three-way transaction that allowed Sovereign to acquire Independence Community Bancorp, Brooklyn, N.Y. An opponent of that transaction was Relational Investors LLC, which now owns 8.9% of Sovereign. Relational will vote in favor of this deal. Ralph Whitworth of Relational, who is also the chairman of Sovereign's capital and finance committee, said "we believe this is the right transaction at the right time for Sovereign. We considered our options and this transaction very carefully and believe it provides stability and upside potential for Sovereign, its shareholders, customers, employees and other stakeholders." After the deal was announced, Sovereign revealed it will have a third quarter net loss of $982 million (-$1.48 per share), driven by impairment on Fannie Mae/Freddie Mac preferred stock of $575 million and a $602 million loss on the sale of its collateralized debt obligation portfolio. Santander has a U.S. banking and mortgage presence through a majority owned unit in Puerto Rico.

As a result of the continued decline in property values in Southwest Florida, Bank of Florida Corp. reported $3 million in write-downs for a large residential condo project and two eight-unit condominium buildings in Lee County and Lehigh Acres. Due to these write-offs, the company said the provision for loan losses increased to $6.2 million. In its preliminary earnings, the Naples-based bank said it expects to report a net loss of $3.4 million. For the third quarter, nonperforming loans increased to $29.1 million compared to $24.3 million as of the second quarter of 2008.

Centex, a large publicly traded home builder that also controls a top 30 residential originator, said that it will suspend its regular quarterly cash dividend due to "deteriorating economic conditions." Among residential funders the Centex-owned CTX Mortgage ranks 26th, according to the Quarterly Data Report. The company said it is suspending the dividend payable to common shareholders to conserve capital and build liquidity "during this difficult business environment." Over the past four quarters it paid out $20 million in dividends to shareholders. In the second quarter CTX Mortgage originated $1.6 billion in home mortgages, a 40% decline from the same period a year ago.