Originations

Residential foreclosures continued to climb in September, though at a decelerating pace, and are on track to surpass 1 million by yearend, according to a new report issued by ForeclosureS.com, Sacramento, Calif. Foreclosures rose 82.6% last month compared with a year earlier and were up 6.6% from August. One bright spot: Preforeclosure filings fell 2.4% in September from a year earlier, with double-digit declines in the hardest-hit states of California and Michigan, though it was unclear whether the drop in preforeclosure filings could be attributed to changes in state laws or to more loan modifications by lenders and servicers to keep defaulted borrowers in their homes. According to a report in American Banker, the company warned that the slumping U.S. housing market still faces significant problems. "The gains likely are temporary and not necessarily indicative of the foreclosure crisis' easing just yet," said Alexis McGree, president of ForeclosureS. This summer California passed legislation to establish detailed procedures requiring lenders to assess the financial condition of defaulted borrowers and explore options for avoiding foreclosure.

Freddie Mac is ordering its seller/servicers to suspend all foreclosure sales on properties with Freddie Mac-owned mortgages in federally declared disaster areas caused by Hurricane Ike, primarily Texas and Louisiana. "Freddie Mac is taking this step because the extensive damage Hurricane Ike caused has made it difficult for our servicers to get the information they need to make case-by-case decisions about forbearance or other workout options," said Ingrid Beckles, vice president of servicing and asset management at Freddie Mac. The suspension will extend from October 8 to December 31, 2008 and include mortgages that were in default prior to Hurricane Ike. Servicers will be required after the suspension ends to consider individual circumstances in determining whether additional foreclosure relief should be extended or whether to proceed with foreclosure.

Wells Fargo & Co. will wind up as the owner of Wachovia Corp. after all, a purchase that will help the San Francisco-based bank battle Bank of America for control of the residential lending and servicing arenas. Late Thursday Citigroup ended its pursuit of the ailing Wachovia but said it will follow through on a $60 billion damage claim against Wells for striking a deal after it had already agreed to buy the company. (The Federal Deposit Insurance Corp. had sanctioned Citi's purchase in late September -- but that was before Wells made a higher bid.) With Wachovia under its belt, Wells will control 17.65% of the $9.6 trillion housing receivables market compared to Bank of America's 21.06%. In lending, Wells/Wachovia will have an origination share of 17.73% to BoA's 19.99%. (The market share figures are based on June 30 data and take into account BoA's July 1 purchase of Countrywide Home Loans.) The deal also gives Wells a major retail deposit base in the mid-Atlantic where the housing market has held up well compared to states like California, Florida, and Nevada. Wells' takeover price for the Charlotte-based bank is valued at just under $6 a share.

Even though the wholesale residential lending channel appears to be on the ropes, it will return one day, according to Joe Falk, past president of the National Association of Mortgage Brokers. In an interview with MortgageWire Mr. Falk said that the some lenders are factoring in such costs as loan fraud and appraisal problems, concluding -- based on the book of business of the past few years -- that retail is cheaper. "Lenders have to ask if retail is now cheaper," he said. He noted that firms that have exited the wholesale arena this year (like National City and Wachovia) have reached such a conclusion. But Mr. Falk believes that when the loan market begins to stabilize, lenders will once again conclude that wholesale is a more cost effective way to do business. He said that Citigroup's recent decision to slash its wholesale broker network was not a surprise.

The Department of Housing and Urban Development wants to extend the 'FHA Secure' program past its December 31 sunset date and is seeking approval from the White House budget office. "We are in discussions right now with the White House," Federal Housing Administration commissioner Brian Montgomery told MortgageWire. He noted the FHA Secure program has certain nuances and flexibilities that complement the newly launched 'Hope for Homeownership' program, which Congress created to help more distressed borrowers refinance into FHA loans. FHA Secure was launched in September 2007. To date the program has helped 375,000 borrowers with subprime, payment option ARMs and even conventional mortgages refinance into safer and less expensivee FHA products. In July, HUD expanded the program to help delinquent borrowers refinance into FHA loans. The National Association of Realtors and Mortgage Bankers Association support an extension of the FHA Secure program.

Ginnie Mae is essential to the recovery of the market, said Ginnie Mae president Joseph Murin addressing the 4th Annual Mortgage Lending Industry Strategic Markets and Diversity Conference at the National Harbor, Maryland. Furthermore, he noted that after the government takeover of Fannie Mae and Freddie Mac, Ginnie Mae is taking a leadership role in helping secure affordable housing and secondary market funding. One clear indicator is Ginnie Mae's current and expected growth, especially in the secondary market where Ginnie Mae is now a critical player. Projections of Ginnie Mae mortgage-backed securities show that in 2008 Ginnie's volume will reach $210 billion, compared to only $90 billion in 2007. Further, by the end of 2009 it is expected to cross the $1 trillion mark, he said. This means Ginnie Mae may represent over 40% of the mortgage-backed securities business by yearend 2009.

According to Freddie Mac's Primary Mortgage Market Survey the 30-year fixed-rate mortgage (FRM) averaged 5.94%, down from last week when it averaged 6.10%. Last year at this time, the 30-year FRM averaged 6.40%. Similarly, the 15-year FRM this week averaged 5.63%, down from last week when it averaged 5.78%. A year ago at this time, the 15-year FRM averaged 6.06%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.90%, down from last week when it averaged 6.00%. The only rise came among one-year Treasury-indexed ARMs, which averaged 5.15% this week, up from last week when it averaged 5.12%. Putting the numbers into context, Frank Nothaft, Freddie Mac vice president and chief economist said, "Longer-term mortgage rates fell for the first time in three weeks, roughly following bond market yields. Meanwhile, the latest housing market data showed some pickup in home purchase activity in August."

The Treasury Department started purchasing agency mortgage-backed securities in September and Fannie Mae and Freddie Mac will be increasing their MBS purchases to support the housing market, according to Treasury secretary Henry Paulson. "As Treasury and the GSEs increase their purchases, mortgage affordability should improve for Americans," Mr. Paulson said. When the government sponsored enterprise regulator - the Federal Housing Finance Agency - placed Fannie and Freddie into conservatorships on Sept. 7, Treasury announced that it would purchase $5 billion in GSE MBS and later increased its MBS program to $10 billion. At the same time, FHFA director James Lockhart said he would relax GSE portfolio limits so they could increase their MBS investments. Mr. Paulson said Fannie and Freddie combined have the regulatory "headroom" to purchase over $150 billion in MBS.

House Financial Services Committee chairman Barney Frank, D-Mass., is demanding that other major servicers follow Bank of America's model and adopt plans for "immediate mass modifications" to stem the flood of foreclosures. Rep. Frank also put 10 major banks and servicing companies on notice that they are expected to report to his committee by Oct. 17 on their plans to adopt a systematic approach to loan modifications. "Hope Now and other industry initiatives have had too little impact to meet the large and growing need for widespread relief," Rep. Frank says in a letter to the companies and industry trade groups. The committee chairman stresses the BoA/Countrywide settlement agreement to modify nearly 400,000 subprime and payment-option mortgages should serve as a template for the rest of the industry. "It is essential that every mortgage servicer firmly commit to implement plans for immediate mass modifications based on, or stronger than, the measures BoA/Countrywide has undertaken," Rep. Frank says in the Oct. 8 letter.

The regulator of Fannie Mae and Freddie Thursday morning suspended capital classifications for the two GSEs, which have been operating under government control since early September. Both mortgage giants continue to buy loans from their seller/servicers. Through the purchase of senior preferred stock, the Treasury Department owns most of both companies although their common shares continue to trade on the New York Stock Exchange. In a statement, the Federal Housing Finance Agency said it will continue to "closely monitor" their capital levels but noted that any minimum capital requirements "will not be binding during the conservatorship." Agency director James Lockhart said he is officially classifying the two mortgage giants as "undercapitalized" as of June 30, even though both reported second quarter results saying they met FHFA's statutory requirements for capital. FHFA's actions today were not unexpected.

Friedman Billings Ramsey is telling its clients to avoid investing in financial stocks, noting that the "future capital structure" of the industry is uncertain "given the growing likelihood of direct equity investment in financials by the government." The firm notes, "We expect that the government will take additional, drastic steps to combat the financial crisis, as rate cuts and Federal Reserve-backed auction facilities have had limited benefits." Earlier in the decade FBR's investment banking arm took many subprime residential firms public using a real estate investment trust ownership (REIT) structure. Every subprime firm it has raised equity for has either failed or merged out of existence. On Thursday FBR's share price hit a new 52-week low: 62 cents. Its high is $5.

The Federal Reserve has authorized another $37.8 billion in aid for insurer American International Group, which continues to struggle with liquidity and capitalization concerns that are partially mortgage-related. "Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral," the Fed said. "These securities were previously lent by AIG's insurance company subsidiaries to third parties." The Fed added that, "drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities."

CitiMortgage, the nation's fourth largest residential wholesaler, is making deep cuts in its table funding unit, cutting 500 account executive jobs, and slashing its broker network to 1,000 from a current head count of 9,500. A company spokesman confirmed the cuts to MortgageWire on Wednesday. He said most of the AEs being cut "are work at home work positions." He added that CitiMortgage, which table funded $6.4 billion in home mortgages in the second quarter, will continue to use brokers in all loan markets. "There are no areas we are avoiding," he said. He stressed that CitiMortgage, which is based in O'Fallon, Mo., is not exiting the wholesale arena. Over the past year dozens of lenders have ceased using loan brokers entirely including, IndyMac (now a ward of the government), National City, Wachovia, Washington Mutual, and others.

The controversial ban on downpayment assistance that went into effect Oct. 1 on government-insured mortgages may hurt FHA loan production in the short-term, according to a panel at the diversity conference. But over the long haul, it will be a blessing, the panelists agreed. There may be fewer loans now, said Timothy Doyle of the Conference of State Bank Supervisors, who called the prohibition "a positive." But in the long term, he added, the ban "will result in more sustainable home ownership." Mr. Doyle contended that DPA has "driven the high rate of foreclosures" because it bypasses sound underwriting principles. Proponents of down-payment assistance argue that it is a valuable tool in getting cash-trapped borrowers - typically minorities and immigrants - into homes. But not Tom Goyda, vice president of research and analysis at Wells Fargo Home Mortgage. Although "a lot of people love" DPA, he said, the ban will help ensure the long-term viability of the FHA.

Home-buyer education will play a pivotal role in reversing the notion that the only way to make mortgages to low and moderate-income families is to put them into dangerous, perhaps even irresponsible, loans, speakers agreed at the Mortgage Lending Industry Strategic Markets and Diversity Conference. "We've got to focus on getting buyers home-ready, instead of just opting to go down the credit curve," said Mark Goldhaber of Genworth Mortgage Insurance, Raleigh, N.C., which is expanding its "Counseling Saver" product that offers a discount for borrowers who complete a pre-purchase counseling program with a non-profit, non-lending institution. Representatives of Wells Fargo Home Mortgage and CitiMortgage also cited their companies' strong commitment to financial education. "We're very big on home buyer education," said Citi's Terry Fowlkes. "Part of the reason (the mortgage market is) in trouble today is because too many borrowers weren't ready and didn't understand" what they were getting into. Ms. Fowlkes said Citi is especially interested in offering educational programs through faith-based community groups. "The faith community is a very big trusted advisor for people of color," she said.

The housing finance business has a rare opportunity to re-invent itself, the Mortgage Bankers Association's chief operating officer believes. The question is, is the industry up to the challenge? Mortgage lenders have "lost a great deal of credibility," John Courson told a mortgage industry diversity conference meeting at Maryland's new National Harbor development just across the Potomac from Washington, D.C. Consequently, he said, it "needs to take some bold, aggressive action and change some of the basics." Toward that end, the MBA has formed a "Restore the Faith" task force of 15 of its "most wild and wooly members" to come up with some new and refreshing ideas on how to move forward. "We need to put some elbow pads on," he told the Mortgage Lending Industry Strategic Markets and Diversity Conference at the Gaylord National Resort. "Everything is in the mix, everything is at play. The question is, are we willing to take the chance, are we willing to step up and take off into a new era of mortgage lending?" Mr. Courson will take over for Jonathan Kempner as president of the MBA, the group's top staff position, on Jan. 1.

The National Association of Realtors Pending Home Sales Index for August increased 7.4% to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8% higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4. Lawrence Yun, NAR chief economist, said homebuyers were responding to improved affordability. "What we're seeing is the momentum of people taking advantage of low home prices, with pending-home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region," he said. "It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we're hopeful most of the increase will translate into closed existing-home sales." The index increased in all four regions of the country, but had its highest increase in the West, up 18.4%. Mr. Yun added "Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie. August shows some unleashing of pent-up demand before the credit crisis accelerated in September." NAR's website is http://www.realtors.org.

The Market Composite Index, an overall measure of mortgage applications, increased from 455.4 to 465.5 on a seasonally adjusted basis during the week ended Oct. 3, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 304.8 to 314.5 on a seasonally adjusted basis, while the Refinance Index increased to 1345.8 from 1333.9. Refinancings represented 43.4% of total applications, down from 44% the previous week, while adjustable-rate mortgages accounted for 2.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages declined eight basis points from 6.07% to 5.99%, and points (including the origination fee) decreased from 1.12 to 1.09 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Moody's Economy.com believes that nationally, home prices are currently down 20% from their peak in 2006, and economists at the firm anticipate that prices will drop another 10% before the bloodletting is over. Consumer economist Scott Hoyt at Economy.com told MortgageWire that the firm believes that one in six homeowners currently owe more on their mortgage than the home is worth. That's up from just 6% in 2007. And the number of homeowners who are underwater could grow next year. "I think we are maybe two-thirds of the way through" the housing downturn, Mr. Hoyt said. Economy.com anticipates that prices will bottom in the summer of 2009 but will not begin to recover much before the middle of 2010.

The International Monetary Fund has estimated declared losses on U.S. originated loans and securitized assets will reach $1.4 trillion, up from an earlier $945 billion estimate it made this spring. "The U.S. remains the epicenter of the financial crisis, with its housing market continuing to decline and a wider economic slowdown contributing to a further deterioration in the quality of existing loans," the IMF said in a report. "Authorities in the U.S. and a number of countries have taken measures to bolster confidence in financial institutions and markets, including injecting capital in financial institutions or proposing to buy troubled assets," the fund acknowledged. But the report's author and director of the IMF's Monetary and Capital Markets Department, Jaime Caruana, said he believes that "the ultimate success of these measures is difficult to gauge."