Originations

Popular Inc., San Juan, Puerto Rico, has sold manufactured housing loans held by its U.S. mortgage subsidiary Popular Financial Holdings to 21st Mortgage Corp. and Vanderbilt Mortgage and Finance Inc.. Popular said the transaction would yield $194 million in cash, but the company would still take a pretax loss of $70 million on the transaction. Richard L. Carrion, Popular's president and chief executive, said the agreement "builds on previous actions we have taken to exit nonstrategic markets and strengthen our balance sheet. We still have work to do and will communicate future actions once completed." Previously Popular entered into an agreement with Goldman Sachs to sell PFH's mortgage loans and servicing assets in a transaction that would bring the company $700 million. These two deals, along with $250 million from an issuance of floating-rate notes and $650 million of cash and investments, will give Popular $1.8 billion in liquidity, more than the amount of debt coming due for the remainder of this year and next. The ultimate parent of both 21st Mortgage and Vanderbilt is Berkshire Hathaway, Omaha, Neb.

Over 25% of mortgage delinquencies and foreclosures involve seniors, according to a study by AARP, and older homeowners with subprime mortgages are 17 times more likely to end up in foreclosure than their peers with prime mortgages. "The public perception is that older Americans are financially secure in their homes," said Susan Reinhard, director of AARP's Public Policy Institution. "But the reality is that while many are in fact secure, hundreds of thousands are not and face unsettling uncertainty over their futures as homeowners." The AARP study found that 28% of delinquencies and foreclosures that occurred during the second half of 2007 involved people 50 years and older. "Over 684,000 older Americans were either delinquent or in foreclosure at the end of 2007," the study says. "Of these, nearly 50,000 were in foreclosure or had already lost their homes." The study also picked up disparities between minorities and whites. Foreclosure rates for senior African-American and Hispanic homeowners were 0.51%, compared with 0.19% for senior Caucasians. African-Americans seniors hold over 6.8% of first mortgages in this age group, but represent 14.4% of the foreclosures among seniors.

Genworth Financial Inc., Richmond, Va., issued a statement on its "sound capital position and financial flexibility" just before the market closed Sept. 18 after seeing its common stock's closing price drop by $8 per share over an eight-day period. The eight-day swoon included one day when it dropped $3.42 per share, and Genworth's stock fell as low as $3.51 per share on Sept. 18 before rebounding to close at $9.15. The company said it has $900 million of cash and cash equivalents at the holding company level and an additional $4.0 billion of cash and equivalents in its operating company investment portfolio. The U.S. mortgage insurance business had its ratings affirmed Sept. 11 by Standard & Poor's, whose report indicated that Genworth's capital was in excess of the triple-A rating requirement. Genworth added that based on current market conditions, third-quarter gross realized investment losses will be at or above second-quarter levels, but that this should not have a material adverse effect on the company. Previously, the company said it had exposure of just under $200 million in debt and equity from Fannie Mae and Freddie Mac, as well as some exposure to Lehman Brothers and American International Group. Investors reacted positively to the statement. Genworth's stock price was up over $7 per share in early trading Sept. 19, but it pulled back quickly. Just after noon, the stock price was up $4.25 to $13.40 per share.

First Chester County Corp., West Chester, Pa., the parent of First National Bank of Chester County, has agreed to acquire American Home Bank NA, Mountville, Pa., in a cash and stock transaction valued at approximately $18.2 million. The valuation was based on First Chester's closing price of $15.25 per share on Sept. 18. American Home originated approximately $1 billion in residential mortgage loans in the 12 months ended Aug. 31, 2008. The consumer and commercial banking services of American Home Bank and its branch offices will be merged into the banking operations of First National. Its mortgage banking operations will be run as a separate division of First National under the American Home Bank name. "The acquisition of American Home Bank is consistent with our strategy to expand our geographic footprint and enhance our fee-based income," said John A. Featherman III, chairman and chief executive of First National. "The merger strengthens the combined mortgage banking platform of both banks and positions First National to take advantage of the recent exit from the mortgage market of many nonbank mortgage originators, and to benefit from both the recovery and future growth of the residential housing market."

The state's top mortgage regulator told attendees at the New York Association of Mortgage Brokers annual convention Thursday what kinds of things the New York Banking Department is looking for as it moves its examination process toward "safety and soundness." Rholda Ricketts, deputy superintendent of the mortgage banking division, used the acronym FILM to describe what the regulator wants to see: financial, internal controls, legal, and management systems. In the financial area, the department wants mortgage brokers to have real net worth. She said regulators are not looking for a specific number at this point and are addressing each broker on an individual basis. If a business has more monthly expenses than revenues, it needs to work on establishing financial reserves, she said. "If you are in this business to be in this business ... you realistically have to have some cushion" to cover the bad times, Ms. Ricketts said. The department is "trying to encourage people to build a strong industry," she continued. The image of the mortgage broker is "here today, gone tomorrow," and the industry "can't leave that impression on the table any longer," Ms. Ricketts warned. The NYAMB convention was held in Melville, N.Y.

Three classes of Merrill Lynch Mortgage Trust commercial mortgage pass-through certificates, series 2004-Key2, have been downgraded by Moody's Investors Service. The downgrades were as follows: class M, from B1 to B2; class N, from B2 to B3; and class P, from B3 to Caa2. The rating agency also affirmed the ratings on 16 other classes in the transaction. Moody's attributed the downgrades to estimated losses from specially serviced loans and increased dispersion. Moody's can be found on the Web at http://www.moodys.com.

Zacks.com, Chicago, has highlighted its #5 (Strong Sell) ranking on the stock of Lehman Brothers Holdings Inc. and its #4 (Sell) ranking on the stock of Merrill Lynch & Co. The company noted that Lehman filed for Chapter 11 bankruptcy protection on Sept. 15. "The company, which was trying to finance several risky assets with little capital, became the largest bankruptcy in U.S. history and also the highest-profile casualty of the global credit crisis." Merrill Lynch, which has agreed to be acquired by Bank of America, has posted over $40 billion in writedowns and credit losses in the past year, Zacks said. "Additional writedowns are expected in coming quarters at the world's largest retail brokerage if economic conditions do not improve," the research firm said. Stocks with a #5 (Strong Sell) or a #4 (Sell) rank should be sold or avoided in the next one to three months, according to Zacks. The company can be found online at http://www.zacks.com.

The third-quarter Core Mortgage Risk Index, which forecasts the relative risk of residential loan delinquencies, stands 12% higher than it did a year ago, according to First American CoreLogic, Santa Ana, Calif. The risk index has risen for 11 of the late 12 quarters, the company said. "The CMRI is currently 55% above the base period of the first quarter of 2002, a period near the end of the last U.S. economic recession," said Mark Fleming, the company's chief economist. "Although significantly higher now than during this base period, the CMRI is likely to continue rising nationally over the next 18 months." Mr. Fleming said declining home prices are the "primary factor" in the most recent rise in mortgage risk. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.facorelogic.com.

Fitch Ratings has revised its Rating Watch on American International Group Inc. and its subsidiaries from Negative to Evolving following the federal rescue of the ailing insurance giant. Fitch said it views the move as favorable overall because it "alleviates significant near-term liquidity concerns and provides a source of funding for potential future collateral requirements that are primarily derived from AIG's AIG Financial Products Corp. subsidiary." Fitch said it also believes the arrangement "provides a platform of stability for AIG's primary operating subsidiaries and significantly curtails substantive pressure on AIG to sell assets quickly to fund potential cash calls." The downside is the "effective subordination of essentially all" AIG's senior debt and hybrid instruments, Fitch said. The rating agency said AIG's "most pressing challenges" are likely to evolve from meeting immediate liquidity needs to managing higher financial leverage.

"Advertising is definitely an issue" for state regulators, attorney Bonnie S. Nachamie told attendees Thursday at the New York Association of Mortgage Brokers annual convention in Melville, N.Y. The New York Banking Department has hired an advertising specialist, and state regulators are not just looking for compliance with state laws in this area, but federal ones as well. Ms. Nachamie said the banking department has "new friends" at the Federal Trade Commission. The FTC, the New York Banking Department, and the Department of Housing and Urban Development are all chatting with each other and making referrals. Another area where the banking department is spilling over into a federal issue involves mortgage brokers who are doing Federal Housing Administration loans without having a "mini-eagle," she said. There is also a crackdown by state regulators on mortgage brokers who take applications at unlicensed locations. Ms. Nachamie also warned the audience that mortgage brokers are not exempt from making a Home Mortgage Disclosure Act filing if they have 100 applications per year. This has not been on the regulators' radar screen in the past, but the issue is starting to come up.

With house prices continuing to fall, the banking system will face a "rough period" until the housing market begins to stabilize in the middle of 2009, according to Peter Hooper, chief economist at Deutsche Bank. "The banking system has worked through a substantial portion of losses, but there is a great deal more to come and there is great uncertainty related to how far home prices fall," Mr. Hooper told reporters at an American Bankers Association news conference. Mr. Hooper, who chairs the ABA's economic advisory committee, stressed that house prices are a "critical issue" underlying the financial turmoil and concern about the valuation of financial assets. He said he expects housing prices to begin to level off in the second quarter or the middle of next year. "Things begin to look better at that point," the chief economist said. Meanwhile, more bank economists on the ABA's advisory committee are expecting the economy to dip into a "mild recession" during the second half of this year, Mr. Hooper said. In June, a majority of the economists thought economic growth would be slow but that the United States would avoid a recession. The ABA can be found on the Web at http://www.aba.com.

Two classes of Morgan Stanley Capital I Inc. commercial mortgage pass-through certificates, series 1999-FNV1, have been downgraded by Fitch Ratings. Class K was downgraded from B to B-minus/DR1, and class L was downgraded from CCC/DR3 to CC/DR4. Fitch also affirmed the ratings on 10 other classes in the transaction. The rating agency said the deal contains two specially serviced assets.

Reznick Group PC, an accounting firm based in Bethesda, Md., has announced the formation of Reznick Capital Markets LLC in New York City to expand its services for real estate clients. Reznick Capital will provide services for transactions ranging from joint-venture funding for commercial and mixed-use portfolios to single developments requiring capitalization, Reznick said. Ken Baggett, managing principal and chief executive of Reznick Group, said the new company plans to partner with third-party brokers nationally and internationally. Rob Sternthal has joined Reznick from Credit Suisse as president and managing director of Reznick Capital. The parent company can be found on the Web at http://www.reznickgroup.com.

Activity is slowing in the commercial real estate market in response to tightening credit and weak economic growth, according to the National Association of Realtors. In its latest Commercial Real Estate Outlook, the NAR reports that financing problems stemming from the crisis on Wall Street, not a lack of demand, are curbing real estate transactions. "Although capital remains available for residential loans, the credit crunch is pronounced in commercial lending," said NAR chief economist Lawrence Yun. "Combined with a slowing economy, the lack of credit is curtailing activity in the commercial real estate sectors. As a result, there's been a slowdown in the net absorption of space, which is leading to higher vacancies and more modest rent growth." The association can be found on the Web at http://www.realtor.org.

The House Financial Services Committee has approved a bill that would allow nonprofit housing groups to continue to arrange downpayment assistance on Federal Housing Administration loans and give the FHA some latitude in pricing mortgage insurance premiums based on risk. The bill (H.R. 6694) would reverse provisions in a major housing bill Congress passed this summer that bans seller-funded downpayment assistance on FHA loans starting Oct. 1 and bars the FHA from using risk-based pricing for 12 months. The House is expected to pass the bill despite opposition from the Department of Housing and Urban Development. HUD has been trying to shut down the DPA programs for years because of high default and claim rates. When it comes to RBP, the department contends that the bill is too restrictive. "The RBP portion of the bill would make permanent the recently enacted [12-month] moratorium, which HUD strongly opposed, and place very tight restrictions on FHA's pricing structure," the department said. "HUD does not support it." The House is expected to pass H.R. 6694, but it will die in the Senate, according to industry lobbyists.

The Market Composite Index, an overall measure of mortgage applications, jumped from 496.2 to 661.7 on a seasonally adjusted basis during the week ended Sept. 12 as falling interest rates boosted mortgage demand, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index rose from 371.5 to 380.4 on a seasonally adjusted basis, while the Refinance Index climbed from 1222.9 to 2300.0. Refinancings represented 51.6% of total applications, up from 36.3% the previous week, while adjustable-rate mortgages accounted for 4.0%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.06% to 5.82%, and points (including the origination fee) increased from 1.02 to 1.13 for loans with 80% loan-to-value ratios, the association reported. "Renewed financial concerns should keep long-term Treasury yields low and translate to lower mortgage rates in the near term despite some widening in mortgage spreads," said Orawin Velz, the MBA's associate vice president of economic forecasting. "We expect to see meaningful increases in mortgage demand in coming weeks on both the purchase and refi sides." The MBA can be found online at http://www.mortgagebankers.org.

Housing Secretary Steve Preston vowed Wednesday morning to implement permanent changes to the Real Estate Settlement Procedures Act by year's end even though industry groups are fighting the agency's proposals on consumer disclosures. Speaking at a luncheon in Washington, HUD Secretary Preston said, "Our goal is to get RESPA completed by the end of this year and then provide the industry with a full year to implement the rule." He added, "I firmly believe this will be a big step forward for restoring trust and transparency between the industry and homeowners." Industry trade groups do not like what the Department of Housing and Urban Development has proposed and want the department to work with the Federal Reserve on simplified disclosure forms. HUD's proposal is now under review at the Office of Management and Budget. Fed staffers have urged HUD to take a more coordinated approach in revamping consumer disclosures. HUD has made major modifications to its original proposal based on conversations with the Fed and other government agencies, as well as 12,000 comment letters HUD has received, according to a HUD spokesman. It sent the final RESPA rule to the OMB on Aug. 21.

Construction of single-family homes fell to a new multiyear low in August as the housing finance system continued to crumble and private-sector layoffs took their toll on the homebuying public. According to figures released by the Department of Housing and Urban Development and the U.S. Census Bureau, single-family home construction fell to a seasonally adjusted annual rate of 630,000 -- a 35% drop from the level recorded a year earlier and a 2% decline from that of July. Multifamily construction fell 24% (251,000 units) compared with the level of a year earlier and 17% from that of July. The last time single-family starts were that low was January 1991 -- 604,000 units on a seasonally adjusted annual basis. Despite the horrible showing for August, the National Association of Home Builders said its builder confidence index actually rose in September for the first time in seven months. "Nearly half of the builders in our September survey indicated that they expect to see a positive impact from the tax credit in their market areas," said NAHB chief economist David Seiders. The NAHB also believes the government takeover of Fannie Mae and Freddie Mac will help keep rates low and mortgage money flowing to the public.

The Federal Reserve Board has thrown a life preserver to American International Group by allowing the Federal Reserve Bank of New York to issue an $85 billion line of credit to the troubled insurer. According to the Fed, the loan "will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy." The facility has a 24-month term with an interest rate tied to the three-month London interbank offered rate plus 850 basis points. In return, the government gets a 79.9% equity stake in AIG. Eric Dinallo, the New York state insurance superintendent, will chair an AIG Task Force created by the National Association of Insurance Commissioners that will approve the sale of all AIG insurance assets. "Even as it is virtually impossible to expect the homeowner to sell their $1 million home at a fair price in just one week, it is also very difficult for large companies like AIG to sell assets and raise capital in short periods of time," said Gilbran Nicholas, chairman of the CMPS Institute. "The only difference between AIG and the homeowner in this scenario is in the number of zeros involved. The U.S. government is the only entity that is large enough to help AIG raise enough funds in such a short period of time in order to help the company maintain its financial obligations." The loan from the Fed gives them that time, and taxpayers stand to profit because they just became AIG's biggest shareholder at virtually no cost other than the short-term Fed loan, he said. AIG lost $5.86 billion in the second quarter, which included unrealized market losses on super-senior credit default swaps of $3.6 billion. Operating losses at AIG's United Guaranty Corp. mortgage insurance subsidiary totaled $440 million for the quarter.

The education arm of the Illinois Association of Mortgage Professionals is changing its name to reflect a more national client base. The Illinois Association of Mortgage Professionals Educational Foundation will now be known as the Mortgage Education Foundation. The MEF will offer industry education nationwide, while continuing to host consumer information programs in Illinois. The IAMP remains the parent organization of the MEF. Courses are available in a classroom setting or online and meet state-mandated continuing education requirements for industry professionals in many states, including Alabama, Illinois, Indiana, Minnesota, South Carolina, Washington, and Wisconsin. Other states will be added in the near future, and a complete list will be available at www.mortgageeducationfoundation.com.