Originations

The Mortgage Bankers Association has announced the leadership of its 2008 Commercial Real Estate/Multifamily Finance Board of Governors, which focuses on commercial/multifamily real estate finance policy issues and initiatives.The officers of the 30-member COMBOG are: Steven K. Graves, chief operating officer of Principal Real Estate Investors, chair; Daryl J. Carter, chairman and CEO of Avanath Capital Partners, vice chair; and David A. Roberts, president and CEO of Collateral Real Estate Capital LLC, vice chair. The announcement was made at the 94th Annual Mortgage Bankers Association Convention & Expo in Boston.

Mortgage originations will fall below the $2 trillion level in 2008 for the first time since 2000, Mortgage Bankers Association chief economist Doug Duncan told reporters Oct. 16 during a news briefing at the group's annual convention in Boston.Originations were $2.7 trillion in 2006 and are projected to be $2.3 trillion for this year. Next year, volume will fall to $1.9 trillion, the MBA economist said. Regarding the credit crunch, "if it is all about subprime, why did Cerberus have a problem" getting the funding for its eventual acquisition of Chrysler, Mr. Duncan asked. The real issue, he said, is leverage, although issues with subprime mortgages were the trigger. Mortgage industry job losses will top 100,000 and possibly go as high as 110,000, he predicted. Back in 2004, when there was a brief market slowdown, Mr. Duncan predicted there would be job losses of 80,000. While there were some initial job cuts back then, growth in the asset-backed business led to an increase in employment. Now we are seeing those cuts being made, enhanced by the new hires, he said. The MBA can be found online at http://www.mortgagebankers.org.

The liquidity provided by private-label mortgage-backed securities fueled aggressive lending practices that have contributed to rising defaults and foreclosures, according to a Government Accountability Office study.The GAO study indicates that underwriting standards deteriorated from 2000 to 2006 along with the increase of adjustable-rate mortgages and limited- or no-documentation loans. "Growth in the market for private-label MBS beginning in 2003 provided liquidity to some brokers and lenders to support these aggressive lending practices," the congressional watchdog agency says. The National Association of Mortgage Brokers said the GAO study shows that securitization and too much liquidity led to aggressive practices by banks and other lenders. "Mortgage brokers are not to blame for the meltdown in the subprime market," NAMB president George Hanzimanolis said. The study points out that mortgage brokers accounted for 60% of originations in the subprime market and 25% in the prime market in 2005.

Rep. Paul Kanjorski, D-Pa., has introduced a mortgage servicing and appraisal reform bill that he plans to attach to a comprehensive predatory lending bill the House Financial Services Committee is expected to mark up this fall."This bill helps to protect consumers by improving mortgage servicing, enhancing appraisal quality and standards, ensuring better appraisal oversight, and requiring escrows for those mortgages where borrowers are more likely to experience difficulty in budgeting for the often substantial cost of taxes and insurance," Rep. Kanjorski said. The second-ranking Democrat on the Financial Services Committee has been working on servicing and appraisal reforms for several years as a result of a major developer scam in his Pennsylvania district that led to scores of foreclosures. One aim of the bill (H.R. 3837) is to address the lack of escrow accounts on subprime loans. Lenders would be required to provide an estimate of taxes and insurance when borrowers apply for a mortgage so that they understand the annual costs if they opt out of establishing an escrow account at closing. The bill also attempts to shield appraisers from lender pressure and updates the Real Estate Settlement Procedures Act to create new servicing protections for consumers and increases penalties for violations.

The Senate Banking Committee has approved a five-year extension of the National Flood Insurance Program and a seven-year extension of the federal government's terrorism insurance program in strong bipartisan votes.By a 21-0 vote, the committee passed the NFIP extension bill that would forgive $21 billion in debt accumulated by the flood insurance program in the 2005 hurricane season and phases out subsidized premiums for vacation homes and properties with repetitive flood losses. The Senate bill does not expand coverage to include wind damage, as a House-passed flood bill did, because committee leaders are uncertain of the costs and concerned that it would sink the bill. By a 20-1 vote, the committee approved an extension of the Terrorism Risk Insurance Act that the Bush administration says it can support. The House is working on a 15-year extension of TRIA along with expanding coverage to include nuclear, biological, chemical, and radiological acts of terrorism. The Senate bill includes a study of such expanded coverage.

Subprime servicer NovaStar Financial, Kansas City, Mo., has agreed to sell its servicing portfolio to an affiliate of Morgan Stanley & Co. for $175 million in cash.According to the Quarterly Data Report, at the end of June NovaStar serviced $15 billion in subprime loans, ranking 19th nationwide. The publicly traded NovaStar said it would use the proceeds to reduce debt. "As we continue to endure a difficult period for the mortgage industry and the secondary market for mortgage loans, our focus is on managing our portfolio of mortgage securities, along with brokering loans with a retail team that continues to serve homeowners," NovaStar president Lance Anderson said in a statement. NovaStar added that it is evaluating "the impact of this transaction on its servicing organization, including its servicing work force of approximately 300 persons, but expects that substantial reductions in both its organization and work force will result." NovaStar can be found online at http://www.novastarmortgage.com.

Single-family housing starts fell 2% in September from the level of the previous month while multifamily starts plunged 36%, according to government figures released Wednesday.Homebuilders broke ground on 963,000 single-family units (annualized), compared with 1.39 million units in September 2006, a decline of 31%. A research note put out by RBS Greenwich Capital says: "On the surface, today's headline reading looks to be disastrous. However, it was the volatile multi-family sector that was responsible for most of the decline in total starts in September. This category can swing wildly from one month to the next." Total starts (which include single-family and multifamily) fell to 1.191 million units, a 10% drop from the level recorded in August, and a 31% decline from that of a year earlier.

Residential Capital Corp. may close its Residential Funding Corp. conduit as part of a plan to slash its full-time work force, industry sources have told MortgageWire.ResCap, which controls RFC and GMAC Mortgage of Horsham, Pa., plans to stay in the correspondent business -- but through GMAC, sources said. A spokesman for ResCap would not comment on the layoffs but said the company will remain a correspondent lender. Created by Salomon Brothers back in the 1980s, RFC has a long history in the business. Its headquarters are in Minneapolis. "RFC is doing no volume right now," said one banker familiar with the company. ResCap is 51% owned by hedge fund Cerberus Capital Corp., which recently threw its subprime unit, Aegis Mortgage, into bankruptcy. Earlier this year Cerberus agreed to buy Option One Mortgage of California but the sale is in trouble.

Residential Capital Corp. confirmed Wednesday that it will restructure its worldwide mortgage operations, resulting in a charge of up to $110 million and layoffs of 3,000, or 25% of its work force.Early on Oct. 17, MortgageWire broke the news that ResCap may close its mortgage conduit, RFC. (See item below.) ResCap, the mortgage arm of GMAC Financial Services, employed 12,000 before the job cuts. GMACFS, which is now controlled by the Cerberus Capital hedge fund, blamed the restructuring and layoffs on "downturns" in the U.S. residential market and "the global dislocation of the mortgage finance and credit markets." The company can be found on the Web at http://www.rescapholdings.com.

Financial Freedom, an originator of reverse mortgages based in Irvine, Calif., has announced the introduction of its HECM Monthly LIBOR 65 product, the company's first LIBOR-indexed Home Equity Conversion Mortgage.The loan, with an interest rate based on the one-month London interbank offered rate index, provides borrowers with all the features and benefits of other HECM reverse mortgages, the company said. "HECM Monthly LIBOR 65 joins our existing line of HECM products, resulting in the broadest HECM product suite in the reverse mortgage industry," said Michelle Minier, chief executive officer of Financial Freedom. The company, a subsidiary of IndyMac Bank FSB, can be found on the Web at http://www.financialfreedom.com.

For the first time, Federal Housing Administration lenders now have the option of using the one-year London interbank offered rate as an index for FHA adjustable-rate and reverse mortgages, according to a final rule.The final rule, which has an Oct. 12 effective date, also allows reverse mortgage lenders to use the one-month LIBOR or the one-month constant maturity Treasury index for monthly adjustments of FHA Home Equity Conversion Mortgages. "While FHA expects that the market will determine the degree of usage of the LIBOR indices, the existing constant maturity Treasury indices will remain acceptable for 1-, 3-, 5-, 7-, and 10-year forward ARMs and for HECM ARMs," according to a mortgagee letter. LIBOR is commonly used on several conventional and subprime ARM products.

Fairway Independent Mortgage Co., a mortgage broker/banker with over 100 branches nationwide, has announced a transition from operating as an FHA nonsupervised loan correspondent to a Department of Housing and Urban Development direct endorsement lender.Fairway said the transition enables it to originate and underwrite its own loans, and to increase its Federal Housing Administration originations and get more control of the underwriting process. Fairway had been operating as an FHA nonsupervised loan correspondent, and has been originating FHA loans since its inception in 1996, but until now did not have the power to underwrite these loans. Fairway said it has had a strong quality-control plan in place for the last several years. The company can be found on the Web at http://www.fairwayindependentmc.com.

Redwood Trust, a real estate investment trust specializing in residential and commercial trusts, has deployed Overture's Mozart Tape Cracking 2.0, a software program that enables secondary-market investors to automatically convert complex bulk loan data submitted by primary market lenders into their own formats."We're now able to receive and audit bulk loans from lenders more efficiently and accurately than ever before," said Gary Moore, vice president of information technology for Redwood Trust. "Tape Cracking 2.0 automates a lot of the processes that surround the conversion of nonstandardized data into an investor's own format, making it faster, easier, and more efficient for us to move forward with the evaluation processes." Among the enhancements that distinguish Tape Cracking 2.0 from the original product are an improved ability to manage multiple templates and outputs; a better auditing trail; improved ability to incorporate non-input data; enhanced data mapping capabilities; enhanced cleaning of data errors; and improved error logging.

One-third of adult Americans plan to cut back on spending because of fallout from the subprime mortgage crisis, according to TNS, a New York-based provider of customized research and analysis.Of those surveyed, 17% said they planned big cutbacks in home improvement and major furniture outlays, vacation travel, and entertainment, and 14% said they would scale back on technology purchases, TNS reported. About 70% blamed subprime mortgage lenders for the crisis, followed by 60% who blamed the real estate and housing industry, 58% who blamed subprime mortgage borrowers, and 57% who blamed investors. The Internet-based survey was based on a national sample of 2,500 people 18 years of age or older, the company said. TNS can be found online at http://www.tns-global.com.

Standard & Poor's Ratings Services has announced downgrades on 402 classes of U.S. RMBS backed by first-lien subprime mortgage loans issued in the first three quarters of 2005.The classes, from 138 residential mortgage-backed securities deals, total approximately $4.6 billion of original par amount. S&P said that represents 1.45% of the $320 billion original par amount of such subprime RMBS that it rated from the first to the third quarter of 2005. S&P also affirmed the ratings on securities from the same period that represent $252.4 billion original par value of first-lien subprime U.S. RMBS. The rating agency attributed the downgrades to expectations of further losses, the resulting reduction in credit support, and continued declines in home values. In addition, the transactions allow the release of credit support on certain "step-down" dates, and therefore "we believe these securities will be more vulnerable to losses going forward, as there may not be enough credit support to withstand future losses," S&P said. The rating agency can be found online at http://www.standardandpoors.com.

During the current instability in the subprime market, the Federal Housing Administration program has remained a stable force, Federal Housing Commissioner Brian Montgomery told a panel on the future of the subprime market at the Mortgage Bankers Association annual convention in Boston.Loans being made through the FHASecure initiative, he said, are performing very well, better even than its purchase business. The program will serve some 80,000 borrowers who are in default on their current mortgages as well as 160,000 who are not in default. Regarding FHA reform, Mr. Montgomery addressed the risk-based pricing portion of the proposal, noting that it would allow the FHA to expand its services to borrowers who have a weaker credit profile. As a result, those with better credit will not have to subsidize those with weaker credit. Risk-based pricing will allow more families to qualify for FHA-insured loans and qualify easier.

The housing recovery is still a long way off, a panel of mortgage industry executives agreed at the Mortgage Bankers Association annual convention in Boston."The overall picture is not a great one," Patti Cook, chief business officer at Freddie Mac, told a ballroom packed with anxious conference attendees. Paul Bibb of National City Mortgage didn't do much to ease the industry's anxiety, either, noting that while some markets are okay, others "are train wrecks." These are places where price corrections could be quite severe, and it may take until 2010 to return to normal, Mr. Bibb said. David Lowman of Chase agreed. Because "fearful" homebuyers are staying away in droves, it will "easily be into '09 and maybe even '10" before the market begins to turn around, Mr. Lowman said. "I think we're in for quite a ride." To weather the storm, the Chase official said his company is returning to sound underwriting fundamentals in all its origination channels and doing everything else it can to draw investors back into the fold. National City, on the other hand, is redirecting its lending around agency products. "If it's not saleable," Mr. Bibb told the session, "we don't want to originate it right now."

Pinnacle Bank of Oregon, Beaverton, Ore., has announced that it expects to report a net loss of unspecified size for the third quarter due to the weakening housing construction market.The expected loss will be the result of a loan-loss provision of approximately $1.4 million, the bank said. "Despite the large provision, the bank expects to continue to be well-capitalized by regulatory standards," Pinnacle Bank said. The bank can be found on the Web at http://www.pinnaclebankoregon.com.

ValuFinders Inc., a provider of valuation services based in Culver City, Calif., has introduced a service that helps originators comply with a Department of Housing and Urban Development Mortgagee Letter regarding accountability and fraudulent appraisal reports.The service, called Appraisal Concierge, was unveiled at the Mortgage Bankers Association convention in Boston. Under HUD Mortgagee Letter 2007-11, dated Sept. 6, 2007, lenders will share responsibility with the appraiser if a poor or fraudulent appraisal leads the FHA to insure a loan at an inflated amount. "Lenders and brokers will soon be just as responsible for fraudulent and deficient appraisals as the appraiser," said Joe Williams, chief executive of ValuFinders. "Our system is an independent portal that acts as a 'middle man' in accepting orders and facilitating the deliverables back to the lender." Appraisal Concierge is described as an outsourcing database that lets lenders and brokers order appraisals through the Web. The system randomly selects an appraiser from a pool. "This service bypasses communications between lenders or brokers and appraisers," assuring appraiser independence, Mr. Williams said.

A new credit management tool from CreditXpert, Towson, Md., introduced at the Mortgage Bankers Association's annual convention allows lenders to quickly and cleanly assess the impact of authorized user accounts on a borrower's credit score, the company says.Billed as an answer to the controversial practice known as "piggybacking," the firm's authorized user filter includes a two-step analysis of a borrower's credit file, first considering authorized user accounts and then excluding them, so lenders will know their effect on a credit score. An authorized user can be a spouse or a child added to a credit card user list, but firms have recently popped up to "rent" such status to the accounts of strangers to boost the scores of those with poor credit or no credit. One borrowed credit card account can boost a score by up to 45 points, according to a leading "rental company." CreditXpert estimates that 30% of credit files have at least one authorized user -- two or three are common, says managing director David Chung -- and six of every 10 of those will have a credit score change when accounts are removed in the scoring process. With CreditXpert AU Filter, Mr. Chung says lenders "can identify the borrower's true risk at a glance." The company can be found online at http://www.creditxpert.com.