Originations

Despite what the National Association of Mortgage Brokers says are unnecessary barriers that keep some members from originating FHA-insured mortgages, brokers now account for a third of the Federal Housing Administration's production, according to FHA Commissioner Brian Montgomery.Speaking to the NAMB's delegate council June 22 at the group's annual convention in Seattle, Mr. Montgomery said there has been a 25% increase so far in fiscal year 2007 in the number of brokers approved to write FHA loans. He called the increase a "great sign" and a said it is a trend he hoped would continue. "We want to see broker participation grow," he told the council, which consists of the group's executive leadership plus two representatives from each state affiliate. To earn approval to make FHA loans, brokers must post a $75,000 bond plus agree to yearly audits. But the NAMB believes the audit requirement is too onerous and "too expensive" for small firms that don't do many loans. For the government's part, the FHA commissioner said his agency is "working hard" to expand its direct endorsement program "to allow highly qualified FHA-approved lenders to use non-FHA-approved mortgage brokers. That's "how it's done in the rest of the industry right now," he said.

Nearly 20% of subprime borrowers with adjustable-rate 2/28 mortgages that reset this year are already facing problems in making their payments, and it is going to get worse, according to Fannie Mae economists.Data from First American LoanPerformance show that 18% of those borrowers are in trouble: 11% are delinquent, 4% are in default, and 3% are in foreclosure as of March 31. Fannie chief economist David Berson estimates that less than 25% of those borrowers have experienced a reset to the fully indexed rate and that the vast majority still benefit from the "teaser" rate. In comparison, the percentage of troubled subprime ARM loans that reset in 2006 is only 12% as of March 31. However, 76% of those borrowers who got into a 2/28 ARM in 2004 have already financed or sold their house. Mr. Berson said it will be harder for 2/28 borrowers to refinance this year because of tighter underwriting standards and higher interest rates. It will likely lead to higher delinquencies and defaults. "It is a disturbing trend," Mr. Berson said.

Bear Stearns & Co. tried to reassure investors Friday that a $3.2 billion loan to a subprime-related hedge fund it manages is adequately collateralized.In a conference call, Bear Stearns chief financial officer Sam Molinaro said the Wall Street firm is trying to restructure the hedge fund (and a similar one) but that the process could take several months. On Wednesday night Merrill Lynch, a lender to one of the funds, liquidated roughly $850 million in collateral after the fund failed to meet its margin calls. Sources say that on Thursday two other lenders to the funds -- Bank of America and Goldman Sachs & Co. -- were contemplating seizing collateral because of margin call concerns, but then reached some type of agreement with Bear. One investment banking source described BoA's and Goldman's actions as "self-preservation on the part of all three." The two Bear funds reportedly own subprime asset-backed and residual securities and have positions in the ABX index.

Single-family existing-home sales edged down 0.8% in May as the spring sales season began drawing to a close and the inventory of unsold homes rose to an 8.7-month supply, according to the National Association of Realtors.The Realtors reported that sales fell for the third consecutive month to a seasonally adjusted annual rate of 5.20 million in May, down from 5.24 million in April. Compared with those of April 2006, sales of previously owned homes were down 10.8%. NAR senior economist Lawrence Yun noted that the downturn in the housing market has made consumers reluctant to buy, and household formation has "slowed dramatically" since late 2006. He also said tighter subprime lending standards continue to be a "drag" on sales. The median sales price of a single-family home was $223,000 in May, down 2.4% from that of May 2006. Meanwhile, the NAR reported that condominium/cooperative sales rose 2.3% in May and that the median sales price stood at $228,200, down 0.4% from that of a year earlier. The NAR can be found online at http://www.realtor.org.

Two classes of notes issued by Ipswich Street CDO Ltd. and Ipswich Street CDO LLC have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are classes D and E. The transaction is a collateralized debt obligation supported by residential and commercial mortgage-backed securities and other CDOs, Fitch said. The negative rating actions were based on the downgrading of three subprime closed-end second-lien RMBS bonds representing 1.04% of the underlying portfolio, the rating agency said. In addition, 2.18% of the portfolio has been placed on Rating Watch Negative.

Four classes of notes from two collateralized debt obligations managed by ACA Management LLC have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are class D of ACA ABS 2003-1 and classes B-F, B-V, and C of ACA ABS 2003-2. The transactions are supported chiefly by residential mortgage-backed securities, along with asset-backed securities, other CDOs, commercial MBS, and the debt of real estate investment trusts, Fitch said. The negative rating actions were based on credit deterioration within the two portfolios and the high exposure of the two transactions to underperforming 2006 vintage subprime closed-end, second-lien RMBS assets, the rating agency said. In addition, 2.18% of the portfolio has been placed on Rating Watch Negative.

The outlook for homeowners with subprime mortgages remains bleak, and concerns about foreclosures have not been exaggerated, according to the Center for Responsible Lending.The CRL said some in the mortgage industry have criticized foreclosure information provided by RealtyTrac to suggest that foreclosure concerns have been overblown. "Unfortunately, nothing could be further from the truth," the nonprofit research and policy group said. "Recent reports from business analysts, investment banks, and even mortgage lenders all confirm that Americans with subprime mortgages are losing their homes at an alarming rate." The group cited reports from Lehman Brothers, Fitch Ratings, Moody's Investors Service, and the Mortgage Bankers Association in support of its contention. The organization can be found on the Web at http://www.responsiblelending.org.

Mortgage bankers funded just $88 billion in subprime residential loans during the first quarter, with scores of lenders failing and concerns about credit quality taking their toll on the sector.According to exclusive survey figures compiled by National Mortgage News and the Quarterly Data Report, subprime production accounted for just 12% of all loans originated in the United States, compared with a high of 24% in 2005. The last time subprime's quarterly share was this low came in the third quarter of 2003, when A-minus to D production accounted for 9.2% of the industry's fundings. (For complete details, see the June 25 issue of NMN.)

A proposal by the Department of Housing and Urban Development to eliminate seller-financed downpayment assistance on FHA-insured loans has run into bipartisan opposition in the House.During a House Financial Services subcommittee hearing, Republicans and Democrats urged HUD to drop the proposed rule and improve its regulation and monitoring of downpayment assistance programs run by nonprofit organizations. Subcommittee Chairman Maxine Waters, D-Calif., suggested adding language to a Federal Housing Administration reform bill that would override HUD's proposed DPA rule. Rep. Waters also suggested that HUD extend the July 10 comment period deadline on the proposal for another 30 days. Rep. Gary Miller, R-Calif., urged the FHA to improve its underwriting standards on loans with DPA to improve their performance. The foreclosure rate on FHA loans with downpayment assistance provided by nonprofits is 16%.

The Bear Stearns hedge fund "debacle" strengthens the argument that issuers of subprime mortgage securities should have some liability for the underwriting of loans they securitize, according to House Financial Services Committee Chairman Barney Frank, D-Mass.This past week, Merrill Lynch liquidated roughly $850 million in subprime-related assets it had seized from at least one Bear hedge fund after the fund failed to meet its margin calls. Bear Stearns -- after being pressured by other creditors -- is moving to shore up the hedge fund (and a second fund) to prevent a liquidation. Industry groups contend that assignee liability would "kill" the subprime securitization market. In an interview on public television's Nightly Business Report, Rep. Frank said, "But that market is dying of its own right now." He added that including a reasonable assignee liability provision in a predatory-lending bill would provide purchasers of subprime securities a "degree of confidence" that the issuer has vetted the loans. The congressman said he hopes to complete a draft of his predatory-lending bill before the August recess and hold hearings on it in the fall.

Chase has announced plans to expand its subprime bulk program later this year to include a flow process and has hired mortgage banker Rick Boyd to manage the new flow effort.Mr. Boyd has been named subprime flow manager at the company as part of its correspondent lending division, responsible for all program coordination, including risk and capital markets, operations, sales, and marketing. Chase originates $170 billion in residential mortgages and home equity annually -- including nearly $100 billion through the wholesale, correspondent, and correspondent-negotiated channels -- and services a portfolio of more than $500 billion.

Reverse mortgage specialist Lender Lead Solutions, Melville, N.Y., has announced the launch of its Reverse Mentoring Program, offering on-site training and additional advisory services to help mortgage brokers develop reverse mortgage operations.According to the announcement at the National Association of Mortgage Brokers' annual convention in Seattle, the curriculum will include "content to address the unique aspects of the senior marketplace and the reverse mortgage product, including in-depth review of all legal, compliance, and quality control procedures." The program will also include sales training focused on the special requirements of selling to seniors and the need for outside counseling, plus comprehensive instruction on loan flow, processing, settlement, underwriting, appraising, closing and funding, post-closing, and servicing functions using the company's STORM wholesale technology platform. Lender Lead Solutions can be found online at http://www.lenderleadsolutions.com.

Dublin, Calif.-based Ellie Mae has released Encompass 3.0, an upgrade of its Encompass Mortgage Management Solution that enables two-way communication with borrowers and vendors, handles more loan programs, and integrates with more third-party technology.In addition, Ellie Mae said the product is now fully integrated with Encompass WebCenter, a tool that provides users with a scalable and search-engine-friendly website and a secure online business center that originators can use to generate leads and to communicate and collaborate with borrowers and partners. Encompass 3.0 supports more third-party technology platforms, like the newest versions of several systems by Microsoft, ACT!, and Adobe, Ellie Mae said. Furthermore, the upgrade can handle a larger array of loan programs, including piggyback loans and more payment-option adjustable-rate mortgage products. Compliance auditing for high-cost and predatory loans is now completely automated within Encompass 3.0, Ellie Mae said. The company can be found on the Web at http://www.elliemae.com.

Standard & Poor's Ratings Services is requesting comments on its proposed guidelines on the loan modification practices of residential mortgage loan servicers.S&P is also seeking comment on the manner of reimbursement of capitalized loan amounts in U.S. residential mortgage-backed securities. "The framework outlined in the proposal provides the market with a transparent, consistent, and fundamentally sound way of assessing loan modification and capitalization reimbursement amount risks in U.S. RMBS transactions," S&P said. The rating agency noted that loans can be modified by extending the amortization terms, adding balloon payments, decreasing the mortgage rates, and forgiving principal or interest payments, among other things. "The proposed guideline changes reflect the potential increase in the use of loan modifications as a loss mitigation strategy in the mortgage loan servicing industry and encourage sound loan modifications," the rating agency said. The guidelines can be found on S&P's website at http://www.standardandpoors.com.

Subprime borrowers are more likely to be 30 days or more late on their mortgage payments than on their unsecured credit card obligations, a "significant departure" from historical consumer behavior, according to an Experian study on the subprime lending market.Historically, consumers have paid mortgage debt over bankcard debt, so the finding "represents a significant departure from conventional behavior," the Costa Mesa, Calif.-based Experian said. Subprime borrowers were defined as those with an Experian credit score of 620 or lower. Borrowers with prime credit scores of over 680 continued to follow the traditional pattern of paying mortgage debt before credit card debt, the information services company reported. "The current marketplace debate and increased visibility on subprime lending led us to examine historical consumer payment trends to see if they have shifted," said Kerry Williams, president of Experian Information Solutions. "Interestingly, our data revealed that many consumers in the subprime segment have adjusted their payment patterns in order to better manage their personal finances." Experian can be found online at http://www.experiangroup.com.

The average 30-year fixed mortgage rate fell from 6.74% to 6.69% for the seven-day period ended June 21, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.43% to 6.37%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.37% to 6.31%, and the average rate for one-year Treasury-indexed ARMs fell from 5.75% to 5.66%, Freddie Mac reported. Fees and points averaged 0.5 of a point for fixed-rate mortgages, 0.6 of a point for hybrid ARMs, and 0.7 of a point for one-year ARMs. "Mortgage rates eased this week due to market concerns that the housing market will be a longer drag on the economy," said Frank Nothaft, Freddie Mac's chief economist. "May's housing starts fell for the first time in four months, while homebuilder optimism in June fell to a 16-year low." A year ago, the average 30-year and 15-year fixed rates were 6.71% and 6.36%, respectively, and the average hybrid and one-year ARM rates were 6.32% and 5.75%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Democrat-sponsored legislation that provides for a 10-year extension of the Terrorism Risk Insurance Act is unacceptable to the Bush administration, a Treasury official has told a House committee."The administration believes that three elements are critical if TRIA is to be reauthorized for a second time: the program remains temporary and short-term; private sector retentions are increased; and there is no expansion of the program," Treasury Assistant Secretary David Nason testified before the House Financial Services Committee. Democrats on the committee recently introduced a 10-year extension of the government program, which acts as a federal backstop to shield private insurers from catastrophic losses in the event of a terrorist attack. The Democrats' bill (H.R. 2761) also expands TRIA to cover nuclear, biological, chemical, and radiological acts of terrorism. "H.R. 2761 does not meet our objectives," Mr. Nason said. "In Treasury's view, from a market and economic perspective, it would be better to have no TRIA than a bad TRIA."

The Office of Federal Housing Oversight has issued proposed guidance that would allow for a reduction in the conforming loan limit if house prices decline by 1% or more this year.Despite a house price decline from October 2005 to October 2006 of 0.16%, OFHEO deferred an annual adjustment to the loan limit last year and allowed Fannie Mae and Freddie Mac to continue to purchase single-family loans with a principal amount of up to $417,000. Under the proposed guidance, OFHEO has served notice that a downward adjustment in the conforming loan limit could be in the cards for 2008 if a house price index maintained by the Federal Housing Finance Board declines by more than 1%, after adding in the 0.16% deferred from last year. The proposal guidance is designed to make sure things "run smoothly," an OFHEO official said, and all the mortgage industry players know what to expect. The public comment period ends July 19.

Merrill Lynch & Co., New York, has seized roughly $800 million in subprime-related assets from at least one Bear Stearns hedge fund and has begun liquidating those assets after margin calls on the fund were not met, investment banking sources have confirmed to MortgageWire.At deadline time, Bear's spokesman had not returned a telephone call about the matter. Merrill declined to comment. Bear Stearns operates two hedge funds -- the High-Grade Structured Credit Strategies Enhanced Leverage Fund, and the High-Grade Structured Credit Strategies Fund -- that have investments in subprime-related assets, including long positions on the ABX Index, sources said. Last winter MW broke the news that Merrill Lynch's warehouse lending group was making margin calls on certain subprime firms, some of which later filed for bankruptcy protection. The companies can be found online at http://www.ml.com and http://www.bearstearns.com.

Two classes of Credit Suisse First Boston's commercial mortgage pass-through certificates, series 2005-CND2, have been downgraded and removed from Rating Watch Negative by Fitch Ratings.Class M was downgraded from BBB-minus to BB, and class N was downgraded from BBB-minus to BB-minus. In addition, Fitch affirmed the ratings on 17 classes in the deal. The downgrades were attributed to various concerns, including geographic concentration in New York and Florida, the fact that the five largest loans represent 90.1% of the transaction, oversupply in Florida condominium markets, and delays at the largest loan in the transaction, Manhattan House (54.6%). Four of the eight remaining loans are in Florida, three of which are secured by multifamily properties that are no longer being converted to condos and are being re-leased as rental properties. Fitch can be found online at http://www.fitchratings.com.