Originations

The Department of Housing and Urban Development is scrambling to find another candidate to run its fledging multifamily restructuring program, now that HUD's first choice, Larry Simons, has run into problems at the White House.President Clinton was expected to nominate the former federal housing commissioner to be the first director of HUD's Office of Multifamily Housing Assistance Restructuring. However, conflict-of-interest problems due to Mr. Simons's investments in HUD-assisted multifamily properties, first reported by Housing Affairs Letter, has killed the nomination. HUD Secretary Andrew Cuomo is now in a bind, because he has to get President Clinton to nominate an OMHAR director by Oct. 27 or else the whole mortgage restructuring effort to save billions of dollars of federal rent subsidies must be suspended. "HUD has a problem," one congressional source said. Meanwhile, interim rules governing the multifamily mortgage restructuring process are expected to be published in the Federal Register next week.

Mortgage applications rose 9.1% for the week ended Aug. 28, according to the Mortgage Bankers Association of America's weekly Mortgage Application Survey.On a seasonally adjusted basis, the Purchase Index increased from 243.1 to 269.4; the Refinancing Index jumped from 1211.9 to 1331.5; the Conventional Index was up from 486.4 to 540.9; and the Government Index rose from 216.4 to 232.1. Refinancings represented 45.5% of total applications, up from 45.2% the previous week, while adjustable-rate mortgages accounted for 7.7%, down from 8.7% the week before. Overall, applications were 72.4% higher than in the same week last year. The address of the MBA's website is http://www.mbaa.org.

Thomas C. Brown has been promoted to executive vice president-field operations at PMI Mortgage Insurance Co., San Francisco.Most recently he was senior vice president-national accounts. Prior to joining PMI in May 1997, Mr. Brown was president and chief executive of Centerbank Mortgage Co., Waterbury, Conn., and executive vice president of Goldome Realty Credit Corp., Buffalo, N.Y. John Fulford, senior vice president-national sales, will assume responsibilities for national accounts.

HomeGold Financial Inc., Greenville, S.C., has sold Sterling Lending Corp., a retail originator of subprime loans, to FNSC Mortgage Corp., Beaumont, Texas.The purchase price was $1.5 million, of which $400,000 was paid in cash and the rest has been placed in a promissory note. Sterling had originations of $39.4 million in the first seven months of 1998; it incurred an operating loss of $28 million for the period. Sterling has 135 employees.

For the first time this year, the Eleventh Federal Home Loan District Cost of Funds Index has increased, rising three basis points from June to July.The index for July is 4.911%, while in June it was 4.881% for the second consecutive month. Traditionally, COFI has been a lagging index -- when other indices were rising, COFI would still be declining for several months. When the last big originations wave ended in 1994, COFI loans became a popular product for West Coast-based thrift lenders because the index was still falling. However, mortgage industry reports showed July was a strong month for many originators. What remains to be seen, therefore, is whether the July rise in COFI is a temporary blip or whether COFI can still be considered a lagging indicator. The index reflects the interest paid by savings institutions in Arizona, California, and Nevada on their sources of mortgage money. There is concern by some observers that the relevance of the index has been affected by the acquisition of large California thrifts by institutions based outside the state.

The AFS Title Search Index rose 1.2% to 208.9 for the week ended Aug. 28 from 206.1 the previous week, according to Bridge/Telerate Advance Factor Service.The index averaged 208.9 over the previous four weeks, down 0.2 points from the prior week's four-week moving average. A year ago, the index stood at 150.4, 72.1% of the current level. "The riot to buy U.S. Treasuries continued last week, with commitment rates finally edging lower into new territory by week's end," said AFS manager Paul Descloux. "As mortgage rates move lower, the AFSTSX will begin to move higher if indeed refinancings are stimulated above the current levels." A continuation of the market panic "should get rates closer to that trip wire," he said. Mr. Descloux's e-mail address is paul.descloux@cor.dowjones.com.

FirstPlus Financial Corp., Dallas, the nation's largest originator and servicer of high-LTV loans, has put itself up for sale.Investment bankers told MortgageWire Tuesday morning that the likely buyer could be a commercial bank or even a credit card company. Last fall National Mortgage News reported that Residential Funding Corp., which is ultimately owned by General Motors, was interested in the company. RFC is a major warehouse lender to FirstPlus. At deadline time, it could not be determined whether RFC still might be interested. (Sources say RFC owns warrants in Master Financial, another top high-LTV lender, and that it might also still own warrants in FirstPlus.) FirstPlus officials could not be reached for comment. At noon Tuesday its stock was trading at almost $26 a share, up 14%. However, FirstPlus (symbol: FP) is way down from its 52-week high of $61.87, making many a shareholder unhappy. The company has retained Bear Stearns as its advisor. FirstPlus's website address is http://www.firstplus.com.

United Financial Mortgage Corp., Oak Brook, Ill., has agreed to acquire Mortgage Service America Inc., Lombard, Ill. Terms of the deal were not disclosed.United Financial's president, Joseph Khoshabe, said the addition of MSA will increase his company's average monthly volume by 70%. According to the Mortgage Industry Directory, United Financial had 1997 volume of $230 million. No figures were available for MSA. Leonard J. Giblin, MSA's president, will sign a three-year employment agreement to remain in that position.

Fidelity National Financial, Irvine, Calif., and Denver-based Matrix Capital Corp. have called off their merger agreement.In a joint statement, the parties said they found the requirements for regulatory approval of the deal (including the approval of FNF as a unitary thrift holding company) were burdensome and raised serious questions as to the feasibility of the merger. Ironically, in making the agreement to merge with FNF, Matrix Capital was forced to terminate an agreement to acquire The Leader Mortgage Co. FNF and Matrix have entered into an agreement under which FNF will keep at least $250 million on deposit at Matrix Capital Bank. Matrix has also agreed to issue warrants to FNF to purchase 150,000 shares of Matrix common stock at 115% of the average closing bid and ask prices on Aug. 27, 1998. Matrix said it plans to use the deposits to invest in single-family mortgages and servicing rights.

GMAC Mortgage Group, Horsham, Pa., has applied for a federal thrift charter to expand its commercial, residential, and subprime mortgage lending in the U.S. "We are enthusiastic about this filing because a Federal savings bank would enable us to help more people realize the dream of homeownership and would allow us to better service our customers with new products and services," GMAC Mortgage president Mike O'Brien said.The Office of Thrift Supervision has a backlog of thrift applications and it has slowed processing due to legislation (H.R. 10) that has been passed by the House and is now under consideration by the Senate that would stop commercial firms -- like General Motors, which owns GMAC -- from chartering new thrifts. GMAC Mortgage originated $5 billion in residential loans in 1997, including $2.3 billion in B&C product through its subprime correspondent shop, Residential Funding Corp., in Bloomington, Minn. GMAC's commercial mortgage shop is located in Horsham. So far, only one subprime lender, a subsidiary of the Travelers Group, has received OTS approval for a thrift charter. First Alliance Corp., Irvine, Calif., withdrew its application, and an application by Associates First Capital Corp., Dallas, has been suspended. GMAC Mortgage's website address is http://www.gmacmortgage.com.

Issuance of agency mortgage-backed securities shot up 106.2% in the first half of 1998 compared with MBS issuance in the first half of 1997, according to The Bond Market Association.The issuance totaled $324.2 million, compared with $157.3 billion the year before. The trade group attributed the growth to surging originations tied to low interest rates. Fannie Mae's MBS issuance volume, which accounted for 43.8% of the market, mushroomed to $142.1 billion, up 131.8% from $61.3 billion in the first half of last year, the association said. Freddie Mac's issuance jumped by nearly as much, rising 124.2% to $113.2 billion from $50.5 billion the year before. Ginnie Mae's volume rose 51.4% in the first half, from $45.5 billion last year to $68.9 billion, according to the report. In the asset-backed securities sector, home equity loans represented 42% of ABS volume in the first half, climbing 56.2% to $42.9 billion. The once-dominant credit card ABS accounted for less than half that amount, rising 31.7% to $19.3 billion, the trade group reported. The Bond Market Association's website address is http://www.bondmarkets.com.

After reaching record territory in June, new home sales fell 2% in July, according to data released Monday by the U.S. Department of Commerce.New homes sold at a seasonally adjusted annual rate of 886,000 units in July, compared with a revised high of 900,000 in June. Despite the dropoff in activity, new home sales are still 10% above the July 1997 rate of 808,000. Government data show that the median sales price of a new home sold in July was $147,900, up 1.3% from a year ago. At the end of July, the seasonally adjusted estimate of new homes for sale was 288,000, representing a supply of 3.8 months at the current sales rate. Regionally, new home sales took a big hit in the Midwest, where they were down 11.7%. Sales activity remained virtually unchanged in the Northeast and West but increased 1.3% in the South. The Commerce Department's website address is http://www.doc.gov.

Bay View Capital Corp., San Mateo, Calif., is canceling its proposed acquisition of PSB Lending Corp., the high loan-to-value originations unit of Pacific Southwest Bank, Corpus Christi, Texas.In announcing its decision to call off the deal, BVCC cited the Office of Thrift Supervision's bulletin limiting to 100% of total capital the amount of high-LTV loans a thrift may hold (covered in yesterday's MortgageWire). BVCC's subsidiary Bay View Bank and Pacific Southwest are both federally chartered thrifts. BVCC will take approximately $850,000 in special charges during the third quarter because of the cancellation. Furthermore, because of the deal cancellation and the acceleration of prepayments on mortgage-backed assets, BVCC will not meet the 1998 core consensus earnings estimate as determined by First Call. Ironically, in a separate press release issued at the same time, BVCC announced its filing to convert Bay View Bank's charter from a savings bank to a national bank and become regulated by the Office of the Comptroller of the Currency.

An increase in the Ginnie Mae guarantee fee continues to be a threat as House and Senate conferees decide on ways to pay for the Higher Education Act (H.R. 6).The Senate version contains the infamous 3-basis-point fee increase that had been considered and dropped from the highway bill and the VA-HUD appropriations bill. This time the education committees are looking for $600 million to cover the costs of subsidizing interest rates on student loans. Increasing the Ginnie Mae fee from 6 bp to 9 bp could raise $200 million over five years. Strangely enough, the Ginnie Mae fee increase would not go into effect for four years, until Oct. 1, 2002. But in the search for revenues the House/Senate conferees could move the effective date to Oct. 1, 1998. If that can't be done, the conferees can always follow the advice of the Mortgage Insurance Companies of America and increase the Ginnie Mae fee by 6 bp. The decisions are expected to be made shortly after Labor Day.

Norwest Asset Securities Corp., Frederick, Md., has announced the offering of approximately $200 million of securities backed by fixed 20- and 30-year non-relocation mortgage loans.Credit enhancement for NASCOR Mortgage Pass-Through Certificates, Series 1998-24 will be provided through the use of a senior/subordinated structure. The underwriter is PaineWebber Inc., and the transaction is scheduled to settle on Sept. 30. Issuance and post-issuance information will be available after settlement from the SecuritiesLink Advanced Information Services website (http://www.securitieslink.net).

Transnational Financial Corp., San Francisco, has obtained a syndicated $75 million revolving warehouse line of credit that it says will significantly lower its cost of borrowing.The self-liquidating warehouse line, secured by individual residential real estate loans originated by Transnational, is being provided by a syndicate led by the Dallas-based Guaranty Federal Bank. The agreement under which the warehouse line was provided includes an option to increase the line to $90 million. Transnational previously had a $25 million warehouse line with Warehouse Lending Corp. of America and a $7 million line with PNC Bank, the company said. Transnational said the new warehouse line will give the company the capacity to fund up to $2 billion in loans per year.

The average 30-year fixed mortgage rate was unchanged at 6.92% for the week ending Aug. 28, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate was also unchanged, at 6.61%, as was the average rate for one-year Treasury-indexed adjustable-rate mortgages, at 5.58%. Fees and points averaged 1.1 for all three categories. "Interest rates have not been this low for this long since we started doing our weekly survey in 1971," said Robert Van Order, Freddie Mac's chief economist. "And it is our expectation that the mortgage rates will be even lower next week." A year ago, the average 30-year and 15-year fixed rates were 7.58% and 7.12%, respectively, and the average one-year ARM rate was 5.62%. Freddie Mac's website address is http://www.freddiemac.com.

Fannie Mae has announced that it is now offering borrowers the multifamily market's only "one-stop" defeasance option for fixed-rate mortgages with a term of 10 years or less.Defeasance -- which occurs when a borrower substitutes U.S. Treasury or other qualified securities as collateral for a mortgage loan in return for release of the lien on the borrower's property -- is now being widely used as prepayment protection in the commercial and multifamily mortgage markets, Fannie Mae said. The new defeasance product will use one Fannie Mae debt instrument per defeased loan, and Fannie Mae "will designate an entity to assume the borrower's mortgage obligation after defeasance, thus releasing the borrower's property and releasing the borrower from its obligations under the loan," Fannie Mae said. The government-sponsored enterprise said loans with defeasance "insulate investors in multifamily securities from the uncertainty of having to reinvest their funds in the event of a borrower's prepayment, an uncertainty they would face in a loan with yield maintenance," another prepayment protection option that Fannie Mae said it will continue to offer. "Even small loans can cost-effectively use the defeasance option," said Richard Lawch, Fannie Mae's vice president of multifamily capital markets. "Investors are willing to pay more for securities with a defeasance option than for those featuring yield maintenance, which should result in lower costs to the borrower." Fannie Mae said its product is the lowest-cost defeasance option in the multifamily market. Fannie Mae's website address is http://www.fanniemae.com.

The Office of Thrift Supervision has designated high-LTV lending as a "high risk" activity and is restricting thrift holdings of the mortgage product to 100% of total capital.In a new thrift bulletin (TB 72) released Thursday, the OTS said it is concerned over the increase in high-LTV lending, particularly loans with LTVs exceeding 100% that often are used for debt consolidation. OTS officials said only 20 to 30 thrifts are originating high-LTV mortgages but that the regulatory agency nonetheless wanted to make other institutions aware of the risks associated with the product. "These loans entail risks that are different from more traditional home mortgage and consumer loans," said OTS Deputy Director Richard Riccobono. Mortgage subsidiaries of thrifts that engage in high-LTV lending are subject to the same restrictions as those placed on a parent. The OTS defines high-LTV loans as "first or junior lien mortgages with LTVs in excess of 90% that are not covered by mortgage insurance or government guarantees." Thrifts and their mortgage arms are exempt from the restrictions if they sell their loans without recourse within 30 days after the loan is closed.

Consolidation will continue in the mortgage banking industry, and low profit margins, high leverage, and growing subprime originations will weaken a "relatively stable" credit profile overall for conventional mortgage bankers, according to Moody's Investors Service.In a new industry outlook report, the rating agency said it does not expect near-term downgrades in the industry "primarily due to improved risk management techniques and strong efforts to sustain healthy liquidity." Moody's said the "overwhelming influence" of Fannie Mae and Freddie Mac is "likely to intensify" as their automated technologies become standard and they expand their presence in the alternative-A and subprime markets. The report noted that much of the consolidation in the past two years has been incidental to commercial banking mergers, but said Moody's believes it will continue "irrespective of what happens" in the commercial banking industry. "Greater competition among mortgage originators, the costs of new technologies, and scale economies in servicing and securitization, make it increasingly difficult for smaller mortgage banks to survive as independent entities," Moody's said. The Moody's website address is http://www.moodys.com.