Originations

With the clock running down, President Clinton is expected to nominate Larry Simons to run the HUD multifamily restructuring program before the Senate adjourns for the August recess.This means the nomination could be handed down this week, a reliable source has told MortgageWire. The nomination is considered critical because the permanent restructuring program cannot be gotten under way on Oct. 1 unless the president appoints a director to run the Office of Multifamily Housing Assistance Restructuring. Mr. Simons, who was the Federal Housing Administration commissioner in the Carter administration, is coming out of retirement to run OMHAR, which will oversee and manage the restructuring of hundreds of FHA-insured multifamily properties that receive excessive federal rent subsidies. The fledgling mortgage restructuring program got a boost last week when the IRS ruled that the creation of a second mortgage does not represent debt forgiveness even if the soft second carries a below-market interest rate. The restructuring program depends on the creation of a second mortgage, and the ruling assures that owners will not get hit with an income tax bill if they participate in the HUD program.

Sales of existing, single-family homes cooled down in June, falling 2.3% to an annualized rate of 4.72 million units, according to data released Monday by the National Association of Realtors.The NAR said the June resale rate showed a slight decline from May, when the sales pace stood at 4.83 million units. However, June's sales numbers are still 14.6% above the 4.12 million units recorded at this time last year. NAR president R. Layne Morrill said the decline was expected and does not reflect any slippage in the housing market. "The housing market is nothing short of robust despite the slight dip in June," Mr. Morrill added. "As with any product, when a healthy market pushes sales to record highs, it is the norm for activity to plateau and settle into a more consistent pace." The sales pace of 4.89 million recorded in March 1998 was the highest ever recorded since the NAR began tracking existing home sales 30 years ago. The NAR is forecasting existing home sales to end the year at around 4.54 million, which would be a 7.7% increase above last year's record total of 4.21 million. The trade group's consulting economist John Tuccillo told reporters that he expects the housing market to remain strong through the second half of this year thanks to a continued drop in mortgage rates. "I don't know if they will make it down to 6.5% by the end of 1998 but they are headed down," he said. Regionally, resales dropped 10.9% in the West and 5.6% in the Northeast, but rose 1.7% in the Midwest and 1.6% in the South. The NAR's website address is http://www.realtor.com.

The average 30-year fixed mortgage rate rose to 6.96% for the week ending July 24 from 6.94% the week before, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose to 6.63% from 6.60% the previous week, and the average rate for one-year Treasury-indexed adjustable-rate mortgages crept up to 5.65% from 5.64%. Fees and points averaged 1.1 for each category. "Mortgage rates saw little change this week following Federal Reserve Chairman Greenspan's report to Congress," said Robert Van Order, Freddie Mac's chief economist. "Most economists expect no movement in rates from the Fed, based on Mr. Greenspan's remarks, and that is good for the mortgage market." A year ago, the average 30-year and 15-year fixed rates were 7.43% and 6.98%, respectively, and the average one-year ARM rate was 5.54%.

Southern Pacific Funding Corp., Lake Oswego, Ore., has announced record net earnings of $14.5 million ($0.60 per share) for the second quarter, compared with $13.4 million ($0.56 per share) a year ago.Total nonconforming loan origination and purchase volume increased to $800.2 million for the quarter, up 82% from $439.6 million a year ago, SPFC reported. Wholesale originations totaled $425.1 million, up from $269.9 million a year earlier, and nonconforming mortgage loans originated through SPFC's operations in the United Kingdom totaled $44.6 million, up from $27.9 million. Nonconforming home equity loans acquired through strategic alliances rose to $218.9 million from $46.9 million a year earlier. The company experienced net losses of $4.8 million on its servicing portfolio, compared with $2.6 million in the first quarter of 1998. SPFC's website address is http://www.sp-funding.com.

HomeGold Financial Inc.'s 10.75% senior unsecured notes due 2004 have been downgraded from B-minus to CCC-plus and removed from RatingAlert by Fitch IBCA.The Greenville, S.C.-based home equity lender and servicer reported a net loss of $20.6 million in the first quarter as a result of several one-time charges, prompting the rating agency to place the $125 million of senior debt on RatingAlert on May 7. The latest rating action reflects HomeGold's "limited financial flexibility," uncertainty about the company's ability to execute a whole loan strategy to improve cash flow, heightened competition, and HomeGold's "limited equity base," Fitch IBCA said.

Standard & Poor's has revised its outlook on Delta Financial Corp. to negative from stable, while affirming the company's senior debt and long- and short-term counterparty ratings.The actions followed the subprime lender's announcement of a $4.9 million net loss for the second quarter due to a change in prepayment assumptions for earlier securitizations. S&P said it believes Delta's current rating "adequately incorporates prepayment risks, which are felt to be the company's primary vulnerability." Delta's "key strength continues to be its underwriting ability that should provide better protection relative to other subprime lenders in a recessionary environment," S&P said. However, the outlook revision reflects the rating agency's concern that liquidity pressures "could increase over time, especially if capital and debt market sentiment remains negative against the company and the sector for an extended time period." S&P's website address is http://www.ratings.standardpoor.com.

Staff for Rep. Rick Lazio, R, N.Y., say they are hopeful that Congress will pass legislation this year that would increase the availability of government-insured adjustable-rate mortgages.Rep. Lazio's American Homeownership Act of 1998 (H.R. 3899) would raise to 40% from 30% the annual cap on ARMs insured through the Department of Housing and Urban Development, with fixed-rate mortgages accounting for the balance. Currently, ARM commitments cannot exceed 30% of HUD's total insurance volume from the previous year. "We originally hoped the bill would be marked up in subcommittee before Congress adjourned Aug. 6 but that is looking doubtful," a Lazio staffer told MortgageWire. "Now we're looking at early September as a possible date for a mark-up." HUD stopped insuring ARMs in April after reaching the 30% cap. The agency cannot insure any more ARMs until October when the new fiscal year starts. The Lazio legislation also mandates inspections on FHA home purchases and makes the agency's reverse mortgage program permanent. At a hearing Thursday, the National Association of Home Builders said it supports several provisions found in the Lazio bill but said it would like to see the ARM cap raised even higher. "If Congress believes a cap is needed, then a cap of 50% would better serve the thousands of prospective purchasers who rely on FHA-insured ARMs to qualify for a home purchase," Don Martin, the NAHB's president, testified before the Housing and Community Opportunity subcommittee chaired by Rep. Lazio.

Figures just released by Countrywide Credit Industries' wholesale division show subprime originations growing by leaps and bounds.From January's total of $90 million, the division's subprime fundings have jumped over a six-month period to $135 million for June, a 50% increase. The wholesale division's six-month tally of subprime originations through June totals $647 million, according to Rick Cossano, Countrywide's executive vice president for wholesale lending.

In a partnership to make $2 billion in affordable mortgages available to 35,000 minority and low-wealth home buyers nationwide, the Ford Foundation has joined forces with Self-Help, a North Carolina-based nonprofit community development organization, and Fannie Mae.The Ford Foundation will make a $50 million grant to expand Self-Help's Home Loan Secondary Market Program nationwide. Fannie Mae has made a commitment to purchase or securitize the total $2 billion in loans Self-Help will acquire. The Ford Foundation's website address is http://www.fordfound.com and Self-Help's is http://www.self-help.org.

Charter One Financial, Cleveland, has reported record net income of $68.4 million ($0.52 per share) for the second quarter.Retail banking revenue increased 44% from the same period in 1997, and loan and lease originations totaled a record $2.8 billion. "Admittedly the interest rate environment influenced the volume," noted Charles John Koch, Charter One's chairman and CEO, "but this level of originations can only mean that we continue to gain market share through our integrated sales approach." Charter One's website address is http://www.charterone.com

The Federal Agricultural Mortgage Corp., Washington, D.C., has reported net income of $1.8 million for the second quarter, compared with $1.3 million a year ago.The net income included tax benefits of $325 thousand, related to the future use of previously deferred tax benefits. Diluted earnings per share amounted to $0.16 for class A and B common stock and $0.48 for class C common stock. Farmer Mac president and CEO Henry D. Edelman said loan purchases increased to $127.5 million in the second quarter, up from $91.3 million a year ago. "Mandatory commitments to purchase loans totaled $108 million and agricultural mortgage-backed securities issuances were $88.8 million," Mr. Edelman said. Loan performance also improved this quarter, as delinquencies declined to 0.71% of the outstanding balance of Farmer Mac I guaranteed securities and loans held for securitization. In the first quarter, delinquencies were at 0.92%. Farmer Mac's website address is http://www.farmermac.com.

Resource Bancshares Mortgage Group Inc., Columbia, S.C., has reported net income of $13.1 million ($0.56 per share) for the second quarter.Excluding a $1.5 million pretax gain from the sale of the retail production, the company's operating earnings were a record $12.2 million ($0.52 per share), compared with $7.4 million ($0.35 per share) a year ago. The company's total agency-eligible mortgage loan pipeline was $1.8 billion at June 30, compared with $1.5 billion a year earlier, and its agency-eligible servicing portfolio totaled $9.4 billion, up from $7.2 billion a year earlier. The earnings increase for the second quarter was mainly attributable to a $19.2 million increase in net gain on sale of loans and a $1.5 million gain on sale of the retail production platform. The company said the gain-on-sale increase for loans "are primarily due to increased production and gains derived from the growing subprime and commercial mortgage operations, neither of which contributed significantly to the comparable periods of the prior year."

Delta Financial Corp., Woodbury, N.Y., has reported a net loss of $4.9 million ($0.32 per share) for the second quarter, compared with a net income of $7.2 million ($0.47 per share) a year ago.The net loss is "the direct result of fair value adjustments the company made to its residual...and servicing assets by increasing the prepayment assumptions it uses in valuing these assets," Delta said. The assumptions were changed from a 12-month ramp to "a vector curve with a peak speed of 31% for fixed-rate mortgages and 50% for adjustable-rate mortgages," the company reported. Hugh Miller, Delta's president and CEO, attributed the increase in prepayments to low interest rates and a flattened yield curve. "While we are not convinced that the current interest rate environment will continue unabated and believe that the spike in prepayments may only be a short-term event," Delta decided it was "prudent" to adjust its prepayment assumptions, he said. "It is important to note that the recent spike in prepayments...has occurred predominantly in our older pools and mostly for our adjustable-rate mortgages, neither of which represent a significant portion of our residual asset," Mr. Miller said. Delta's website address is http://www.deltafinancial.com.

Risk-based pricing could eventually save homebuyers as much as $6 billion annually in unnecessary interest payments, a Freddie Mac official has told the Western Secondary Market and Lending Conference (see items above).Much of the savings would occur in the subprime sector, where borrowers' monthly payments would fall by an average of $120, said Dwight Robinson, Freddie Mac's vice president for industry relations. The savings would come from two sources: Reclassifying borrowers to reflect their true risk, and bringing efficiency and greater competition to the subprime sector. Freddie Mac has been a major proponent of risk-based pricing and is leading a foray by the government-sponsored enterprises into the subprime market by buying A-minus and B rated loans. Noting that 38% of all African Americans obtain their conventional loans in the subprime sector, Mr. Robinson told the conference his company's research has found that subprime borrowers are disproportionately minority. "That means that a disproportionate number of minorities are consigned to a market where rates are 4-5% higher, where service is relatively poor, and where there is little or no information about the options available to consumers," he said. Through focus groups, a Gallup survey, and its own statistical analysis, the company also has discovered that 20%-30% of all subprime borrowers "appear to qualify" for prime rate loans, Mr. Robinson said. The reasons for this aren't fully understood, but the fact that "so many are misclassified shows at a minimum the relatively poor job being done in this market in matching rates to underlying risks," he said. Freddie Mac's website address is http://www.freddiemac.com.

Fannie Mae is investing $75 million in a pilot program aimed at capitalizing on the red-hot -- and surprisingly large -- custom home market.Under the experimental program, borrowers will be allowed to finance both the construction and permanent phases of their new homes with a single 30-year mortgage. The loan also will permit borrowers to lock in a single mortgage rate and save time and money because only one loan approval and one closing is required. Lenders will be able to sell the mortgages to Fannie Mae as soon as the loans are closed, so they, too, will be able to offset the possibility that they could lose the permanent loan if rates should rise before construction is completed. The new product was announced at the Western Secondary Market and Lending Conference (see item above). The construction-to-permanent mortgages, as the loan is called, "will help more people who want to build their own homes by eliminating some of the paperwork, cost, and worry," said Robert Sahadi, vice president of Fannie Mae's National Housing Impact Division. "These people will no longer need to worry about requalifying if rates increase, obtaining new appraisals or incurring additional costs." According to the National Association of Home Builders, 29% of last year's new home production was built either by individuals acting as their own contractors or contractors building one-of-a-kind houses -- 12%, or 131,000 units, by the owners and 17%, or 189,000 units, by custom builders. Fannie Mae's website address is http://www.fanniemae.com.

The mortgage market has nothing to fear from Fannie Mae and Freddie Mac, a key industry executive says.In a wide-ranging talk at the Western Secondary Market and Lending Conference in San Francisco, Angelo Mozilo, the outspoken chief executive officer of Countrywide Credit Industries, said the two government-sponsored enterprises "should not be viewed as rivals or adversaries." Concern has been voiced that the GSEs are seeking to broaden their roles in the mortgage banking arena at the expense of primary lenders. Some view Fannie Mae's ill-fated attempt to offer mortgage life insurance and Freddie Mac's incursion into the subprime arena as an indication that the GSEs will eventually attempt to bypass traditional lenders and go directly to consumers. But Mr. Mozilo, who was president of the Mortgage Bankers Association earlier this decade, said it is "unlikely" that will occur and called such fears "nonsense" in his keynote speech at the conference, which attracted about 750 registrants and was co-sponsored by the Western League of Savings Institutions and the California Mortgage Bankers Association. "Originating loans is heavy lifting," he said. "But they're not stupid. They want to leave the lifting to us." While the GSEs have occasionally stepped on the industry's toes, he added, they have "responded positively" every time industry leaders have called them to task. "The GSEs are your friend, not your enemy," he said.

Advanta Corp., Spring House, Pa., has reported net income of $9.5 million ($0.35 per share) for the second quarter, up $3.2 million from the previous quarter.The company's Advanta Mortgage unit originated $1.25 billion in new loans during the quarter, up 36.3% from a year ago, Advanta said. Prepayment rate assumptions used to value the company's interest-only strip were revised to 27% for fixed-rate loans, 33% for intermediate-rate loans, and 39% for adjustable-rate mortgages. The assumptions were 24%, 29%, and 34%, respectively, at the end of the first quarter, Advanta reported.

Washington Mutual Inc., Seattle, has reported record second-quarter earnings of $261.3 million ($0.69 per share), up 37% from $191.1 million ($0.50 per share) a year ago.Net interest income totaled $726.5 million for the quarter, up 11% from $653.4 million a year ago. Originations of single-family residential loans (excluding residential construction) totaled $8.6 billion, up from $6.1 billion a year ago, the company said. WaMu's board of directors declared a cash dividend on common stock of $0.2067 per share, up from $0.20 per share in the previous quarter. Final approval from the Office of Thrift Supervision for WaMu's merger with H.F. Ahmanson & Co. is still pending. Special meetings of both companies' shareholders are scheduled for Aug. 28 to consider proposals regarding the merger.

Mortgage applications fell 1.7% for the week ended July 17, according to the Mortgage Bankers Association of America's weekly Mortgage Application Survey.The Purchase Index fell 2.3%, the Refinancing Index slipped 1.0%, the Conventional Index decreased 3.0%, while the Government Index rose 3.4%, the survey indicated. On a seasonally adjusted basis, the Market Index fell from 415.5 the previous week to 407.2; the Purchase Index decreased from 262.5 to 255.0; the Refinancing Index dipped from 1305.5 to 1292.2; the Conventional Index was down from 529.3 to 511.8; and the Government Index rose from 225.7 to 232.7. Refinancings represented 44.6% of total applications, up from 44.3% the previous week, while adjustable-rate mortgages accounted for 8.2%, down from 8.3% the week before. Overall, applications were up 56.2% compared with those for the same week last year. The address of the MBA's website is http://www.mbaa.org.

The ratings on United Companies Financial Corp., Baton Rouge, La., have been placed under review by Standard & Poor's and Duff & Phelps Credit Rating Co. in the wake of the subprime lender's announcement that it has retained Salomon Smith Barney to "seek a potential strategic partnership."S&P placed UCFC's ratings on Credit Watch with developing implications, which means the ratings could be raised, lowered, or affirmed depending on the outcome of the review. Duff & Phelps placed its UCFC ratings on Rating Watch--Uncertain. S&P said its action reflects concerns about UCFC's announcement that second-quarter earnings will be about $10 million lower than expected as a result of charges related to a writedown in its interest-only strip, and about "heightened competition in the subprime home equity markets as well as the declining trend in the company's profitability and asset quality measures in selective pools." Duff & Phelps also cited "the fundamentals of the subprime home equity lending business," higher prepayment levels in relation to prepayment assumptions, and "pressure on capital measures" stemming from declining profitability.