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Commercial Lender/Servicer Gets Acquired

May 10, 2010

Commercial mortgage lender and servicer Red Capital Group, Columbus, Ohio, has been sold by PNC Bank NA to an investor group led by Orix USA Corp., Dallas, a subsidiary of Japan's Orix Corp. Among the members of the investment group is Stonehenge Partners, Columbus. Terms of the transaction were not disclosed. Red provides financing for multifamily, senior living and health care projects through various FHA and Fannie Mae programs. Under the new ownership it will continue to operate under the Red name. Jim Thompson, CEO of Orix USA said, "We are fortunate to be able to add Red's experience in multifamily, senior and health care finance to Orix Capital Markets' commercial real estate capabilities. FHA and Fannie Mae will continue to be important components of the nation's housing finance programs; the Red acquisition enables Orix to deploy its capital into those important markets." William Roberts, Red's founder and chief executive from 1995 to 2007, has resumed that post. Red currently services $12.5 million in commercial mortgage loans. It also has a registered broker-dealer unit that provides underwriting and syndication of multifamily housing bonds and the related tax credits.

Canada's Multifamily Jump Pushes Country's Total Home Starts Higher

May 10, 2010

An increase in Canada's volatile multifamily housing start sector slightly boosted the country's total seasonally adjusted annual rate of housing starts for April compared to revised March figures. But the multifamily gain was largely offset in part by a month-to-month drop in single-family starts, according to Canada Mortgage and Housing Corp. chief economist Bob Dugan. In total, the seasonally adjusted annual rate of total April Canadian starts was 201,700 compared to 199,200 in March. Contributing to the total increase was a 5.1% jump to 182,500 urban unit starts in April that would have been higher had not a 12.7% drop in single-family urban starts to 83,900 units offset to some extent a 27.2% increase in urban multifamily starts to 98,600 units. Rural starts for the month were estimated at a seasonally adjusted annual rate of 19,200 units.

PNC Says NatCity Loans Worse Than Thought

May 10, 2010

PNC Financial Services Group Inc. says in a new public filing that the troubled loans it inherited through its purchase of National City Corp.-once a top 10 ranked residential lender-eroded more than expected during the first quarter. PNC, which has emerged stronger from the financial crisis, set aside an additional $100 million to offset future losses from the loans. The Pittsburgh-based depository now has $604 million in reserves to account for future losses it expects to be generated by the $9.8 billion portfolio of loans. PNC has kept most of NatCity's residential production and servicing division intact, but is in the process of winding down its warehouse lending unit. Besides operating a mortgage banking affiliate, NatCity was an active home equity and commercial real estate lender. In late 2008 PNC bought the Cleveland-based regional.

Mortgage Refi Surge from Global Upheaval No Sure Thing

May 10, 2010

The financial turmoil in Greece and other debt-laden European nations could trigger a rebound of mortgage refinance activity in the U.S., or not. Upheaval in the global markets, such as last week's dramatic sell-offs, has historically prompted a "flight to quality"-investor purchases of Treasury bonds. Surging demand for these safe havens for capital can push yields-and the mortgage rates that move in lockstep-down. This in turn has often sparked interest in refinancing, and some lenders say they are already getting more calls from borrowers, which typically happens when mortgage rates fall below 5%. But many lenders also say they need to see a little more downward momentum on rates before an increase in refinancing is likely to stick. Rates would have to drop another quarter-point or more for refinancing to make sense to the large group of borrowers who already were part of a flurry of refinance activity last year. Borrowers would also have to overcome tighter underwriting and appraisal guidelines. And many borrowers still have little or no equity in their homes, making them ineligible to refinance. "A large part of the population that could refinance likely has," said Mark Freedle, chief executive of NetMore America Inc., Walla Walla, Wash. When the stock market fell by nearly 1,000 points last Thursday the yield on the 10-year declined to almost 3.3% before rebounding somewhat. On Monday the 10-year was trading at 3.56%. Because the average mortgage is paid off within 10 years, the 10-year Treasury serves as a bellwether to where mortgage rates might be headed.

Fannie Lost $13.1B in 1Q, Asks Treasury for $8.4B

May 10, 2010

Stung by increasing credit losses on delinquent home mortgages, Fannie Mae lost $13.1 billion in the first quarter, prompting its regulator to ask the Treasury Department for $8.4 billion in cash to keep the GSE's net worth above zero. A new accounting rule that affects the consolidation onto its balance sheet of 'variable interest entities' added $3.3 billion to its net worth deficit. During the quarter Fannie paid $1.5 billion in dividends on senior preferred stock owned by Treasury. Unlike its cross-town rival Freddie Mac, Fannie saw worsening delinquencies. Its single-family seriously delinquent rate increased to 5.47% at March 31, from 5.38% at year-end. Its credit losses increased to $5.1 billion from $4.1 billion in 4Q. The government controlled mortgage giant noted that it bought $191 billion of loans during the period, $40 billion of which were delinquent loans that came out of its own (existing) securitizations. Fannie also grew its MBS issuance market share to 40.8% in the first quarter from 38.9% in the fourth. With the new request for financial assistance, Fannie Mae's total debt to taxpayers stands at $83.6 billion. Freddie has required roughly $64 billion in aid from the Treasury. Last week Freddie posted a $6.7 billion loss in the first quarter.

Bank Margin Spread Outlook for Rest of Year Gets Cloudy

May 7, 2010

Expectations are sinking that big banks can continue to capitalize on their balance-sheet spreads. Net interest margins expanded at most of the nation's biggest banking companies -- all major players in mortgages -- in the first quarter compared with the previous quarter, suggesting banks have found another way to counter continued credit losses. But banks will be hard-pressed to hold on to these healthier spreads amid sluggish loan demand and potentially higher interest rates. "The best they can do over the rest of this year is maintain" margins, said William Fitzpatrick, an analyst at Optique Capital Management, Racine, Wis. He said most of the expansion that took place last quarter likely resulted from aggressive balance-sheet management in recent periods. "Banks will be thrilled if they can keep the margins they have now," he said.

GMAC Eyeing New CFO?

May 7, 2010

GMAC Inc. may be close to naming a chief financial officer and has considered appointing Barbara Yastine, the former CFO for investment banking at Credit Suisse Group AG and Citigroup Inc., according to a report by Bloomberg. The news service cited "three people with knowledge of the search" but a GMAC spokesman called the story "speculative," adding that it is not making "any management announcements at this time. Jim Mackey continues to serve as interim CFO, and the company continues to move forward with its strategic priorities." Yastine, 50, is considered a prospect because she worked at Citigroup with Michael Carpenter, GMAC's new chief executive. GMAC and its mortgage affiliate both posted a profit in the first quarter. The company is considering its options on Residential Capital Corp., including a possible sale of stock to the public.

Credit Union Vendor Acquires Dexma

May 7, 2010

CUSO Prime Alliance, Tukwila, Wash., has acquired Dexma, a provider of online mortgage lending technology to more than 1,400 institutions. The combined company will be known as Prime Alliance Solutions. Joe Brancucci, CEO of Prime Alliance, noted that Dexma, Edina, Minn., helped create Prime Alliance, lending a certain amount of irony to the deal. "It is like a child is swallowing up one of its parents," he told Credit Union Journal, a sister publication to National Mortgage News. "I think it's a good move for a lot of reasons. We were ahead of our time in 2001, but today there are lots of opportunities." Financial terms of the deal were not disclosed. According to Brancucci, Prime Alliance has worked closely with Dexma over the past decade in creating new solutions for mortgage lending, especially to credit unions. He said the acquisition will allow the CUSO to take ownership of the technology Dexma produces. "We've always been part of the dialog, and have driven the development of a lot of aspects, but this takes the relationship to a new level." Prime Alliance and Dexma co-developed the Mortgage Lending Suite, which includes retail lending, third-party lending, loan fulfillment and secondary market centers. The two said they combine to handle 35% of credit union mortgage originations. Dexma's clients include U.S. Bank Home Mortgage, Weichert Financial Services and MetLife Home Loans. Since inception, more than 6 million loans have been processed on the Dexma platform, totaling approximately $1.1 trillion in loan volume.

Democrats Win Battle, for now, On CFPA

May 7, 2010

Senate Democrats have defeated efforts by Republicans to curb the power and independence of a new consumer protection agency by a 61-38 vote. The defeat of an amendment offered by Sen. Richard Shelby, R-Ala., paves the way for creation of the Consumer Financial Protection Bureau which will be funded by and housed at the Federal Reserve Board. The CFPB will be totally independent of the central bank and free of the congressional appropriations process. In defeat, Sen. Shelby claimed the measure ushered through the Senate by Sen. Chris Dodd, D-Conn., would create an out-of-control agency with no accountability to Congress. Shelby offered a substitute amendment to create a consumer protection division at the Federal Deposit Insurance Corp. that would have consumer oversight of large non-bank mortgage originators. The FDIC unit also would have authority over other financial providers that repeatedly violate consumer protection laws. "This will give the FDIC board authority to clamp down on the worst offenders of our consumer protection laws without needlessly subjecting law-abiding business to expensive regulation," Shelby said. If the Shelby amendment had passed, it would have been a step "backwards," Dodd argued, claiming the new division could not prevent abuses by finance companies, payday lenders, check cashers, credit card companies, debt collectors and car dealers involved in the finance business. "It is a stimulus package for unscrupulous lenders," Dodd added.

Strategic Defaults Comprised 31% of Q1 Foreclosures

May 3, 2010

A quarterly survey by two Chicago professors shows a dramatic increase in the number of "strategic defaults" where an underwater homeowner willingly defaults on his mortgage even though he can afford to make the payments. An estimated 31% of foreclosures involved strategic defaults in March, compared to 22% a year ago, according to the Chicago Booth/Kellogg School Financial Trust Index. The survey is conducted by professors Paolo Sapienza of the Kellogg School of Management, and Luigi Zingales of the University of Chicago Booth School of Business. They said the likelihood of strategic default increases by 23% if a homeowner discovers that a neighbor with negative equity received loan forgiveness from their servicer. The likelihood increases to 29% if homeowners can find alternative financing for a new home. The survey found that 56% of homeowners do not believe that lenders will come after them if they walk away from their home. "With more and more homeowners believing that lenders are failing to pursue those who default on their mortgage, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford the payments," Sapienza said.

Fannie Tightens ARM Standards

May 3, 2010

Fannie Mae has set new standards for purchasing and securitizing adjustable-rate mortgage products with the aim of ensuring consumers who hold them can sustain their payments beyond the loans' initial interest rate periods. The new standards require ARMs with initial interest rate periods of five years or less to be qualified at the greater of the note rate plus 2% or the fully indexed rate (index plus margin). In addition, qualification criteria for interest-only loans will change such that the maximum loan-to-value ratio cannot exceed 70%, the borrower's credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after closing. Balloon loans, which generally are characterized by lower initial interest rates and a significant balance due at maturity, will no longer be eligible unless they receive special approval. All loans not meeting the new guidelines have to be purchased as whole loans on or before Aug. 31 or delivered into mortgage-backed securities pools with issue dates on or before Aug. 1.

Rural Lending Can Continue Through May 6

May 3, 2010

The Rural Housing Service has enough remaining loan commitment authority to continue guaranteeing single-family loans through May 6, according to the Department of Agriculture. "We anticipate funding likely will be exhausted by May 7," the agency said. It was understood RHS would run out of loan authority on April 30 and the House quickly passed a bill (H.R. 5017) last Tuesday to extend the program through Sept. 30. Sen. Michael Bennett, D-Colo., has introduced a similar bill, but the Senate adjourned on Friday without passing it. The Senate resumes legislative activities on Monday. "Depending upon Congressional activity with the proposed legislation, it is possible that the agency may consider issuing conditional commitments," RHS said. The House-passed bill makes the RHS single-family program self-funding by raising the 2% upfront guarantee fee to 4%. RHS is expected to set the fee at 3.44%. The increase means Congress will not need to approve additional funding to keep the RHS guarantee program running.

COFI Jumps Month-to-Month

May 3, 2010

The Eleventh Federal Home Loan District Cost of Funds Index increased 24.5 basis points between February and March to 1.859%. With the exception of the run-up in the Index caused by the Federal Home Loan Bank of San Francisco removing Wachovia Mortgage FSB from the calculations back in November and December 2009, this is the highest COFI has been since May 2009. For March 22 eligible institutions reported data that FHLB-SF used to determine COFI. Average total funds in March were $38.5 billion and total interest expense $59.6 million. In February, COFI was 1.614% and in March 2009, it was 1.627%.

Mortgage Insurers Still Seeing More Cures than Defaults

May 3, 2010

For the second consecutive month, members of the Mortgage Insurance Cos. of America reported more primary insurance cures than defaults for March 2010. Mortgage insurers had 77,909 cures and 63,126 defaults for a ratio of 123.4%. This compares with 80,758 cures and 68,675 defaults in February for a ratio of 117.6% and 69,931 cures and 84,042 defaults for a ratio of 83.2% in March 2009. March was also the best month of the first quarter 2010 in terms of both applications received and dollar volume of primary new insurance written. Including policies written for loans refinanced in the HARP program, MICA members had $4.5 billion written in the traditional channel and $400,000 in the bulk channel, vs. $3.6 billion total in February and $9.8 billion in the traditional channel and $9.7 million in the bulk channel in March 2009. Primary insurance in force continues to decline, going from $844.4 billion in February to $828.6 billion in March. There was $1.8 million of new pool risk written in March; total pool risk in force at the end of the first quarter was $7.4 billion.

FHFA Hires FHA Vet to Run Congressional Affairs

May 3, 2010

Federal Housing Administration veteran Meg Burns has departed HUD to manage the Federal Housing Finance Agency's newly restructured Office of Congressional Affairs and Communications. A career FHA official, Burns was senior advisor to former FHA commissioner Brian Montgomery and was generally considered the second in command there. The new FHA commissioner brought in Vicki Bott, a Wells Fargo Home Loan executive, to fill that role. On May 10, Burns will join FHFA, as the senior associate director for congressional affairs and communications. FHFA oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks-which Congress will move to restructure next year. Peter Brereton will continue to be responsible for congressional affairs and Mary Ellen Taylor will be responsible for interagency relations and media communications. During her career at the Department of Housing and Urban Development, Burns worked at the former HUD Office of GSE Oversight.

ResCap Posts First Quarter Profit Due to Debt "Extinguishment"

May 3, 2010

After several quarters of horrendous losses, GMAC's residential mortgage division posted a small profit in the first quarter, but the company attributed the turnaround, in part, to the "extinguishment of debt." In its earnings materials, parent company GMAC Financial Services offered no color commentary on ResCap's results. Its performance during the quarter contained both good and bad news. ResCap earned $110 million compared to a loss of almost $1 billion in the same period a year ago. The mortgage division is continuing to sell delinquent assets, though it provides no details on sales. In its earnings statement, the firm says it reached an "important mortgage repurchase settlement" but provided no information. At press time, a company spokeswoman did not return a telephone call and email about the matter. Meanwhile, ResCap originated $13.3 billion in home mortgages during 1Q, a 26% decline from 4Q. Compared to 1Q 09, production was relatively flat. GMAC has retained Goldman Sachs & Co. to sell ResCap.

Capital Raise Completion Brings PMI Back into Compliance

May 3, 2010

The completion of the PMI Group Inc.'s sale of common stock and senior notes has contributed enough proceeds to bring the Walnut Creek, Calif.-based company's primary mortgage insurance underwriter back into compliance with the risk-to-capital ratio and minimum policyholders' position requirements some states have. The transactions netted $706 million, of which $586 million went to PMI Mortgage Insurance Co. This had the effect of reducing the company's risk-to-capital ratio on a pro forma basis as of March 31 to 13.4:1. In its first quarter earnings release, the company gave a preliminary risk-to-capital ratio figure of 26.6:1 for the subsidiary, above the 25:1 requirement a number of states have. However because the capital raise took place after that date, this is not being reflected in PMI Mortgage Insurance Co.'s balance sheet, policyholders' position or risk-to-capital ratio for the first quarter statutory filing. Steve Smith, chairman and chief executive noted that this means the PMI Mortgage Insurance Co. is able to continue writing new policies in all 50 states and the company won't have to turn to a reactivated subsidiary to write policies in states with a risk-to-capital or related requirement.

Software Firm Ellie Mae Files to Go Public

May 3, 2010

Mortgage software provider Ellie Mae filed to go public Monday morning after posting $38 million of revenues in 2009 and a profit of $1.7 million. The company offers no estimates on how much stock it will sell-or at what price-but notes in its IPO filing that its privately held shares have an estimated value of $47.2 million or $4.69 a share. The firm has entertained buyout offers over the past few years, but never completed a sale. The Pleasanton, Calif.-based company, known for its Encompass software, lost money in 2008 and earned a meager profit in 2007. In its S-1 filing with the Securities and Exchange Commission, the 13-year old firm says its Ellie Mae electronic network connects 55,000 mortgage professionals to lenders and service providers. In 2009, roughly 2.8 million of loans were initiated over its network-or about 20% of the market. Discussing the risks of its business, Ellie Mae cautions about "extreme turmoil" in the residential business, noting that its future performance hinges on attracting more customers to Encompass. Goldman Sachs & Co. is listed as the lead underwriter of the offering.

PennyMac Releasing 1Q Results on Tuesday

April 30, 2010

PennyMac Mortgage Investment Trust, a vulture fund that invests in troubled mortgage assets, will release its first-quarter results on Tuesday morning before the opening of the stock market. Since going public almost a year ago the company has yet to turn a profit but has reviewed billions of dollars in delinquent loans for possible purchase. The company is also working on launching a new lending conduit and could be eyeing the jumbo market.

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