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This Week from Broker Magazine

FHA Takes Flight

Once called the program of last resort, the government-insured product is now the program of choice for mortgage borrowers and originators.

By Brad Finkelstein

It is no secret that the Federal Housing Administration loan program has enjoyed a rebirth since the start of the credit crisis. Yet experts are saying the FHA Secure program is not where most of the volume is coming from.

Among those new players to the game is E-Loan, Pleasanton, Calif., whose president Mark Lefanowicz said, "Unfortunately, we are seeing an unprecedented number of homeowners being forced to foreclose on their homes because they cannot afford their newly adjusted mortgage interest rates. "For many, the flexible guidelines and competitive rates of these FHA mortgage loans will mean the difference between losing their homes and being able to keep their piece of the American dream fully alive."

Charlotte, N.C.-based 1st Metropolitan Mortgage said it is moving to an increasing FHA-oriented origination strategy. These loans have gone from just 3% of production in March 2006 to 33% in March 2008.

Read on...

Quality Time

You know how some things are much better when you combine them? Snowstorms are best with a fireplace, peanut butter is best with jelly, a good movie is best shared with a friend and long walks are best with either your iPod, your dog, your best friend or gorgeous scenery. (Said gorgeous scenery could be your best friend, I'm just saying.)

I inadvertently hit upon the perfect combination of books. Either of these alone is a chilling story of society going badly wrong but put them together and you've got a waking nightmare of fascism and freedom bartered for false security. I read them back to back and was profoundly disturbed, not just by the events in the books but because of how closely they mirror, or could mirror our culture. Jo Walton's Farthing is a detective story that takes place in 1949 in an England that has an uneasy peace with Hitler, while Cory Doctorow's Little Brother takes place in the near future, in San Francisco, during and after an attack that causes thousands of deaths.

Smorgasbord

Each week Georgiana Lee compiles a list of ten intriguing events going on around the country. Is one of them taking place in your town? There is only one way to find out...

Read on...

News Recap

OpenClose Acquires LION
Beanstalk Networks Acquisition LLC, a unit of Beanstalk Networks (doing business as OpenClose), has acquired LION Inc. OpenClose said it will purchase and continue to operate LION's only remaining business segment -- which includes the business related to its Precision family of products and its retail websites business -- for $525,000 in cash. OpenClose will assume all current LION customer agreements. The transaction is subject to shareholder approval and regulatory consent. The deal is part of a strategic initiative to offer OpenClose clients something closer to an end-to-end solution, which now spans from the point of origination to closing as both technology offerings are combined. OpenClose's loan origination system will be integrated with LION's loan pricing engine and Web-enabled tools that offer transactional services designed to allow large lenders to originate, price, and lock loans. David Stedman, president of LION, said in a prepared statement that most LION employees will be retained. The companies can be found online at http://www.openclose.com and http://www.lioninc.com.

30-Year Rate Drifts Down
The average 30-year fixed mortgage rate fell from 6.05% to 6.01% over the seven-day period ended May 15, according to Freddie Mac's Primary Mortgage Market Survey. The average 15-year fixed mortgage rate was unchanged at 5.60%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.67% to 5.57%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.29% to 5.18%, Freddie Mac reported. Fees and points averaged 0.5 of a point for 15-year fixed-rate mortgages, 0.6 of a point for 30-year fixed-rate mortgages and hybrid ARMs, and 0.7 of a point for one-year ARMs. "Recent remarks by Federal Reserve officials, which partly bolstered optimism that financial markets will recover later this year, helped mortgage rates ease up a little this week," said Frank Nothaft, Freddie Mac's chief economist. "Fed Chairman [Ben S.] Bernanke indicated in a speech on May 13th that the Fed stands ready to continue to add liquidity to the markets. On the same day, San Francisco Fed bank president Janet Yellen added that she anticipates inflation will slow as commodity prices level off in the second half of the year." A year ago, the average 30-year and 15-year fixed mortgage rates were 6.15% and 5.87%, respectively, and the average hybrid and one-year ARM rates were 5.89% and 5.48%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

Freddie Beats Estimates Despite Credit Costs
Freddie Mac narrowed its quarterly loss to $151 million ($0.66 per share) in the first quarter, despite a significant increase in credit costs. By contrast, Freddie Mac reported a $2.5 billion net loss in the fourth quarter. Freddie Mac executives said the company benefited from higher securitization volume, a higher guarantee fee rate, and higher net interest income. Freddie's first-quarter provision for credit expenses totaled $1.2 billion, and the company raised its estimate of credit costs for 2008 as a whole. But at the same time, Freddie Mac now projects that net interest income will grow 40%-50% this year, driven by higher portfolio volume and better interest rate spreads. Freddie is also expecting its guarantee fee income to increase by 15%-20% this year. In a conference call with investors, chief financial officer Buddy Piszel said Freddie Mac does not plan any new cuts to its dividend payments. Wall Street reacted favorably, with the company's stock rising about 9% in morning trading on news that the loss was narrower than the consensus estimate of analysts polled by Thomson Financial, which predicted a $0.92 per share loss.

RealtyTrac: Foreclosure Filings Rise Again
New foreclosure filings rose 4% in April and were nearly 65% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 243,353 properties in April. "The total number of U.S. properties with foreclosure activity in April was the highest monthly total we've seen since we began issuing the report in January 2005," said James J. Saccacio, RealtyTrac's chief executive officer. "Although only about 2% of households nationwide are in foreclosure, these properties contribute to already-bloated inventories of homes for sale and put downward pressure on home values." The company said California, Florida, and Ohio recorded the highest foreclosure rates in April. RealtyTrac can be found online at http://www.realtytrac.com.

Applications Rise
The Market Composite Index, an overall measure of mortgage applications, rose from 655.4 to 674.4 on a seasonally adjusted basis during the week ended May 9, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 2.9% on the week and were down 1.1% from the level recorded a year earlier. The Purchase Index fell from 381.3 to 378.5 on a seasonally adjusted basis, while the Refinance Index climbed from 2273.8 to 2422.1. Refinancings represented 48.7% of total applications, up from 47.1% the previous week, while adjustable-rate mortgages accounted for 8.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 5.91% to 5.82%, and points (including the origination fee) increased from 1.12 to 1.23 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Indymac Dropped From S&P MidCap 400
Standard & Poor's has announced that Under Armour Inc. will replace mortgage lender Indymac Bancorp Inc. in the S&P MidCap 400 after the close of trading on May 15. S&P said Indymac ranked 400th in the index as of May 13, with a market capitalization of approximately $188 million. Indymac is the Pasadena, Calif.-based holding company for IndyMac Bank FSB. S&P can be found online at http://www.standardandpoors.com.

ForeclosureS.com: Market Bottom in Sight
Foreclosures fell more than 5% in April, and pre-foreclosure filings declined as well, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm. Lenders repossessed 74,570 homes following foreclosure in April, while pre-foreclosures declined 7.5%, the company said. "The sky isn't falling, and the bottom of the housing market is in sight," said Alexis McGee, president of the firm. (Ms. McGee forecast in early 2007 that the worst of the foreclosure crisis was over.) On a quarter-over-quarter basis, 17 states had fewer real estate owned filings in April, the company said. "That's the good news," she said. "The bad news is that still 3.8 of every 1,000 households nationwide (288,497 REO filings) have been lost to foreclosure so far this year." The company can be found online at http://www.foreclosures.com.

IndyMac Sees Big Loss, Lowers Outlook
IndyMac Bancorp Inc., Pasadena, Calif., lost $184 million ($2.27 per share) in the first quarter and now says it does not expect to return to profitability this year. While holding out hope that quarterly losses will be "substantially declining" for the rest of 2008, IndyMac says it does not expect to return to profitability until "home price declines decelerate." IndyMac raised $97 million of new capital through May 9 and said it remains well-capitalized under banking regulations. The company has deferred or suspended dividend payments on preferred shares to preserve capital. Chairman and chief executive Michael Perry noted that the first-quarter loss was 64% lower than the fourth-quarter loss. He said IndyMac continued to build its credit loss reserve to $2.7 billion in the first quarter, a 13% increase over the reserve at the end of 2007. The company can be found online at http://www.indymacbank.com.

NMHC: MF Sales Slowing Sharply
The credit crunch is causing the volume of apartment property sales to slow "sharply" and making it harder for apartment firms to access the debt and equity markets, according to the National Multi Housing Council's multifamily industry survey. The trade association reported that its Market Tightness Index, which measures changes in occupancy rates and rents, rose significantly, from 33 in January to 44 in April, as more respondents reported tighter conditions. The availability of debt funding for multifamily properties declined significantly, according to the NMHC's Debt Financing Index, which dropped from 45 in January to 22 in April. "The bursting of the for-sale housing bubble has greatly slowed the outflow of renters into ownership"," said Mark Obrinsky, the association's chief economist. "More than 80% of the survey respondents reported a decrease in the number of renters leaving to become homeowners." The survey's respondent pool consists of 87 chief executive officers and other senior executives in the multifamily industry who also serve on the NMHC's board of directors or advisory committee. The council can be found online at http://www.nmhc.org.

House Passes FHA Bill
The House of Representatives has passed a Federal Housing Administration refinancing bill by a 266-154 vote, and attention now turns to the Senate Banking Committee, which is expected to mark up a similar foreclosure prevention measure soon. It is estimated that the House-passed bill (H.R. 3221) could refinance up to 500,000 borrowers with "underwater" mortgages into FHA-insured loans. But the bill provides little incentive for investors/servicers to participate, because the principal amount of the loan must be written down to 85% of the current appraised value and the noteholder does not share in any upside if property values increase. H.R. 3221 is a legislative package that also includes two other bills the House passed last year -- an FHA modernization bill and a government-sponsored enterprise bill to strengthen supervision of Fannie Mae and Freddie Mac. The House also passed and sent to the Senate a housing tax bill that contains a $7,500 tax credit for first-time homebuyers and $10 billion in revenue bonds that can be used to refinance subprime borrowers. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is planning to mark up an FHA refinancing bill and a GSE reform bill before the Memorial Day recess.

Fremont Sub to Sell Remaining MSRs
Fremont General Corp., Brea, Calif., has announced an agreement under which its bank subsidiary will sell the remaining mortgage servicing rights on its $12.2 billion servicing portfolio to Litton Loan Servicing LP. The terms of the transaction were not disclosed. Under the agreement, Litton will pay Fremont Investment & Loan (the bank subsidiary) for the MSRs and reimburse FIL for accrued and unpaid servicing fees and the unreimbursed delinquency and servicing advances made by FIL. The agreement does not include the sale of FIL's servicing platform, and Fremont said it plans to wind down its remaining loan servicing operation in Ontario, Calif. The company can be found on the Web at http://www.fremontgeneral.com.

Fannie Prices Stock Offerings
Fannie Mae has priced $2.25 billion (82 million shares) of its common stock (CUSIP 313586109) at $27.50 per share, and $2.25 billion (45 million shares) of 8.75% noncumulative mandatory convertible preferred stock, series 2008-1, at a liquidation preference of $50 per share. Each share of the preferred stock (CUSIP 313586745) will automatically convert on May 13, 2011, into 1.5408 to 1.8182 shares of Fannie's common stock, the company said. At the election of the holder, each share of the preferred stock may be converted at any time into 1.5408 shares of Fannie's common stock. Fannie Mae has granted the underwriters an option to buy up to 12.3 million additional shares of common stock and up to 6.75 million additional shares of the preferred stock. Lehman Brothers Inc., J.P. Morgan Securities Inc., and Citigroup Global Markets Inc. are the joint book-running managers for the common stock offering, and J.P. Morgan, Lehman, and Banc of America Securities LLC are joint book-running managers for the preferred stock offering.

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