While We Were Away

During the holiday break, a number of news events news took place. Below is a brief summary:

HUD Terminates FHASecure Program
As expected, and over the protests of the Mortgage Bankers Association and much of the real estate finance industry, HUD issued Mortgagee Letter 2008-41 announcing termination of the FHASecure program, effective Dec. 31.

HUD said “maintaining the program past the original termination date would have a negative financial impact on the [Mutual Mortgage Insurance] Fund that would have to be offset by either substantial across-the-board single family program premium increases or the suspension of FHA’s single family insurance programs altogether.”

Under FHASecure, HUD insured refinancings for borrowers delinquent on their mortgages. MBA and other trade and consumer groups sent a joint letter to HUD last month urging the agency to extend the program through 2009.

FHA will not issue any new case numbers for lenders seeking to refinance borrowers into FHASecure loans. Any loans for which the lender has requested a case number and taken a loan application prior to December 31 will be processed and will be insured by FHA.

Mortgage Applications Little Changed MBA Weekly Survey
Mortgage application activity, which reached a five-year high in recent weeks as interest rates fell, was essentially unchanged in the Mortgage Bankers Association’s Weekly Application Survey for the week ending Dec. 26. The survey included an adjustment for the Christmas holiday.

The Market Composite Index nudged to 1245.7 on a seasonally adjusted basis from 1245.4 one week earlier. On an unadjusted basis, the Index decreased by 40.0 percent compared with the previous week but rose by 155.0 percent compared with the same week one year earlier.

The seasonally adjusted Refinance Index decreased by 0.4 percent to 6733.8 the previous week; The refinance share of mortgage activity decreased to 82.9 percent of total applications from 83.2 percent the previous week. The seasonally adjusted Purchase Index increased by 1.4 percent to 320.9 from one week earlier. The seasonally adjusted Conventional Purchase Index increased by 1.1 percent while the Government Purchase Index (largely FHA) increased by 2.2 percent.
 
Interest rates also remained relatively unchanged. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.03 percent from 5.04 percent. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.79 percent from 4.91 percent. The average contract interest rate for one-year adjustable-rate mortgages decreased to 6.15 percent from 6.36 percent.

OTS, FDIC Okay IndyMac Bid
The Office of Thrift Supervision and the Federal Deposit Insurance Corp. gave preliminary approval to IMB HoldCo., Pasadena, Calif., to purchase the holdings of IndyMac Federal Savings Bank, which failed last year.

The sale to IMB is for nearly $14 billion. The bank is led by Steven Mnuchin, a former Goldman Sachs executive; other investors include J. Christopher Flowers, computer icon Michael Dell and hedge fund manager John Paulson.

IMB, a $27 billion savings association, proposed to form a savings and loan holding company. The business model for the new institution would focus on home mortgage lending and mortgage loan servicing. Final OTS action on the successful bidders’ formal application is expected later this month.

IndyMac has been operated by the FDIC since July 11, when OTS closed its predecessor institution, IndyMac Bank FSB and transferred its operations to the FDIC.

Fed to Begin MBS Purchase Program
The Federal Reserve said it expects to begin operations in early January under a previously announced program to purchase mortgage-backed securities and that it has selected private investment managers to act as its agents in implementing the program.

Under the MBS purchase program, the Federal Reserve will purchase MBS backed by Fannie Mae, Freddie Mac and Ginnie Mae; the program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally.

Treasury Announces TARP Investment in GMAC
The Treasury Department announced last week that it will purchase $5 billion in senior preferred equity with an 8 percent dividend from GMAC LLC as part of its program to assist the domestic automotive industry.

Under the agreement GMAC must be in compliance with the executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act, as well as enhanced restrictions on executive compensation. GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5 percent of the preferred stock purchase that will pay a 9 percent dividend if exercised.

However, Treasury’s announcement also meant that it has allocated more money than it had been authorized to provide under TARP. Of the $350 billion in authorization from Congress, Treasury has pledged $358.4 billion, raising questions on Capitol Hill. Under TARP, Treasury must ask Congress for additional funding authority.

Fed Study Cites ‘Piggyback’ Mortgages as Obstacle to Modifications
The Federal Reserve said “piggyback” second mortgages can thwart efforts by loan servicers and homeowners in modifying loans.

The Fed, in its Federal Reserve Bulletin, said because second mortgages are not necessarily owned by those holding first mortgages and that owners of second mortgages must give approval when a first mortgage is modified to avoid foreclosure, loss mitigation efforts become more complicated and could delay efforts beyond a point of resolution.

Case-Shiller Indexes Show Sharp Declines
The Standard & Poor’s/Case-Shiller housing index declined by 18 percent in October, continuing its 10-month freefall. The 20-city index fell at the fastest rate on record, citing falling sales and rising foreclosures.

Since peaking in 2006, the 20-city index has fallen by 23 percent. All 20 cities saw declines, led by Phoenix (33 percent) and Las Vegas (32 percent). Atlanta, Seattle and Portland (Ore.) saw double-digit drops for the first time; 14 of the cities saw record declines.

The index also reported that home prices fell by 2.2 percent in October, following a 1.8 percent decline in September.

Bank of America, Wells Fargo Complete Acquisitions
Bank of America closed its $19.4 billion acquisition of Merrill Lynch and Wells Fargo completed its $12.7 billion purchase of Wachovia.

Bank of America’s all-stock purchase of Merrill Lynch was announced on Sept. 15; the acquisition makes Bank of America the nation’s largest bank. Merrill Lynch shareholders received 0.8595 shares of Bank of America common stock for each common share of Merrill Lynch owned.

Wells Fargo’s all-stock purchase of Wachovia, announced Oct. 3, gives it a banking presence in 39 states and the District of Columbia. Wachovia shareholders received 0.1991 shares of Wells Fargo stock for each share of Wachovia stock owned.

‘Dealmaking’ Down by 29 Percent in 2008
Despite a spate of mergers and acquisitions among banking firms, the credit crunch and resulting dearth of funding from private equity firms resulted in a 29 percent drop in merger and acquisition activity in 2008, according to data research firm Dealogic, New York.

Dealogic reported 37,445 deals globally, totaling $3.3 trillion. In the U.S., Dealogic said the value of deals dropped by 29 percent to $1.1 trillion. Finance firms led merger and acquisition activity, with 37 deals totaling $157.9 billion.