Servicing

Many proposed refinancings and purchase loans have been scuttled because the appraiser could not find enough comparable sales of similar homes. Part of the problem is that lenders have narrowed their definition of an acceptable comp in the past year as part of an overall stiffening of standards. Many appraisers have failed to find the requisite two comps within the prior three months, or even three comps within six months, because there have been so few sales in a given area. This could create a self-fulfilling cycle, where fewer sales lead to fewer comps, which in turn lead to still fewer sales. At the same time, as distressed sales make up a greater portion of the real estate market, lenders also fear those sales will become the only comps, resulting in lower home values and hence smaller loans.

Mortgage Guaranty Insurance Corp.'s inventory of delinquent mortgage loans fell by just over 4,000 during May, according to a statement issued by the nation's largest MI firm. At the beginning of the month there were 235,891 with primary mortgage insurance that were delinquent. New default notices were issued on an additional 15,523 loans. There were 15,385 cures during May, plus another 3,553 loans on which claims were paid (including loans charged to a deductible or captive reinsurance). Another 958 loans had the claims either denied or MGIC sought rescission. This brought the delinquent inventory down to 231,508 as of May 31. In May, MGIC had $800 million of primary new insurance written.

The performance of Portuguese residential mortgage-backed securities was mixed in April, according to a report from Moody's Investors Service. Outstanding defaults, a category that ranges from loans 360-plus days overdue to those written off, increased to 1.7% in April from 1.4% in January and 1.1% in April 2009. But an index that tracks delinquencies of 60-plus days dropped to 1.5% during the month compared to 2.2% in April 2009. Yuezhen Wang, a Moody's senior associate, said the weighted-average cumulative loss trend rose to 0.8% of original balance during April, up 0.3% over the previous 12 months, with the highest losses seen in the 2004 vintage.

Securitization market participants appear to be unified on eight issues related to risk retention proposals and split on two, according to a draft report by a group that represents both the "buy" and "sell" side of trades. The group is split on a portion of the legislative proposal which makes it possible in the commercial mortgage market to have a third-party purchaser retain the first-loss position if that purchaser specifically negotiates for such a position and performs due diligence on the pool. According to the American Securitization Forum's June 11 draft report on its membership's response to financial regulatory reform proposals by the House and Senate, certain of the group's members "believe this alternative form of retention should be available for other asset classes." However, it said, other members "believe retention of risk by a third-party purchaser is not retention at all, because it allows the issuer to sell the risk which does not align incentives or result in prudent securitization practices." The group also remains split on whether "qualified" securitized mortgages underwritten to "prime" credit standards should get an exemption. Some members believe allowing a "qualified" mortgage exemption would ensure "incentives are aligned between originators and investors." Others said they are concerned that "while a 'qualified mortgage' would require some minimum in quality, it would not require an issuer to have ongoing 'skin in the game' with respect to the securitization." While the membership is split on the aforementioned two issues, it is unified in pushing for proposals that allow for "adequate representations and warranties and enforcement mechanisms" to be used as an alternative for risk retention.

Freddie Mac is trying to prevent Bank of America from investigating its business relationship with the failed Taylor Bean & Whitaker, noting that the cost of the probe could cost the GSE $10 million or more. According to a report by Dow Jones, Freddie is urging the Federal Bankruptcy Court in Jacksonville, Fla., not to allow Bank of America to carry out the investigation. TBW, a nondepository mortgage banker, was a larger seller/servicer to Freddie. The GSE seized control of some of TBW's servicing rights when the lender failed last year. B of A is owed money by TBW. "The breadth of the discovery sought by B of A is so vast that Freddie Mac estimates that it will cost at a minimum $10 million to provide the discovery sought," the GSE says in a recent court filing. "B of A seeks to unfairly shift the cost of compiling and providing such records to Freddie Mac by means of a broad 'fishing expedition.'" Bank of America is seeking access to Freddie Mac's books and to question its officials about the mortgage finance company's "extensive business relationship" with Ocala, Fla.-based TBW.

The Federal Deposit Insurance Corp. has once again pushed back the auction deadline on the $23 billion AmTrust servicing portfolio, National Mortgage News has learned. At press time, the agency had not returned a telephone call about the matter. Milestone Merchant Partners, Miami, is the agency's advisor on the sale, but an official at the firm said he could not comment at this time. Investment bankers that have reviewed the receivables attribute the delay, in part, to the portfolio's large size. The delinquency rate on the underlying loans is relatively low. Also, investment banking sources say the FDIC is in the middle of wrapping up a $1 billion sale of (mostly) delinquent AmTrust whole loans. The sale of AmTrust's servicing rights has been delayed twice already. The latest bid deadline was mid-June. Originally, the agency had hoped to wrap up bidding at the end of May. The Cleveland-based thrift failed late last year.

The Government National Mortgage Association late this week unveiled a new MBS program for Title 1 manufactured housing loans but to play servicers need a minimum net worth of $10 million. Also, mortgage bankers that issue MH MBS must re-apply if they want to participate in the new program. Only "eligible" MH loans will be considered which means the applicant must also own the underlying real estate. Ginnie has set a 30 basis point guarantee fee. The minimum pool balance is $1 million. Two years ago MH units accounted for 12% of the new housing market, but that number has fallen significantly since then. At press time GNMA did not have an updated number.

Neighborhood Housing Services of America said it is planning an "orderly wind down" of its affordable housing programs due to "extraordinary liquidity demands" resulting from the housing downturn and is ceasing its purchases of new loans. "The financial demands of the current market and expected continuing challenges have contributed to NHSA's inability to secure its annual grant from NeighborWorks America," NHSA said in a press release. "The lack of grant funding has left the nonprofit organization with liquidity levels that will not allow it to continue operations." However, a spokesman for NeighborWorks America told this publication it was "surprised" by NHSA's announcement as it had been in talks with NHSA for some time about what NHSA might be able to do to continuing meeting the terms of its grant and had been "hopeful" that it would. "We hoped that we could come to an agreement that [would keep] NHSA doing the work its done for years for nonprofit organizations but apparently it couldn't find a way to make that happen," the spokesman said. NHSA said in its press release it had made several changes over the past year and negotiated concessions in loan terms and interest rates from its lenders/investors "in anticipation of obtaining the grant funding." While NHSA will no longer purchase new loans, it plans to continue to collect payments and service existing mortgages "until arrangements can be made to transfer these responsibilities to other parties." NHSA also said it "may seek to sell mortgage loans, mortgage servicing rights, its interest in intellectual technology rights and other assets, as appropriate." It added, "Should other opportunities emerge, the board will evaluate the feasibility of others outcomes." NHSA said the wind-down would take place "over the next several months."

Applicants hoping to tap lucrative tax credits for buying a home could get a closing extension to Sept. 30 under a measure introduced in the Senate. Sen. Harry Reid, D-Nev., co-authored a proposal giving eligible homebuyers 90 extra days to reach the closing table. The way things stand now, homebuyers must close by June 30 but lenders say they are now swamped with applications and are having trouble getting appraisals done under rules promulgated by the Home Valuation Code of Conduct. The National Association of Realtors estimates that up to 180,000 borrowers who signed a contract by April 30 may not meet the June 30 closing deadline. Two different homebuyer tax credits are at stake: $8,000 for first-time purchasers and $6,500 for certain "move up" buyers. Reid—whose state has been one of the hardest hit in terms of home price declines—hopes to attach the language to a bill that extends unemployment benefits.

The House of Representatives Thursday afternoon overwhelmingly passed an FHA reform bill allowing the agency to triple annual premium payments to 150 basis points, a move designed to bolster the insurer's wobbly finances. The measure also mandates that seller/servicers repay the government for any losses on mortgages funded using delegated underwriting. If fraud is discovered on an FHA loan, the agency could hold the lender liable in full. Among other things, the legislation gives a break to FHA homebuyers who purchase properties with a downpayment of 10% or greater. "For any mortgage involving an original principal obligation that is less than 90% of the appraised value of the property, this premium may be required to be paid for the first 11 years of the mortgage." If the downpayment is less than 10%, the premium will be assessed over 30 years. (The values are subject to appraisal confirmation.) The final tally on the vote for the FHA Reform Act (H.R. 5072) was 406-4. In a statement, HUD secretary Shaun Donovan said the bill would enable the Federal Housing Administration to "reform its current mortgage insurance premium structure by shifting some of the upfront cost to the annual premium—a move that will increase FHA's capital reserves and reduce risks" to the government insurance fund. With the House bill passed, the Senate must come up with its version of the measure.