Servicing

Senate Banking Committee chairman Christopher Dodd, D-Conn., said his talks with the ranking committee Republican have reached an impasse and he wants to move ahead with financial regulatory reform legislation. "While I still hope that we will ultimately have a consensus package, it is time to move the process forward. I have instructed my staff to begin drafting legislation to present to the committee later this month," Sen. Dodd said. The chairman wants to strengthen consumer protections and supports the Obama administration's proposal to create a separate agency to protect consumers from abusive mortgage lending and credit card practices. Sen. Richard Shelby, R-Ala., opposes a separate agency that would strip the federal banking regulators of their consumer protection function. "I fully support enhancing both consumer protection and safety and soundness regulation. I will not support a bill that enhances one at the expense of the other, however," Sen. Shelby said. The Alabama senator said he hopes to reach bipartisan agreement in other areas, including derivatives regulation and corporate governance. "I remain willing to work with Chairman Dodd to see whether that is possible," Sen. Shelby said. Despite the impasse, Sen. Bob Corker, R-Tenn., said he would continue to work with Sen. Mark Warner, D-Va., on a bipartisan approach to dealing with the failure of large financial institutions and other systemic risk issues. "Chairman Dodd has assured us that our work will be included in the bill," Sen. Corker said.

U.S. prime jumbo delinquencies have been climbing and could be as high as 10% as early as next month, according to Fitch. In January, 60-plus day prime jumbo delinquencies rose to 9.6%, up from 9.2% in December. "The new year has brought no relief from declining jumbo loan performance," said Fitch managing director Vincent Barberio. Serious delinquencies have been climbing for 32 consecutive months and even those underwritten before 2005 are starting to show some potential strain, Fitch said. Although only 5% of prime jumbo senior residential mortgage-backed securities classes have been downgraded, about 40% have a negative rating outlook due to weakening collateral performance.

Lenders originated $86.1 billion in FHA-insured single-family loans in the fourth quarter, up 21% from same quarter in 2008. The Federal Housing Administration reported that 60% or $51.8 billion of the endorsements involved home purchase loans during the final quarter of calendar year 2009. Meanwhile, FHA insurance-in-force grew by 24% during in the calendar year to $752.6 billion as of Dec. 31. But the percentage of singe-family loans 90 days or more past due grew by 34%. FHA ended the year with a 9.12% default rate, up from 6.82% at yearend 2008. Housing officials are raising the FHA upfront mortgage insurance premium 50 basis points to 2.25% this April to cover rising claims and losses. Foreclosures involving FHA-insured loans totaled 20,650 in the fourth quarter, up 41% from the same quarter in 2008. The use of short sales to avoid foreclosure shot up 140% from a year ago to 2,925 in the fourth quarter of 2009.

A Chicago entrepreneur is suing the Federal Deposit Insurance Corp. to win back capital he invested in a bank in the months before it failed. Pethinaidu Veluchamy, the chief executive of a direct marketing conglomerate, filed a complaint last week against the FDIC in federal court in Chicago, claiming that the regulator acted in a way that was "arbitrary, capricious [and] an abuse of discretion" in declining to approve a capital restructuring that would have benefited Mutual Bank in Harvey, Ill., before it was taken over last July. Bank experts said the allegations echo criticism by ailing banks — highlighted in a congressional hearing two weeks ago — that regulators' overly rigid rule interpretations unnecessarily led to the demise of some community banks. "There is no question that bank regulators in this market cycle have moved the goal posts for community banks in capital distress, giving banks significantly less time to work out problem loans and raise capital, while simultaneously increasing the minimum capital adequacy ratios for these same banks," said Justin A. Barr, the managing principal of Loan Workout Advisers, a consulting firm. "This [was done] at a time when community bank capital-raising has never been more difficult," Mr. Barr added. "It's all beginning to read like an Ayn Rand novel."

The Federal Trade Commission is proposing a ban on companies charging consumers upfront fees for loan modification services. In its notice of proposed rulemaking, the agency said it has already brought 28 cases against companies fraudulently offering loan modification services that charge consumers a fee and don't deliver and that state and federal law enforcement agencies have brought hundreds more. The rule would not allow a loan modification company to be compensated until it had a documented offer from a mortgage lender or servicer. It also bars providers from advising consumers to stop communicating with their lender or servicer. Furthermore, the rule would stop modification providers from misleading consumers about the likelihood of getting the results they want and how long it will take; their affiliation with public or private entities, payment and other existing mortgage obligations; and refund and cancellation policies. It also requires consumers to be told the loan modification firm is a 'for-profit' business that provides its services in exchange for a fee, what that fee is, and that there is no guarantee of success. There is a 45-day comment period for the rule, which ends on March 29, 2010. Some states, most notably California, already ban upfront fees for loan modification services.

GMAC Inc.'s chief executive Michael Carpenter sought to reassure investors — as his predecessor Alvaro de Molina did before him — that the bleeding at its Residential Capital LLC unit has stopped. On a conference call, Mr. Carpenter said GMAC expects to "fully resolve the challenges related to ResCap and the legacy mortgage business to minimize its impact on the company." Additionally, a spokeswoman for GMAC said despite media reports to the contrary, that ResCap, as a company, is not necessarily for sale. In an email, the spokeswoman said GMAC is "exploring strategic alternatives" for ResCap including asset sales. As reported, ResCap lost $4 billion in the fourth quarter, and $9.2 billion over the previous eight quarters. Mr. Carpenter told investors that, "You will see steady progress month by month, quarter by quarter." Part of the reason for such optimism is that in December, GMAC marked down certain loans to 40 cents on the dollar, from 70 cents, and transferred the assets from the Ally Bank unit to ResCap, resulting in a $2.6 billion loss in the quarter. "We expect the majority of the losses related to legacy assets are behind us," said Robert Hull, GMAC's chief financial officer.

Bank of America Home Loans, Calabasas, has named an origination executive, Matt Vernon, to lead its effort in residential short sales and REO dispositions. Mr. Vernon will move from the bank's production unit over to its servicing division in an effort to move foreclosed properties off its balance sheet. Thanks to its acquisitions of Countrywide Financial Corp., and Merrill Lynch & Co., BoA has one of the largest portfolios of troubled mortgages in the nation, according to nonperforming loan figures compiled by National Mortgage News. "The distressed economy is creating extraordinary volume on mortgage servicers in short sales and post-foreclosure REO activities," Mr. Vernon said in a statement. "We know we need to improve processes and efficiencies in these areas." Prior to his new assignment he worked for the bank as an enterprise sales executive, leading its origination and cross-selling efforts through BoA's 6,000 retail locations.

A wave of GSE buyouts of delinquent loans widely expected to affect higher-coupon agency mortgage-backed securities this year failed to materialize in 2010's first month of prepayment data, according to Wall Street research reports. Prepayments also slowed despite record low rates during the period, but analysts had widely expected that would occur due to tight underwriting and the fact that many loans had already refinanced. More surprising to some analysts was the lack of buyouts. Credit Suisse researchers said the buyouts may have failed to materialize due to operational challenges involved in implementing the accounting changes expected to spur them. "We believe the economic incentive for the GSEs to buy out delinquent loans is still there and hence buyout risk remains in place in the short term," the analysts said. "However, we would start fading out buyout risk should it not materialize in February." Barclays Capital researchers said some MBS investors have been concerned about massive GSE buyouts, but they have been reassuring them that it may not happen due to portfolio caps and other factors. Overall, 30-year fixed rate prepayments declined by 16%, according to Credit Suisse. Both firms said prepayments were slower than they had expected.

An unidentified hedge fund has agreed to buy a $400 million portfolio of nonperforming residential loans from Citigroup, according to vulture fund investors that play in that market. A spokesman for Citi's mortgage unit declined to comment. One investor said the final sale price was in the range of 50 cents on the dollar. No other details were available on the deal. Wells Fargo & Co. is also in the market with a large NPL market, the bank confirmed to National Mortgage News. (See the Monday edition of NMN for the full story.) With the Citi and Wells deals, it appears the market is seeing an increase in the willingness of some large banks to finally unload some of their delinquent residential loans but with roughly $1 trillion worth of mortgages in arrears it's still a fraction of the entire market. "From the prices I'm seeing some of these banks are still asking too much," said one west coast-based investor.

The Federal Reserve is prepared to act as a backstop for the mortgage market after it officially ends its MBS purchase program on March 31, according to New York Fed Bank President William Dudley. The Fed is on track to complete its planned purchases of $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae MBS at the end of this quarter. But Mr. Dudley told the Associated Press that the Fed is not on "automated pilot" and will restart MBS purchases if mortgage rates spike. "If there is a sharp turn in the road," Mr. Dudley said, the Fed will intervene. Wall Street mortgage experts seem divided on how the market will react when the Fed stops its MBS purchase program. The Fed bank president expects it will be orderly since the central bank has telegraphed its intentions well in advance of the March 31 cut off.