Servicing

The Federal Housing Administration had $32.6 billion in liquid assets on hand at Dec. 31 — a slight increase from three months earlier — to cover potential losses on its $700 billion-plus book of business, according to new figures provided by the agency. Compared to the same period a year earlier, the FHA 'Reserve Fund' saw its cash and "investment" balances improve by 13%. However, FHA would not provide a capital ratio for the December 31 period, noting that the figure is "only calculated once a year, at the end of each fiscal year." In the fall, the reserve fund had a capital ratio of just 0.56%, well below the 2% minimum FHA prefers. Analysts fear that unless the insurance fund can quickly raise premiums, FHA might be overwhelmed by claim payments with the reserve fund going into the red. (For the full analysis see the Monday edition of National Mortgage News.)

The number of foreclosures on the market in the Las Vegas area fell in January for the eighth consecutive month, according to the latest figures from local RE/MAX broker Rob Jenson. Nevertheless, distressed sales — foreclosures plus short-sales — continued to account for roughly three out of every four deals closed in the Vegas-Henderson market in January. It was the fourth month in a row that 78% of all transactions were by troubled owners, give or take 1.5% either way. Twice as many short sales are currently being offered, but foreclosures outsell the "shorts," nearly three to one, according to the RE/MAX broker. Only 2,437 properties with price tags under $1 million sold in January, which was a 20% drop-off from December. The average sales price was $156,385. Nine properties sold for $1 million or more, one less than in the previous month.

More than 7.2 million mortgage loans are now behind on payments and one million properties are now in real estate-owned status, according to the January 2010 Mortgage Monitor report from Lender Processing Services in Jacksonville, Fla. Home delinquency rates have surpassed 10%. The total foreclosure inventory rate is 3.2%, and the total non-current rate, which combines foreclosures and delinquencies, sits at 13.3%. The percent of "new" serious delinquencies is 4.64%, higher than any other year analyzed for the same period. Of loans that were current as of Dec. 31, 2008, by Dec. 2009 there were 2.3 million new loans that were considered seriously delinquent. Prime loans, including agency, non-agency and jumbo, have experienced deterioration at a worse pace on a relative basis than subprime, FHA and all loans as a whole. Within the prime category, loans with current unpaid principal balances between $417,000 and $600,000 have performed the worse, LPS said. States with most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Illinois and Ohio. States with fewest non-current loans are North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

Residential Capital Corp. — which is on the auction block — posted a $4 billion loss in the fourth quarter after reclassifying some of its troubled mortgages and being forced to repurchase loans from Fannie Mae and Freddie Mac. A year ago, the GMAC-owned ResCap lost $790 million. GMAC is trying to unload several billion dollars in troubled loans held by ResCap and said in a statement Thursday that it continues to "explore strategic opportunities" for the unit. Loan repurchases by ResCap cost the company $573 million in the fourth quarter 2009. It also marked down the value of its mortgage servicing rights by $122 million. (According to the Quarterly Data Report, ResCap ranks fifth nationwide in terms of housing receivables with $380 billion.) There was some good news, though. The mortgage lender originated $18.1 billion in the quarter, more than double its fundings in the same period a year earlier. GMAC Financial Services is majority owned by the U.S. government, which has spent more than $15 billion to keep the company in operation through the credit crisis and recession. The parent company lost $5 billion in the fourth quarter ($4 billion of that amount tied to ResCap.)

DebtMarket of Los Angeles, which operates an online marketplace for trading whole loans, has officially named Stuart McFarland, a former Fannie Mae chief financial officer, as a top advisor to the firm. The company said Mr. McFarland will serve as a special advisor for capital and federal markets. The company also named Jim Jones and Bob Feller to its board. During his long career in mortgages, Mr. McFarland has worked for GE Capital Asset Management, and Pedestal, an early B2B online trading platform. Mr. Jones is a former CEO of GMAC's Residential Capital Corp. unit and Mr. Feller is a former CEO of Capmark Financial Group, a company that recently went through bankruptcy. Mr. McFarland first began working with DebtMarket late last year.

MetLife Bank posted strong operating earnings in the fourth quarter and full year, citing stellar results in its residential lending and servicing division. The bank, the nation's 11th largest funder of residential mortgages, had operating earnings of $65 million in the fourth quarter, a 400% increase from the same period a year earlier. For the full year, the Bridgewater, N.J.-based depository earned (on an operating basis) $298 million. In 2008 the unit had profits of $44 million. As reported by National Mortgage News recently, MetLife's mortgage division is exploring entering the warehouse and correspondent sectors.

Fannie Mae and Freddie Mac have $2 billion at stake in the Stuyvesant Town and Peter Cooper Village debacle in Manhattan — but their former regulator believes they won't be big losers. "They have the most senior piece and they are well positioned," said former Federal Housing Finance Agency director James Lockhart, speaking at the American Securitization Forum conference in Washington. The GSEs are investors in commercial mortgage-backed securities that were issued in 2006 when Tishman Speyer Properties and BlackRock Realty acquired the 11,000-unit apartment complex for $5.4 billion. (At the time of purchase, Mr. Lockhart was the FHFA chief and the GSEs were not wards of the government.) On Jan. 25, Tishman and BlackRock defaulted on $4.4 billion in loans, including $3 billion in senior mortgages. The properties are now valued at $2 billion. "Obviously, that was a bubble transaction. It will have to be unscrambled and it is going to be very messy," said Mr. Lockhart, who is now vice-chairman of WL Ross & Co., a New York vulture fund that specializes in distressed mortgage-related investments.

Eliminating or downsizing Fannie Mae and Freddie Mac would cripple the TBA (to-be-announced) market, which provides a quick and cost-efficient mechanism for issuing mortgage-backed securities, according to an executive at JPMorgan Chase. Speaking at the American Securitization Forum meeting in Washington, JPM senior vice president Garry Cipponeri told attendees that without TBA, "We would be in big trouble." Mr. Cipponeri, during a panel discussion on the future of the GSEs, said mortgage rates would be 150 basis points higher without Fannie/Freddie and the TBA market. Also speaking on the panel was former GSE regulator James Lockhart who noted that MBS issued by Fannie and Freddie today will be backed by the government forever. "We are going to have to create a new security going forward that does reproduce the TBA," said Mr. Lockhart. "That is going to take time and it is going to take capital." Meanwhile, Wellington Denahan-Norris, a top executive for Annaly Capital Management told the ASF audience that the private label MBS market "will not come back for a long time." MetLife managing director Nancy Mueller Handal said servicing issues and the rights of first and second lien holders need to be resolved for the private label MBS market to recover. "Without a clear solution to lien holder rights, it is going to be difficult to invest," said the MetLife executive.

Fannie Mae and Freddie Mac will not become large buyers of mortgage-backed securities this year and will maintain plans to reduce their total asset size, according to a new letter from their regulator. Federal Housing Finance Agency director Ed DeMarco told banking committee leaders on Capitol Hill that the Obama administration wants Fannie and Freddie to concentrate on conserving assets while minimizing credit losses and stressing foreclosure prevention. "This is and will remain the central goal of FHFA and the enterprises," the government-sponsored enterprise regulator says in the letter. FHFA acting director DeMarco also notes in the letter that the GSEs have the flexibility to expand the size of their investment portfolios but notes that such moves will center around purchases of delinquent mortgages out of guaranteed MBS for modification and loss mitigation. The Federal Reserve is expected to end its purchases of GSE MBS at the end of this quarter. Many market observers assumed Fannie and Freddie would step in to fill the void — if necessary — to keep mortgage rates stable. "I expect that other private parties will begin to invest in Enterprise MBS as the Federal Reserve gradually withdraws its purchase activity," Mr. DeMarco says.

The potential for higher-than-expected commercial real estate investment losses is one of the reasons Fitch Ratings, Chicago, has downgraded the issuer default rating for MetLife Inc., New York, from "A+" down to "A". MetLife has an above-average investment exposure to CRE. These investments make up 16% of the company's total invested assets as of Sept. 30, 2009, and consist of commercial mortgage loans, commercial mortgage-backed securities and real estate. Fitch added that a mitigating factor to the downgrade is MetLife's commercial mortgage reserve of $542 million as of Sept. 30, 2009. The rating agency said it is also concerned about MetLife's potential for future investment losses from prime and alt-A residential mortgage-backed securities and hybrid securities. Fitch projects MetLife has a potential for further investment gross losses of between $2.2 billion and $2.6 billion for the period covering the fourth quarter of 2009 and all of 2010. On the positive side, MetLife has a below average exposure to subprime mortgage investments, as the company was very proactive in identifying issues and took steps to reduce its exposure, the rating agency said.