Servicing

Corporate credit unions — which provide wholesale services to rank and file CUs — are bracing for additional losses on their MBS investments after certain bond insurers were ordered to stop paying claims to preserve capital. Already, some of the biggest corporate CUs are reporting in their year-end financial statements they can no longer rely on private insurance taken out on billions of dollars in troubled MBS, forcing them to realize millions of dollars in new losses, according to a report in Credit Union Journal, a sister publication to National Mortgage News. Members United Corporate FCU, which is expected to report new losses in its year-end financials, told members recently that two bond insurers covering its investments — Financial Guarantee Insurance Corp. and Syncora Guarantee — have been ordered by the New York Insurance Department to stop paying claims in order to preserve what little capital they have. A third bond insurer, Ambac, is also battling solvency issues, prompting Southwest Corporate FCU to take a new $6.9 million write-down on securities it owns, the Dallas corporate reported on Friday.

Wells Fargo & Co. saw a $28.2 billion reduction in unpaid principal balances on legacy 'Pick-a-Pay' mortgages last year, according to an investor conference presentation by the company's chief financial officer. However, there was little detail on how the company achieved its results. At press time, a Wells spokesman had not returned a telephone call about the matter. A recent Wall Street Journal report indicates that Wells has been lowering payments for some underwater borrowers who originally took out Pick-a-Pay loans by offering them extended-term mortgages with interest-only payments. The company also reduced its legacy credit-impaired commercial real estate portfolio by $5.6 billion year-to-year, said CFO Howard Atkins in a web cast presentation from New York. Wells inherited both the CRE portfolio and the negative amortization 'Pick-a-Pay' ARMs when it bought Wachovia in the fall of 2008. Mr. Atkins said that despite these negatives, the Wachovia purchase was beneficial. Wells improved its distribution network and diversified its financial offerings. The deal also allowed it to bolster its origination and servicing volumes. Addressing questions about the company's home equity exposure, Mr. Atkins said performance in that area is relatively good given that it includes some first-lien product and has strong underwriting outside of the third-party sector it exited a couple of years ago. When asked about HAMP modifications' effect on second lien home-equity product, he said he would not take a position other than to note the company is exploring its options. Wells has completed more than 118,000 modifications through the government's Home Affordable Modification Program.

Vulture fund PennyMac Mortgage Investment Trust lost $1.15 million in the fourth quarter, its second consecutive loss since going public last year. The company continues to evaluate loan portfolios and MBS for possible purchase, but also is moving full steam ahead with plans to launch a conduit that will allow it to purchase newly originated loans from small mortgage bankers. Once it accumulates enough product it will issue MBS. Company founder and CEO Stanford Kurland said "at this early stage" losses at the company are not surprising. "Over the past several months, our manager has focused significant attention on its ability to adapt and react to changing dynamics in the mortgage marketplace, including a low volume of available performing mortgage transactions, which offer greater opportunity for value enhancement, and less attractive trading levels for the pools that have been marketed." At yearend, PennyMac reported assets of $324 million and total revenues of just $1.5 million. It took in $1.6 million of interest income on its investments, but had to mark down the value of its holdings by $115,000.

Flagstar Bancorp, one of the nation's top ranked wholesaler funders, reported a fourth quarter loss of $71.6 million, an improved showing over the prior quarter and the same period last year. Meanwhile, the Michigan-based lender originated $6.9 billion of home mortgages in the fourth quarter, a 28% increase in fundings from Q4 2008. For the full year, originations rose 15% to $32.4 billion. Even though its quarterly earnings improved, it lost $514 million for the full year, compared to a $275 million loss the prior year. At yearend Flagstar serviced $56.5 billion in loans. (It is currently shopping around a $10 billion package of receivables.) At year end it held $659 million of non-performing residential mortgage loans, a 51% increase from 2008. It also owns $338 in nonperforming commercial mortgages, a 67% spike from 2008.

The Comptroller of the Currency believes that in light of newly proposed accounting rules regarding "sale treatment," the congressional push to impose risk retention or "skin in the game" requirements on MBS issuers will only hamper a recovery in the private label market. Speaking at a American Securities Forum conference, OCC chief John Dugan called risk retention an "imprecise and indirect" way to improve the underwriting quality of residential mortgages. As an alternative, he thinks federal regulators should set minimum mortgage underwriting standards including requirements for verification of income, and minimum downpayments. These minimum standards would insure that newly funded mortgages are financially sound, likely to be repaid, allaying fears that an asset bubble is being created. Mr. Dugan thinks these attributes will attract investors to the securitization process. He supports risk retention but new accounting proposals prevent securitizers from achieving sale treatment on mortgage backed securities if they retain 5% of that risk. The language is part of a House-passed bill and appears in a recent proposal issued by the Federal Deposit Insurance Corp. "I do think...that minimum underwriting should be strongly considered as an alternative to rigid 'skin in the game' requirements," Mr. Dugan told conference attendees.

Refinancings at Fannie Mae and Freddie Mac surged 37% in the month of December to the highest level since August, according to the GSE regulator. The government sponsored enterprises purchased nearly 297,000 refinanced loans from lenders in December, up from 217,100 in November. "Total refinance volume rose in December in response to a gradual June to November decline in rates," the Federal Housing Finance Agency said in a report. December's surge includes refinancings of 33,347 borrowers with Fannie and Freddie loans under a special program for homeowners with loan-to-value ratios between 80% and 105%. Launched April 1, the Home Affordable Refinancing Program has helped 188,250 difficult-to-refinance homeowners take advantage of historically low mortgage rates in 2009 and lower their monthly payments. HARP does not require the purchase mortgage insurance. On October 1, FHFA expanded HARP to refinance underwater borrowers with LTVs greater that 105% and up to 125%. During the fourth quarter, the GSEs refinanced 1,900 of these higher LTV loans, including 1,100 in December.

In a pilot effort "to convince discouraged delinquent [Freddie] borrowers to pursue mortgage workouts," Freddie Mac has joined forces with 13 national and local nonprofits to assist them to avoid foreclosure. Freddie Mac's Borrower Help Centers in Chicago, Phoenix, San Bernardino and Washington will offer free, one-on-one "holistic" counseling to delinquent homeowners. In addition, Freddie has launched a national phone-based counseling Borrower Help Network. Freddie's "holistic" counseling assistance includes a review and feedback on mortgage issues, assessment of debt and credit profiles, and a borrower's ability to stay current after receiving a modification. The effort is based on the belief that fear and frustration are keeping thousands of eligible borrowers from getting help and receiving a loan modification, said Freddie Mac chief executive Ed Haldeman. Participating nonprofits can make a difference, he said since they are "trusted and valued sources in their communities." Freddie also quoted NeighborWorks data showing that compared to other borrowers, those who already are in some stage of foreclosure are 60% more likely to keep their homes, as an additional reason behind the initiative.

Purchasers who intend to be owner-occupants of Fannie Mae-owned homes will receive 3.5% in closing costs or an equivalent amount in home appliances for properties listed on HomePath.com. The offer expires on May 1, 2010. The effort aims to attract to the market more qualified buyers and reduce its real estate owned inventory, Fannie Mae executives said. Therefore it is offering an additional incentive to the homebuyer federal tax credit for first-time buyers and other affordable financing options. For example HomePath Mortgage and HomePath Renovation Mortgage listings also provide a 3% down payment alternative to qualified borrowers.

The Obama administration wants servicers to start verifying borrowers' income and eligibility for the Home Affordable Modification program upfront before they start the three-month payment trial. Under the new guidance from Treasury and the Department of Housing and Urban Development, HAMP servicers are expected to a use a "simple, standard package of documents" including pay stubs, to qualify borrowers starting June 1 or sooner. This update "should enable servicers to transition borrowers more quickly and easily from trial to permanent modification," said HUD senior advisor William Apgar. In jump-starting the HAMP program last spring, servicers were allowed to place borrowers into trial modifications without checking their income. This rush has resulted in a low rate of conversions to permanent modifications. Some servicers, including CitiMortgage, have already started verifying income up front. "We believe this will limit the number of borrowers who ultimately fall out of the trials," said a Citi official.

Fitch Ratings has downgraded 1,186 bonds in 871 residential mortgage-backed securities transactions that have experienced principal writedowns. Fitch said it had issued ratings in the case of all the downgraded bonds that indicated defaults were expected. Subprime credit collateral backed 290 of the downgraded, 286 were backed by prime credit collateral, 275 were backed by alternative-A credit collateral, and the 20 remaining were other unspecified types of transactions.