Servicing

Prestwick Mortgage Group is auctioning off a $228 million portfolio of bulk Government National Mortgage Association servicing rights for an undisclosed seller. Prestwick would not disclose details but the client is believed to be a nonbank. The delinquency rate on the portfolio is 3.97%, including foreclosures. The bid deadline is February 4. Prestwick is based in Alexandria, Va. Over the past quarter, the value of servicing rights has increased somewhat thanks to rising mortgage rates.

The outlook for the performance of residential mortgage-backed securities and asset-backed securities in Europe, the Middle East and Africa is negative for 2010, according to a recent Moody's Investors Service report. "Rating migrations are still expected, especially on the 492 tranches currently on review for downgrade and which include significant exposures to Spanish and U.K. nonconforming RMBS," said Mehdi Ababou, a Moody's vice president-senior analyst. The report, which reviews the past year as well as a forecast for the current one, notes that in 2009 the number of RMBS and ABS downgrades jumped to 741 compared to 408 in 2008. In 2009, "over two-thirds of the downgrades for RMBS were in Spain and the U.K. nonconforming sectors," said Mr. Ababou.

On average, it takes more than six months to complete a loan modification, which is "unacceptable," according to the State Foreclosure Prevention Working Group. The group, which includes state attorney generals and banking lawyers, notes in its fourth-quarter report that servicers have steadily increased the number of employees dedicated to loss mitigation. The report says that, on average, one full-time employee is handling 133 modification cases, down from 246 cases back in June. "However, the increase in loss mitigation staff has not prevented an increase in the backlog of loss mitigation resolutions," the January report says. State officials point out that the ratio of modifications "in process" to completed modifications has "ballooned" from 3-to-1 in October 2008 to 7-to-1 in October 2009. The working group is concerned that 72% of completed modifications result in an increase in the principal amount of the mortgage. "Servicers routinely capitalize delinquent interest, corporate advances, escrow advances and attorney fees and other foreclosure-related fees and expenses into the loan balance when completing a loan modification," the report says. With so many underwater mortgages, increasing the loan balance "only adds to the likelihood of ultimate default."

As the Obama Administration wrestles with ways to help unemployed and underwater homeowners, the Federal Housing Administration is going back to see what it can do to kick start the Hope for Homeowners program. "The Hope for Homeowners could help underwater borrowers," FHA commissioner recently told reporters. The H4H program has gone through several makeovers since Congress first created the special refinancing program in 2008, but it has never lived up to its promise. FHA lenders made only 22 H4H loans in fiscal year 2009, which ended September 30. In the fourth quarter of this calendar year, 23 H4H loans have been approved. The H4H program depends on mortgage investors writing down the principal amount of the loan to a 96.5% loan-to-value ratio and taking a hit. The only benefit for investors is the existing loan is refinanced into a new FHA-insured loan and they are protected from further losses. FHA made some changes to the H4H program last year. "We are now assessing how well that is going to work and what we need to do differently," Mr. Stevens said.

BlackBox Logic LLC, founded in 2007, said that after years of designing and testing work, it is now offering to the broader market a comprehensive database of loan-level collateral underlying nonagency residential MBS. The company, which is majority owned by a private equity affiliate of the Denver-based Braddock Financial Corp., said it has available a trademarked loan-level data aggregation service called BBxData that covers jumbo-A, subprime and alternative-A credit mortgage markets. This includes more than 7,200 RMBS, 21 million loans and almost 600 million remittance records dating back to 1999. The company is aiming to provide monthly full-set data faster than other providers and to also differentiate itself by allowing users to purchase only the data they need rather than the full 21-million loan dataset. The company's top brass includes three former Fannie Mae executives. Chief executive Larry Barnett was once Fannie's vice president for secondary mortgage trading operations, chief technology officer William Pugh was at one time responsible for all technology development and loan processing systems at Fannie, and lead data modeler Marty Schwartz once managed mortgage loan processing systems for Fannie, including its liquidation and recourse system.

Online home auction company RealtyBid.com, Rainbow City, Ala., is offering close to 1,000 real estate owned properties to investors and homebuyers around the country during January. Hundreds of properties have been added to the home auction website, many from the states of Missouri, Ohio, Utah and Wisconsin. RealtyBid.com chief executive and president Tony Isbell said despite government moratoriums on foreclosures in 2009 that kept the number of REO properties available to buyers flat during the second half of the year, RealtyBid.com continued to break sales records last year. "In 2010, we have already seen increased activity, and we are expecting that trend to continue. We do not expect a tidal wave of properties but a continued increase in inventory as loan modification programs fall well short of expectations." Mr. Isbell said he expects lenders will free up more of their post-foreclosure inventory through the online bidding system.

As the number of distressed hotel assets continues to rise — many with foreclosure eminent — an increasing number of hotel lenders will be transitioning to a more active ownership role, according to one management firm. Capital Hotel Management in Beverly, Mass., said it expects to see an exponential leap in demand for hotel asset management services from lenders as they look for qualified hotel receivers. "The lending community has reached the stage where they no longer can delay foreclosure issues," said Chad Crandell, president of CHM. "We certainly will see more foreclosures in 2010 than any year since the RTC days of the early '90s." The current lack of available financing, coupled with a continued decline in performance projected for at least the first half of 2010, could likely push the transaction window well into 2011 or 2012, according to the company. The company said the pressing decision for lenders will be to sell short or commit to a potentially longer hold period. In either case, special servicers and lending groups will need hotel-specific experts, the firm believes.

Federal Housing Administration is giving its mortgage servicers more latitude to assist borrowers who are running into financial problems but have not yet missed a payment. Under a new policy, servicers can offer these borrowers forbearance or even a reduction in principal under the FHA-HAMP program. Previously, the servicers could not consider these options until homeowners with a FHA-insured loan had missed several monthly payments. "Now servicers will have additional options for those borrowers who seek help before they go delinquent, which increases the likelihood that the borrower will be able to retain their home," FHA commissioner David Stevens said. The FHA-HAMP program allows servicers to reduce the principal amount of a FHA-insured mortgage by up to 30%.

All banks and thrifts are having problems with commercial real estate loans, not just small community banks, according to FDIC chairman Sheila Bair. "Despite what you may be hearing, CRE credit problems are affecting big and small banks alike," the Federal Deposit Insurance Corp. chairman said in a prepared speech delivered at a Commercial Mortgage Securities Association conference in Washington, D.C. As of Sept. 30, FDIC-insured institutions held $1.3 trillion CRE and multifamily mortgages — nearly 18% of total loans. And $44.8 billion are classified as noncurrent (90-days or more past due or considered uncollectible). Banks and thrifts hold another $500 million in construction and development loans and 15% of these are noncurrent. "The annualized net charge-off rate of 6% on C&D loans in the third quarter significantly exceeds the highest rate of the last crisis, which was about 4%," Ms. Bair said. FDIC expects delinquencies and charge-offs will move higher in the coming quarters.

Mortgage banking income at U.S. Bancorp, Minneapolis, increased by $195 million in the fourth quarter 2009 over the same period one-year prior, driven by mortgage loan production volume of $11.1 billion. For the full year, the company had mortgage loan production volume of $55.6 billion. The company reported fourth quarter 2009 mortgage banking revenue of $218 million, down from $276 million in the third quarter but up from just $23 million in the fourth quarter 2008. For the full year, mortgage banking income was over $1 billion, compared with $270 million for all of 2008. The fourth quarter year-over-year increase is due, U.S. Bancorp said, to the lower interest rate environment. This led to strong mortgage loan production and related production gains. In addition, the net change in the valuation of mortgage servicing rights and related economic hedging activities was favorable and servicing income increased compared with the same period in 2008. Residential mortgage loan net charge-offs were $153 million in the fourth quarter of 2009, an increase over $129 million in the third quarter of 2009 and $84 million in the fourth quarter of 2008. Commercial and commercial real estate loan net charge-offs increased to $457 million in the fourth quarter of 2009, compared with $433 million in the third quarter of 2009 and $216 million in the fourth quarter of 2008.