Servicing

Though credit availability is expected to pick up this year, it will be a slow improvement, according to a new report released by a group of senior bank economists. At the unveiling of their 2010 economic outlook, members of the American Bankers Association's Economic Advisory Committee said consumer and business lending will recover when other economic factors also show more strength. "Consumers are still retrenching to some extent — paying down debts — and small businesses as well are very conservative and reluctant to take on more debt at this point," said Scott Anderson, a senior economist at Wells Fargo & Co., Mr. Anderson said he expects improvement, "but it's just going to take some time for that to happen." The group predicted 3.1% growth in the gross domestic product. That would be an improvement of 3.4 percentage points over 2009 but much more modest growth than the 6% that has followed previous recessions. "I refer to it or characterize it on my own as a 'half-speed' economic recovery," said Stuart Hoffman, the committee's chairman and the chief economist at PNC Financial Services. He referred to "constraining factors," such as continued problems in commercial real estate and a lack of confidence in consumer spending, as holding back growth.

First Horizon National Corp., the parent of First Tennessee Bank, saw its fourth quarter loss widen, thanks, in part, to charges related to loan repurchases. The company — which lost $70.6 million in the quarter (compared to $52.8 million in 3Q) — said it is dealing with a "challenging economy." In the fourth quarter it booked a foreclosure and loan repurchase provision of $59.3 million. (It did not identify where the loan repurchase requests came from.) In mid-2008 it sold a large portion of its residential mortgage and servicing platform to Metropolitan Life which has a banking affiliate. In the fourth quarter of 2008 the bank lost $63.1 million,

Lenders took back 83 properties per day last year in the tri-county South Florida region, according to CondoVultures.com. In a report based on government records in Miami-Dade, Broward and Palm Beach counties, the consulting firm counted more than 30,000 foreclosures in 2009, and the number "could have been higher" had the local court system not been so overwhelmed, said Peter Zalewski, a principal in the Bal Harbour-based CondoVultures. "The courts and government are searching for creative measures — including online auctions and required discussions between borrowers and lenders at the early stages of mortgage defaults — to stem the foreclosure problem," he reported. Lenders seized 8,864 properties in the fourth quarter of 2009, outpacing the 8,240 properties seized in the third quarter, the 5,992 properties repossessed in the second quarter, and the 7,311 properties taken back in the first quarter, according to the report.

The politically powerful National Association of Home Builders has started the ball rolling on a new policy position regarding the future role and structure of the government sponsored housing enterprises. Though the group's current policy statement was adopted only a year ago, leadership believes that it is now time to become more specific. "Change is coming," said Housing Finance Committee Chairman Earl Armiger, a Maryland apartment builder. "We need to be out front with detailed policies." A final document will go through an arduous vetting process culminating with a vote by the NAHB board at the group's convention in Las Vegas on Thursday. But over the three-day Martin Luther King holiday weekend, the group's housing finance and federal government affairs committees signed off on a carefully worded resolution that, among other things, backs the notion that Fannie Mae and Freddie Mac should retain sufficient government backing to allow them to continue to ensure a reliable flow of credit at reasonable rates. "Mortgages should be packaged and sold as securities with a federal government guarantee of timely payment of principal and interest to investors," the resolution also says. "The federal government should incur exposure only for catastrophic risk." The two panels also voted to back the idea that entities benefiting from securitization of their mortgages should have some skin in the game by paying a fee to capitalize an insurance fund to mitigate government risk. And while they agreed that part of Fannie and Freddie's problems resulted from being public companies with an eye toward their bottom lines, they rejected a call that the two companies be recast as public utilities with limits on their profit. They also agreed that policies concerning the Federal Home Loan Banks should be kept separate so as not to inflict collateral damage on that GSE. "We need to focus on what needs to be fixed," said Dallas builder Kent Conine, a past NAHB president.

Citigroup marked up the asset value of its residential mortgage servicing rights by 15% in the fourth quarter to $6.5 billion, even though the dollar volume of its portfolio of housing receivables is declining. The mark-up in MSR value is mentioned in a new SEC filing accompanying its fourth quarter results. At press time a company spokesman had not returned a telephone call about the change in asset value on the MSRs. The bank's CitiMortgage affiliate services roughly $740 billion in home mortgages compared to $809 billion at year-end 2008. (At Dec. 31, 2008 it valued its residential MSRs at $5.66 billion.) The mega-bank - which is experiencing major declines in residential production - reported total company-wide credit losses of $7.1 billion in the fourth quarter. It took a $2.1 billion net credit loss on its $177.2 billion North American residential loan portfolio, a 7% drop from the previous quarter. Citi said the decline reflected lower losses on second mortgages and an increase of distressed borrowers that have been placed in payment trials for a possible loan modification. "Increasing volumes of trial modifications under the Home Affordable Modification Program contributed to the sequential decline in losses; the loan loss reserve was increased to offset this impact," Citi said in a summary of its quarterly earnings. Overall, 8.3% of its U.S. residential portfolio is 90 days or more past due, an increase of 114 basis points from the third quarter.

Citigroup may test the auction waters with a $400 million portfolio of troubled mortgages, according to investment banking sources who have been briefed on the offering. One buyer of troubled loans told National Mortgage News that Citigroup is already "fishing for bids" on the package. A spokesman for Citi's mortgage group declined to comment. Very few large packages of nonperforming loans have changed hands over the past year unless the Federal Deposit Insurance Corp. is involved in the transaction as a partner or guarantor of some sort.

The supply of ready-to-occupy new houses has fallen to a point where the lack of inventory "could become a problem in certain markets and certain prices ranges," the chief economist for the National Association of Home Builders warned in Las Vegas at the group's annual convention. While there's still a six-month supply of houses sitting on builders' shelves, David Crowe said the actual number of new units that are finished and waiting for buyers is at the lowest level since 1971. That point was part of a rather upbeat forecast by the housing economist, who told the meeting that "we are starting to see some improvements" in the housing landscape. Mr. Crowe's annual outlook wasn't without some negatives, or, as he called it, "not so good news." But he pointed out that the recession is over, inflation is in check, mortgage rates will remain under 6% through the rest of the year, and house prices have "finally settled down" to a point where they are now at 3.28 times median income, which is roughly in line with long-term stability. At the height of the housing bubble, the price-to-income ratio had reached 4.7% nationally - and 9.2% in California. Noting that "conditions are ripe for people to come back into the market," Mr. Crowe predicted that it won't be long before buyers recognize that the bottom has been reached. He also said by the end the year, ten states - Mississippi, Alabama, Louisiana, Texas, Oklahoma, Nebraska, New Mexico, Wyoming, North Dakota and Montana - will be back at 100% or more of normal production. At the same time, though, 10 others - California, Nevada, Arizona, Florida, Michigan, Ohio, Illinois, Minnesota, Vermont and Maryland - will still be below 70% of normal.

There is a growing concern among financial service executives that the Federal Housing Administration is turning the screws too tightly through its new credit requirements. Bernie Glierberman, once one of Detroit's largest builders who has taken to remodeling abandoned houses to remain in business, said at the NAHB convention that without FHA-insured financing, there may be no buyers for the houses he is reclaiming in distressed neighborhoods. And if there are no buyers, Mr. Glieberman, a member of the NAHB's Finance Committee, warned, it could lead to even further abandonment. Former FHA Commissioner Brian Montgomery said he had similar concerns that the agency he headed during President Bush's second term "may not be able to help those who need a life-line." While cautioning that he does not want to knock the efforts of his successor, David Stevens, or HUD Sec. Shaun Donovan — "They have to do what OMB says in order to protect the value of the FHA portfolio," he said — Mr. Montgomery told an NAHB subcommittee that he would be lowering FICO score requirements and insurance premiums rather than raising them. "In the middle of a housing crisis," he told National Mortgage News, "a rescue agency should be expanding capacity, especially for high-risk borrowers who need to refinance or lose their homes." Between Oct. 1 and Dec. 31, according to the agency, just 23% of all FHA loans have gone to minorities. "I've never seen it that low," Mr. Montgomery remarked. By contrast, between Oct. 2007 and January 2008, 29% of FHA originations were to minorities. A year later, that figure had fallen to 26%.

Citigroup marked up the asset value of its residential mortgage servicing rights by 15% in the fourth quarter to $6.5 billion, even though the dollar volume of its portfolio of housing receivables is declining. The mark-up in MSR value is mentioned in a new SEC filing accompanying its fourth quarter results, which were released Tuesday morning. The bank's CitiMortgage affiliate services roughly $740 billion in home mortgages compared to $809 billion at year-end 2008. (At Dec. 31, 2008 it valued its residential MSRs at $5.66 billion.) The mega-bank — which is experiencing major declines in residential production — reported total company-wide credit losses of $7.1 billion in the fourth quarter. It took a $2.1 billion net credit loss on its $177.2 billion North American residential loan portfolio, a 7% drop from the previous quarter. Citi said the decline reflected lower losses on second mortgages and an increase of distressed borrowers that have been placed in payment trials for a possible loan modification. "Increasing volumes of trial modifications under the Home Affordable Modification Program contributed to the sequential decline in losses; the loan loss reserve was increased to offset this impact," Citi said in a summary of its quarterly earnings. Overall, 8.3% of its U.S. residential portfolio is 90 days or more past due, an increase of 114 basis points from the third quarter.

Bank of America expects to release about 6,000 foreclosed properties into the Nevada housing market in 2010, or about 500 a month, according to a report in the The Las Vegas Review-Journal. The homes are part of a "phantom inventory" of foreclosed units being held by banks as they work through loan modifications and negotiate short sales. Throughout the country, estimates of homes being taken back by Bank of America range from 11,000 to 14,000 a month in the early part of this year to 29,000 to 35,000 by November and December, said John Ciresi, vice president and portfolio manager for Bank of America in Towson, Md. The system became clogged by a voluntary moratorium on foreclosures while banks met the requirements of the Making Home Affordable program and by state rules requiring mediation before banks can start the foreclosure process, Mr. Ciresi said at a panel discussion sponsored by the Nevada chapter of the National Association of Hispanic Real Estate Professionals.