Servicing

The Federal Housing Administration is temporarily lifting an "anti-flipping" rule, allowing borrowers using government-insured loans to be more competitive in bidding on foreclosed properties recently purchased from banks and even the government. The Department of Housing and Urban Development's anti-flipping policy prohibits FHA financing on purchase transactions where the seller has owned the property for only 90 days. HUD found this policy blocked potential FHA borrowers from taking advantage of quick resales of real estate owned. REO sellers, generally, are unwilling to go with FHA borrowers because of holding costs and vandalism risk during the 90-day holding period. FHA is lifting the 90-day rule for one year starting February 1. FHA borrowers have "often been shut out from buying affordable properties," said FHA commissioner David Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity." FHA has been burned by property flipping scandals before. This time around it insists that all sales must be arms-length transactions with no evidence of flipping in the previous 12 months. If the resale price is 20% higher than the REO sales price, the lender has to provide supporting documentation and a second appraisal in some cases.

The Treasury Department's push for residential servicers to complete more HAMP loan modifications appears to be working as the number of permanent restructurings soared during December and now stands at 66,000 units. The Obama administration launched the Home Affordable Modification Program last spring but only 31,382 modifications had been completed by the end of November. But In December, another 35,043 HAMP modifications were completed. Treasury assistant secretary Michael Barr acknowledged this acceleration in modifications as well as the status of another 46,000 borrowers who are close to signing the final documents for a HAMP modification. But Mr. Barr said the conversion rate of borrowers going from the three-month payment trials to a permanent modification is still "disappointing." He wants some servicers to "pick up the pace." Last month, Treasury officials began ratcheting up the pressure by monitoring HAMP servicers' modification conversion rates on a daily basis. They also initiated a consumer outreach effort to get borrowers in HAMP trials to submit the documents needed to complete a modification.

Jaymes Financial of Virginia said it is no longer involved in brokering the sale of a $61 million portfolio of nonperforming loans in the Florida market. The offering was reported on the NMN website earlier in the week.

Moody's Investors Service says hundreds of billions of dollars of Alternative-A residential mortgage-backed securities from 2005-2007 could face another wave of downgrades in the second half of this year. The ratings on 10,330 tranches of RMBS with a current balance of $330.1 billion and an original balance of $572.7 billion are being reviewed to see if they need to be downgraded due to revised loss projections, Moody's said. The rating agency now projects 2007 securitizations in this category will see cumulative losses of 35%, 2006 bonds of this type will experience losses of 29% and 2005 alt-A RMBS will see losses of 14%. The outlook for these bonds is considered worse due to deterioration seen in their performance to date as well as "macroeconomic conditions that remain under duress," Moody's said. While there have been signs of eventual recovery, the rating agency's Economy.com unit said the drop in home prices and employment is expected to persist and not peak until the second half of this year, after which there could be a slow rebound.

Morgan Stanley said John Klopp is joining the company as head of Americas real estate investing and global real estate debt, investing effective February 1. Mr. Klopp is a 30-year veteran of the real estate industry, recently serving as CEO of the investment management and real estate finance firm he co-founded, Capital Trust. During his career he was also a founder and managing partner of private merchant banking boutique Victor Capital Group, a specialist in workouts and distressed debt.

There were 2,180 active short sales on the market last week in Orange County, Calif., a 1% increase from two weeks earlier, according to figures compiled by Altera Real Estate of Aliso Viego. The company noted that there were 7,000 short sales that are "either active listings on the market, pending sales, or are currently on 'Hold' in Orange County." ARE's numbers were first reported by The Orange County Register. The county was once home to several subprime lenders, including Ameriquest Mortgage and New Century Financial. In a short sale, a consumer sells a home for less than the outstanding mortgage on the property. But the mortgage owners must approve the sale. According to the OCR, not all short sales listed actually get approved.

Interactive Mortgage Advisors, Denver, is auctioning off a $130 million bulk package of GNMA servicing rights for an undisclosed seller. The receivables had a 16.44% delinquency rate at year-end with the 30-day late ratio at 11.63%. The portfolio has 937 loans.

PennyMac Mortgage Investment Trust, Calabasas, said it has bought a $40 million portfolio of problem loans and is negotiating to buy a second one which has an unpaid principal balance of $100 million. No purchase price was disclosed. Since the end of September, the company has reviewed $6 billion in whole loan portfolios and is seeing an increase in offerings in the secondary market. PennyMac, a publicly traded REIT, has a handful of affiliates which are engaged in servicing, investment, and advisory work. Penny Mac, which went public this past summer, will release its fourth quarter earnings Feb. 1.

Even though JPMorgan Chase reported strong earnings for the fourth quarter, the hangover from the mortgage crisis and the resulting loan 'buybacks' forced on the company by Fannie Mae and Freddie Mac are continuing to hurt its bottom line. In an earnings conference call Friday morning, chairman and CEO Jamie Dimon told analysts that repurchases are a worsening problem for the company and the industry at large. He noted that "you can assume" purchase requests on broker-sourced loans "will be worse." He also signaled that buybacks have picked up in the mortgage industry as investors "assess their rights" and bring claims against lenders. However, he said he could not offer any "broad numbers" at this time. A year ago JPM said it would quit the residential wholesale channel but in recent quarters has still originated some loans using brokers. Part of JPM's mortgage woes are tied to Washington Mutual, the troubled Seattle thrift it purchased in the fall of 2008. In Q4 JPM reported home equity net charge-offs of $1.2 billion compared to $770 million in the same period a year earlier. Subprime mortgage net charge-offs totaled $452 million (giving it a net chargeoff rate of 14.01% in this category) compared to $319 million in Q4 08. Prime mortgage net charge-offs were $568 million (a 3.81% net charge-off rate) compared to $195 million in the comparable period. JPM, as a whole, earned $3.3 billion but its retail financial services unit lost $399 million. The company cited "lower MSR [mortgage servicing rights] risk management results and an increase in reserves for the repurchase of previously-sold loans."

Nearly 9% of all Federal Housing Administration-insured single-family loans are 90-days or more past due, according to the agency's latest monthly activity report. The November report shows that FHA has a 8.94% default rate, up from 6.53% in November 2008. The insurer is trying to keep its capital reserves in the black and there's renewed speculation in the industry that it's only a matter of time before HUD will be forced to ask Congress for a bailout of the fund. To date, FHA officials have said they can avoid a bailout. Later this month, agency officials are expected to unveil several moves to tighten underwriting and possibly increase mortgage insurance premiums. Meanwhile, FHA lenders originated $26.6 billion in single-family loans in November, down 11% from the previous month, according to the activity report. Purchase mortgage transactions totaled $15.8 billion and comprised 60% of FHA originations.