Servicing

CUNA Mutual Group's CUMIS Insurance Society subsidiary is asking a state court to declare that surety bonds held by 26 credit union victims of the $140 million fraud by U.S. Mortgage/CU National Mortgage Corp. do not cover an estimated $125 million of losses suffered by those credit unions. The little-known move came to light in a new civil suit filed last week by Educational Systems FCU, a Greenbelt, Md., credit union that stands to lose $3 million from the fraud and is asking a federal court in Baltimore to order the credit union insurer to cover the losses as part of the bond. Chris Conway, president of Educational Systems FCU, said over the weekend that he was compelled to file the new suit to prevent CUMIS from getting a court order protecting against his credit union's bond claim. "They kind of forced our hand," Conway told The Credit Union Journal on Saturday. "We have a valid claim and it's pretty straightforward. We couldn't just let them sit by and deny our claim." The state suit filed by CUMIS is apparently the second attempt launched by the insurer to get a court to block the claims, which could be the biggest ever against CUNA Mutual. Educational Systems is one of 26 credit unions whose mortgages were being serviced by CU National and were surreptitiously sold by the company's president, Michael McGrath, to Fannie Mae. McGrath pleaded guilty to the massive fraud in June and is scheduled to be sentenced in February.

MIAC Asset Sales Group, New York, is auctioning off a $133 million package of Freddie Mac servicing rights. The initial bid deadline is next Tuesday, Dec. 15. Most of the receivables are backed by fixed-rate loans in Florida. MIAC hopes to complete the sale by the end of January. The company did not identify the selling entity.

AmTrust Bank of Cleveland, which until recently was the nation's third largest residential wholesaler, was seized by the government late Friday with a majority of its assets sold to New York Community Bank, Westbury, N.Y., a top ranked player in multifamily lending. A source familiar with the matter said the government actually took bids on AmTrust's operations two weeks ago, saying interested investors included BB&T, EverBank, Fifth Third Bancorp, Key Bank and others. Its failure is expected to cost the government roughly $2 billion. The lender's demise is yet another blow for loan brokers in search of wholesalers willing to table fund their customers. At press time, it was unclear whether NYCB would keep AmTrust's wholesale division intact. A thrift, AmTrust had $12 billion in assets and until a few years ago was called Ohio Savings and Loan. The thrift was a national correspondent originator, selling its conventional loans to Fannie Mae and Freddie Mac. NYCB paid no premium to assume all of AmTrust's $8 billion in deposits, and also agreed to take over $9 billion of the failed thrift's assets. New York Community and the FDIC will share losses on $6 billion of those assets. The nation's largest privately owned thrift, AmTrust had been stung by a string of losing quarters and mounting losses from construction and development loans. Last Monday its holding company, AmTrust Financial Corp., filed for Chapter 11 bankruptcy protection.

Lobbyists are hearing that the House Judiciary Committee wants to tack a bankruptcy cramdown amendment onto the massive regulatory reform package that the House of Representatives will debate and vote on this week. The House Rules Committee will decide on Wednesday which amendments will be in order when the House starts debate on the Wall Street Reform and Consumer Protection Act (H.R. 4173). The House passed a cramdown bill (H.R. 1106) in March by a 234-191 vote that would allow bankruptcy judges to reduce or cram down the principal amount of a homeowner's mortgage. It is unclear if Judiciary Committee Democratic leaders want to attach all of H.R. 1106 to the regulatory reform bill or offer a narrower cramdown amendment. Meanwhile, a coalition of lender groups are hoping the Rules Committee will accept an amendment that would create a category of mortgages that are exempt from the risk retention requirements on sales and securitizations of mortgages. H.R. 4173 currently gives the regulators the discretion to set risk retention requirements as high as 5% on most mortgages. The coalition-backed amendment would give the regulators the option to totally exempt Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages from risk retention.

The Federal Deposit Insurance Corp. is considering amending its loss-sharing agreements with acquirers of failed banks, allowing certain homeowners who are "under water" on their mortgages to reduce the principal amount owed. "There would be no requirement that they perform principal forgiveness - though there would be financial incentives under the 'loss share,' particularly for deeply underwater loans," said FDIC spokesman Andrew Gray. Under the current loss sharing agreements, FDIC agrees to absorb 80% of the losses on the failed bank's assets. But the acquirer is required to modify residential loans for struggling homeowners and reduce their payments to an affordable level. These agreements cover $44.7 billion in single-family loans. Now, FDIC is "actively considering" making debt forgiveness a modification option. "It would be based upon the use of tools that would maximize the value of the mortgage and provide long-term sustainable mortgage payments for the borrower," Mr. Gray said.

Nuveen Investments, which provides investment services to institutional and high net worth investors, recently completed the initial public offering of a new "opportunity" fund that will buy distressed MBS. The fund, which trades under the stock symbol "JLS," is called Nuveen Mortgage Opportunity Term Fund and its stated goal is to "generate attractive total returns through opportunistic investments in mortgage-backed securities." The IPO raised $400 million. It hopes to participate in the government's Public-Private Investment Program established by the Department of the Treasury. The fund began trading on the New York Stock Exchange earlier in the week.

Bid4Assets, an online real estate auction company in Silver Spring, Md., has added eRealAnalyzer, a browser-based, financial calculator that computes metrics to help bidders determine the investment potential of a property. The service is free to use and is integrated into the auction listings for most improved residential properties on the Bid4Assets website. "It can be extremely time-consuming and complicated for a bidder to accurately calculate a property's potential to meet their financial needs," said Matt Baker, chief executive of Bid4Assets.

The housing recovery is still at a fragile stage, but with inventories of unsold homes receding and home sales and prices rising "we may be finally seeing the light at the end of the tunnel," HUD secretary Shaun Donovan said. The Department of Housing and Urban Development secretary made his remarks at a Consumer Federation of America conference. He stressed to reporters afterwards that it is "far too early to say we are out of the woods." But he noted that completed foreclosures have declined three months in a row and the Obama administration's loan modification program is a contributing factor. Foreclosures are "still too high," he said, and the administration is considering several options to assist unemployed homeowners. "We will make an announcement relatively soon," he added. The HUD secretary noted that a Pennsylvania state mortgage assistance plan does not require lenders or private investors to absorb any of the principal reduction. "I would not support a process where there is no principal reduction by whoever owns the loan," he told reporters.

The bankruptcy court overseeing the liquidation of mortgage lender Taylor Bean & Whitaker has approved a "stalking horse" bid on the nonbank's real estate-owned portfolio which includes almost 2,000 properties, according to a memo obtained by National Mortgage News. The memo notes that the portfolio has been appraised at $330 million. A stalking-horse bid is a strategy used by a bankrupt company (in this case, TBW) whereby it obtains an initial bid on its assets from an interested buyer of their choosing. Even though the REO portfolio has been appraised at $330 million, it's unclear what the stalking-horse bid is. TBW's chief restructuring officer plans to accept competing bids on Dec. 9. Ocala, Fla.-based TBW filed for bankruptcy protection in August after the Department of Housing and Urban Development pulled its FHA credentials.

The mortgage industry continues to shrink in terms of full-time employees as companies rely more on temporary workers to deal with servicing and origination demand. The U.S. Bureau of Labor Statistics reported that mortgage companies cut 3,700 full-time workers from their payrolls in October, including 1,700 mortgage brokers. Overall employment in the mortgage banker/broker sector fell to 255,500 in October from 259,200 in September. "You have a lot of temps being hired," a Mortgage Bankers Association executive said, noting that those figures do not show up in the BLS mortgage sector data. MBA associate vice president of industry analysis Marina Walsh said that mortgage firms are definitely hiring servicing-related workers but it is hard for them to justify hiring full-timers given the volatility in the market. "To forecast what it going to happen with originations and interest rates is very difficult," she said. Meanwhile, Friday's jobs report provided some good news with the national unemployment rate falling to 10% from 10.2% previously. BLS also revised downward the job losses in October and September - by a combined 150,000. (There is a one-month lag in BLS reporting of mortgage industry employment data.)