Servicing

Two rating agencies, separately, plan to change their criteria that affect residential mortgage-backed securities, paving the way for possible further downgrades. Moody's Investors Service said that in upcoming weeks it will update certain assumptions behind its loss projections for major U.S RMBS sectors. "We expect these revisions to have a significant impact on alternative-A credit, option adjustable-rate mortgages and some jumbo pools backing securitizations from 2005-2007, with the most pronounced changes expected for the 2005 pools," Moody's said. Separately, Standard & Poor's has made what it characterized as "big changes" in its rating criteria for collateralized debt obligation and U.S. RMBS that include a calibration standard for its top AAA-rated securities based on the experience during the Great Depression. "Overall, the effect should be to make it more difficult for securities in the sectors that have displayed poor credit performance during the current financial crisis to receive high ratings," said Mark Adelson, chief credit officer for S&P.

Mission Capital Advisors LLC is currently marketing a portfolio of commercial mortgage loans with an outstanding balance of approximately $48 million. The company is soliciting final bids through Dec. 1 for the purchase of individual loans or the entire portfolio, which includes nonperforming assets secured by multifamily and office properties located in West Bloomfield, Mich. and Denver. The multifamily asset sale represents a follow on of sorts from a fourth quarter 2009 closing on behalf of the same CMBS special servicer. In the transaction, Mission Capital sold a large portfolio of mixed commercial mortgage loans of which four were secured by Class A multifamily located in the Bloomfield, West Bloomfield, and Novi, Mich. markets. Relative to the office asset in Denver, a communications company previously occupied the subject. It features large contiguous blocks of space in addition to state-of-the-art communications and power redundancy. For more information, go to missioncap.com/deals.

Wolters Kluwer Financial Services, Minneapolis has expanded its loss mitigation offering to include state and federal lending compliance consulting services that help servicers avoid discriminatory lending practices when modifying loans. Servicers can use it to ensure they meet all Home Affordable Modification Program fair lending guidelines recently issued by the Treasury Department, according to the company. WKFS said its compliance consultants are available to evaluate existing loan modification policies and procedures and help servicers address fair lending risks, review a sample of completed loan modifications the servicer has completed and denied, and conduct a statistical analysis of all completed modifications to identify modification criteria that might lead the servicer to violate fair lending laws. While modifying loans at risk of default as quickly as possible, servicers also need to make sure everyone is treated fairly and equally in the process, said WKFS senior consultant and statistician Don Morrow. Moreover, regulators are expected to "intensify their scrutiny of servicers' fair lending compliance," he said.

The number of vacant homes for rent jumped to 4.59 million in the third quarter, up 16% from a year ago and up nearly 190,000 units from the second quarter, according to the Census Bureau. The rising number of rentals reflects a slow sales market that forces speculators to rent properties and families moving up to rent their previous homes. It also reflects a glut of condominiums. "Condos keep coming on the market," said Bernard Markstein, director of economic forecasting at the National Association of Home Builders. The Census Bureau reported that the number of vacant homes for sale rose to 1.99 million in the third quarter from 1.92 million in the second quarter. The number of vacant homes on the market had dropped by 14% during the first half of the year. The slight increase occurred during a period of rising sales with homebuilders continuing to reduce their inventories of unsold houses. Mr. Markstein said the increase reflects more foreclosed homes coming on the market, as well as condo units. The Census Bureau also reported that the U.S. homeownership rate edged up to 67.6% in the third quarter, from 67.4% in the previous quarter. The homeownership rate was 67.9% in the third quarter of 2008 and it peaked at 69.2% in the second quarter of 2004. A percentage point decline in the homeownership rate represents 1.1 million owner-occupants that lost their homes.

Fannie Mae has revamped its forbearance policies for homeowners who are ineligible or don't qualify for loan modifications under the Obama administration's Home Affordable Modification Program. Fannie's new "Payment Reduction Program" replaces its HomeSaver Forbearance Program starting Nov. 1; the old program allowed for a temporary 50% reduction in the borrowers monthly payments. Under PRP, the borrower's interest and principal payments are reduced by 30% for up to six months while the servicer considers other workout solutions. "Reducing the payments by 30% rather than the previous 50% is more logical as permanent solutions are closer to 30% than 50%," Fannie spokesman Brian Faith said. "This will make the adjustment from the temporary solution to the permanent solution easier for borrowers," he added. This change comes at a time when tens of thousand of borrowers in HAMP trial loan modifications are not expected to complete the process or receive permanent modifications. Fannie's PRP program also provides temporary relief for struggling borrowers with second homes or investment properties. Relief under the HAMP program is restricted to the borrower's primary residence.

The struggling GMAC Financial Services sold $2.9 billion in government-backed debt late on Oct. 28, ahead of a regulatory deadline in November that will test the mortgage/auto lender's capital levels and ability to absorb losses. The bonds are senior fixed rate notes guaranteed by the Federal Deposit Insurance Corp. under its Temporary Liquidity Guarantee Program. Thanks to the government guarantee, the notes will be rated AAA by all three major rating agencies. GMAC is a bank holding company that controls Residential Capital Corp., the nation's fifth largest residential lender and servicer. The government has invested $12.5 billion in the company to date and owns 35% of it. Concerns that GMAC could fail the impending capital test had sent the cost of insuring debt at its residential mortgage arm, Residential Capital, spiraling in the past week as investors worried that the unit would need to be spun off.

A cease and desist order has been signed by McIntosh State Bank, the Georgia Department of Banking & Finance and the FDIC to correct identified problems "in a good faith effort" in regards to the bank's concentration in residential real estate acquisition, development and construction loans. Pete Malone, chief executive officer, said the Jackson, Ga. bank has already met many of the order's requirements. "The bank has plans to raise additional capital to meet the terms of the agreement. This is in addition to the $3 million in capital injected by the bank's directors and executive officers in December 2008," said Mr. Malone. One of the biggest accomplishments in 2009, he said, was the company's ability to sell over $8.4 million of foreclosed real estate, he said. McIntosh State Bank also has an additional $1.5 million in real estate under contract. According to the company, many Georgia banks with significant concentrations of nonperforming assets are believed to be subject to some form of enforcement action. McIntosh State Bank has two banking offices in Henry County, one of the hardest hit areas in Georgia. "Because much of our bank's market is located in the South Atlanta region, we participated in the area's real estate growth and its subsequent slowdown. We are very focused on addressing our problems and working through them," said Mr. Malone.

Refinancings of Federal Housing Administration-backed reverse mortgages doubled in the past fiscal year as the loan limit jumped to $625,000 and interest rates fell. Seniors refinanced 8,985 FHA-insured home equity conversion mortgages in fiscal year 2009 (which ended September 30), compared to 4,435 refinancings in FY 2008. Refinancings became more attractive because Congress established a nationwide HECM loan limit of $417,000 in November 2008 and then raised it to $625,500 in February 2009. Overall, lenders originated $29.9 billion in HECMs in FY 2009, compared to $24.7 billion in FY 2008. In terms of the number of loans insured, HECM originations rose just 2.3%. Congress also passed legislation last year making it possible for seniors to purchase a home with a HECM for the first time. The new purchase option went into effect January 2009. During the first nine months of the year 550 seniors used a HECM to purchase a home.

Zillow Mortgage Marketplace, an online lead generation site, says consumer requests for refinancing their loans rose 39% in the first half of October compared to the same period in September. Zillow says the catalyst for the searches was mortgage rates dropping below the 5% level during that time frame. "When rates drop to record lows we see homeowners move quickly to take advantage," said Stan Humphries, Zillow's chief economist. "But, as the Federal Reserve ramps down its purchase of mortgage-backed securities, I expect rates will rise somewhat by the end of the first quarter of 2010."

For the third quarter of 2009, five of the top 10 metro areas reported decreasing foreclosure activity from the third quarter of 2008, while many other regions with top 50 foreclosure rates saw sharp increases in foreclosure activity, according to the latest Metropolitan Foreclosure Market Report from RealtyTrac. In Merced, Calif., a total of 3,092 Merced properties had a foreclosure filing during the quarter, down 11% from a year ago. Despite a 13% decrease in foreclosure activity, the city posted the nation's second highest foreclosure rate, with 3.72% of its housing units receiving a filing. Foreclosures in the Cape Coral-Fort Myers metro area in Florida also decreased from the previous quarter and from a year ago. Among the top 50 metro rates, the three biggest year-over-year increases were in Boise City-Nampa, Idaho, and Provo-Orem and Salt Lake City in Utah. In several states the largest increases were posted in cities not previously a focal point for foreclosures. The Chico metro area posted the biggest year-over-year increase in California, with activity up 98% from a year ago. The medium-sized metro about 100 miles north of Sacramento had a 12.8% unemployment rate in August, above the state and national averages. A similar trend was seen in cities like Reno-Sparks, Nev., with an 80% year-over-year increase in foreclosures; Prescott, Ariz., with a 77% increase; Jacksonville, Fla., with a 64% increase; Rockford, Ill., with a 64% increase; and Lansing-East Lansing, Mich., with a 41% increase.