Servicing

PHH Corp., Mt. Laurel, N.J., said its mortgage production segment was profitable in December, allowing that unit to break even for the fourth quarter; but its mortgage servicing segment lost $382 million in the three-month period due to $445 million of valuation adjustments on mortgage servicing rights, contributing to a 4Q loss for the company as a whole. For the fourth quarter, the company lost $216 million ($3.98 per share), compared with net income of $12 million ($0.21 per share) for the same quarter of 2007. For the full year, PHH lost $254 million ($4.68 per share), vs. a net loss of $12 million ($0.23 per share) in 2007. The servicing adjustment consists of a $390 million writedown of the mortgage servicing asset and $55 million reduction in MSR value due to prepayments and portfolio decay. There also were foreclosure-related charges of $16 million and a net reinsurance loss of $13 million. PHH serviced just under $150 billion at the end of last year. The production segment's break-even results included $12 million of writedowns for scratch-and-dent and second-lien mortgage loans plus $4 million of reorganization costs. PHH originated $5.4 billion during the quarter, down from $8.3 billion in the same period in 2007. However, because of cost savings initiatives, the company said it believes it has lowered the break-even point for the production segment from $39 billion in annual volume to $27 billion.

The FBI is investigating claims of a massive fraud at U.S. Mortgage Corp., Pinebrook, N.J., the privately held owner of Credit Union National Mortgage, which has filed for bankruptcy. More than three dozen credit unions allege the failed mortgage company owes them more than $110 million of loan proceeds it had collected for them as a servicer. The company's attorney said he is working with the U.S. Justice Department, the National Credit Union Administration, and regulators in several states in investigating the case. Lawyers for U.S. Mortgage could not be reached for comment. In documents filed earlier this week with the U.S. Bankruptcy Court, Picatinny FCU claims CU Mortgage sold more than $14 million worth of its mortgages to Fannie Mae without its knowledge and without paying the Dover, N.J.-based credit union the proceeds of the sale. Picatinny is one of more than three-dozen credit unions that have filed claims against the troubled lender. The largest unsecured claim is by Fannie Mae for $99.2 million, but the next 19 largest unsecured claims are all credit unions -- including the Treasury Department's CU.

Operating as a ward of the federal government, Fannie Mae posted a massive $25.2 billion loss in the fourth quarter, blaming its abysmal performance on asset- and derivative-related writedowns. For the year the GSE lost an eye popping $58.7 billion. The Congressionally chartered mortgage investing giant declared that it had a negative net worth of $15.2 billion at year-end - a gap that must be filled with taxpayer money. FHFA director James Lockhart already has requested that the Treasury Department cover the financial hole by increasing its preferred stock ownership stake in the company. In 2007, Fannie lost just $2.1 billion. It was taken over by the Federal Housing Finance Agency in early September of 2008. Its common stock continues to trade on the NYSE but at just 40 cents a share. Its main competitor, Freddie Mac, also is a ward of the government.

Moody's Investors Service is again increasing its loss expectations for U.S. subprime residential mortgage-backed securities issued between 2005 and 2007, raising them to a range of 28% to 32% of the original pool balance from 22% and placing 7,942 tranches of subprime RMBS with an original balance of $680 billion on review for possible downgrade. It said that ratings actions expected to occur as a result of this move make it likely that "mezzanine and subordinate certificates currently rated B or above would be downgraded to ratings of Caa or below, particularly for bonds issued in 2006 and 2007" while actions on senior bonds "will differ based on payment priority and protection relative to projected losses." The rating agency added however, that "given the losses currently being projected, a majority of senior certificates will likely be downgraded below investment grade" and "many are expected to be downgraded to Caa or below, particularly longer duration bonds from 2006 and 2007." Moody's said the Homeowner Affordability and Stability Plan "is expected to have a mitigating impact" on this. It added that while it already has formed a preliminary estimate of the impact of the plan and included that estimate in its numbers, that estimate could change when additional detail of the plans are released on March 4.

Three former Wall Street executives have formed the Rumson, N.J.-based Loan Value Group, an independent, third-party provider of advisory services aimed at helping clients assess, evaluate and manage residential mortgage risk. The startup company's three principals are former Morgan Stanley executives Howard Hubler, Jason MacRae and Frank Pallotta. Loan Value Group's clients include mortgage and mortgage insurance companies as well as banks, funds and rating agencies. The group plans to operate at least three business lines: data aggregation, which compiles statistics from multiple sources to create a multidimensional portfolio profile; research, which focuses on identifying the main drivers of default and performance through analysis and statistical modeling; and advisory services, which are aimed at helping clients drive present value with loan modification and optimization strategies.

Waves of commercial mortgage-backed securities downgrades are following in the wake of Moody's Investors Service's review of large loan and single borrower U.S. CMBS ratings, in which the rating agency found the current economic recession is hurting cash flows and likely to lead to a marked increase in term defaults. "Due to the current economic recession, Moody's expects a significant overall decline in future property cash flows as a result of a higher incidence of tenant defaults and bankruptcies and a sharp decline in lease renewal rates," the rating agency said. "This drop in cash flows is likely to lead to a marked increase in term defaults on commercial mortgage loans particularly for those loans that were underwritten with significant upside at a peak point in the real estate cycle and valued using historically low capitalization rates."

Freddie Mac saw a spike in delinquencies in the month of January along with lackluster issuance of mortgage-backed securities and portfolio activity. The mortgage giant said its serious delinquency rate shot up 26 basis points since December to 1.98%. In January 2008, the percentage of loans 90 days for more past due was 0.71%. Meanwhile, the secondary market agency issued $16.3 billion in MBS, up slightly from $15.8 billion in December. Ginnie Mae issued $26.5 billion in single-family MBS in January. Freddie also said the size of its mortgage portfolio declined slightly to $798.9 billion. The Treasury Department recently doubled its financial backing of Freddie to $200 billion to increase market confidence in the government-sponsored enterprise, which is expected to report a large loss for the fourth quarter. Treasury also increased the GSE's portfolio limit by $50 billion to $900 billion.

Single-family existing home sales fell 4.7% in January from the previous month, but Realtors are optimistic the economic stimulus package passed by Congress will boost home sales this year. National Association of Realtors found that sales of previously owned homes fell from a seasonally adjusted annual rate of 4.25 million in December to 4.05 million in January. NAR economists estimate the stimulus package, which includes an $8,000 first-time homebuyer tax credit and higher loan limits, along with lower mortgage rates, will result in 900,000 additional sales this year. Meanwhile, the median single-family sales price was $169,900 in January, down 13.8% from a year ago. A preliminary analysis by NAR suggests that house prices in traditional sales are holding up better the distressed sales involving foreclosures and short sales. However, Wellesley College professor Karl Case estimates 1 million homes were sold in auctions last year, which is one reason Standard & Poor's Case-Shiller Housing Price Index has registered steeper price declines than other indexes. In addition, the auctions were heavily concentrated in the hardest-hit states - Arizona, Florida, California and Nevada. Auctions comprised 54% of sales in those four states, Mr. Case said.

Gov. Arnold Schwarzenegger has reportedly signed into law a 90-day moratorium on California home foreclosures — but the measure carries certain exemptions for servicers. According to a report in The Orange County Register, state regulators can grant loan servicers and lenders exemptions, if they have a mortgage modification program in place that meets certain criteria. The measure covers owner-occupied homes and first mortgages originated between 2003 and 2007. The loan mod exemptions cover programs that defer a portion of the principal, lower interest rates for at least five years, or extend loan terms. Sen. Ellen Corbett, D-San Leandro, introduced the moratorium language as an add-on to the California budget package.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high ranking Republicans on the House Judiciary and Financial Services Committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage-backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.