Servicing

Mortgage servicers provided 239,000 loan workouts in December, a record monthly total, with modifications accounting for a slim majority of the foreclosure prevention actions, according to Hope Now. Monthly workout volume has now exceeded 200,000 for four consecutive months, Hope Now said. For all of 2008, servicers worked out 2.3 million home loans to prevent foreclosure, Hope Now said. The alliance of servicers said the loan workout share of workouts, in which terms of a mortgage change, also increased. Modifications accounted for 122,000 of the December workout volume, exceeding the repayment plan share of workouts for the first time.

The Pennsylvania Office of Attorney General said it has reached a $150 million settlement with Countrywide Financial Corp. to obtain mortgage relief and cash assistance for thousands of Pennsylvania residents with subprime loans sold through Countrywide. More than 10,000 homeowners may be eligible for loan modification, relocation assistance and mortgage foreclosure relief as part of the negotiated settlement, according to the AG's office. Attorney General Tom Corbett's investigation found that Countrywide violated the state's consumer protection law by misrepresenting in its advertising that mortgage and loan packages were created by "personal loan consultants" and tailored to the needs of individual consumers. The AG alleged that the lender failed to exercise due diligence and increased its sales and profits by relaxing its underwriting standards, which allowed consumers to obtain loans that were risky and ill-suited for their income levels. He said Countrywide engaged in "bait and switch" tactics by offering one interest rate, but actually giving a higher one. Mr. Corbett said that this settlement will allow eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining modified and more affordable loans. Countrywide has agreed to provide more than $2.7 million in foreclosure relief benefits. According to the agreement, Countrywide - which is now part of Bank of America - has made a commitment to put a freeze on the foreclosure process until each eligible consumer has had his or her financial status verified.

REOTrans, Los Angeles, has seen some $45 billion of defaulted-upon real estate sold through its online system since the company was founded in 2003. More than a half a million properties have been handled through the platform, according to CEO Chris Saitta. Mr. Saitta describes REOTrans as both a workstation and a marketplace. The workstation is a configurable system that allows lenders and servicers to execute their REO, short sale and loss-mitigation strategies with real-time oversight and compliance, according to the CEO. The marketplace is an exchange where 6,500 sellers, 10,600 vendors, 485,000 real estate agents as well as other market participants handle more than 150,000 transactions every day, the company said. REOTrans operates offices in Los Angeles and Newport Beach, California; Dallas, Texas; Portland, Oregon; and Chicago, Illinois.

Illiquid asset marketplace SecondMarket, New York, plans to launch its markets for mortgage-backed securities, collateralized debt obligations and certain limited partnership interests in the first quarter of this year. The limited partnership interests that will be allowed when the platform is expanded will be in hedge funds, venture capital funds and private equity funds, the company said. The company provides a free online trading platform that uses a proprietary matching algorithm to connect buyers and sellers, with bidding on listed assets restricted to qualified institutional buyers and accredited investors. The platform also provides access to research and market activity information. The company has traded $1 billion face value of securities since 2004, including auction-rate securities, bankruptcy claims and illiquid blocks of restricted securities in public companies.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae's and Freddie Mac's respective on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie's and Freddie's portfolios cannot grow any larger than $850 billion each, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.

The Federal Reserve Board said it would modify certain distressed residential mortgages that it inherited when it made loans at the discount window to Bear Stearns and American Insurance Group. It's unclear how many consumers might benefit or what the dollar amount involved might but the Fed is expected to try different methods to help struggling mortgagors, including interest rate and principal reductions, loan term extensions, and payment deferrals. AIG - which is mostly owned by the government - and Bear (now the property of JPMorgan Chase) pledged mortgage-backed securities to the central bank in exchange for discount window loans. Fed chairman Ben Bernanke told Congress that the Fed governors have adopted a policy to help avoid preventable foreclosures based on its authority under the Troubled Asset Relief Program. The Federal Reserve Bank of New York is expected to hire asset managers to handle the workouts.

While legislation that allows bankruptcy judges to "cram down" residential mortgages will have a varied impact on mortgage-backed securities, analysts at Fitch Ratings say the legislation is "not likely to trigger immediate rating downgrades." But if cramdown legislation is enacted and entices more consumers to try to alter the terms of their home loans through the bankruptcy process, then downgrades may ensue, according to Huxley Somerville, head of Fitch's U.S. residential MBS group. "Due to varying deal language, about 31% of Fitch rated prime and alt-A transactions have a greater risk of senior bond downgrades with the remaining 69% having limited risk," Mr. Somerville said. Fitch said it remains to be seen what impact bankruptcy cramdowns may have on the extent and pace of loan modifications and the degree to which the legislation may increase consumer bankruptcy filings.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence by a 21 to 15 vote, but politicians and industry lobbyists differ on the scope of an exemption for FHA and VA mortgages. Mortgage industry lobbyists tried to narrow the scope of the bill. But an amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated. Committee chairman John Conyers, D-Mich., said his bill exempts Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. But industry lobbyists claim the exemption for government-insured loans does not go far enough and amounts to little more than guidance to the bankruptcy courts. "If this bill is enacted, lenders will no longer participate in these programs because it provides no assurance against a possible cramdown," one bankruptcy expert said. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.

Wells Fargo posted solid mortgage origination numbers and said home loan volume continues to trend upward, despite its quarterly loss of $2.6 billion amid a $5.6 billion increase to its credit reserve. Wells took in $116 billion of mortgage applications in the fourth quarter of 2008, up 158% from the year earlier period. And application volume in December marked the fourth highest monthly application volume in the company's history. Moreover, chief financial officer Howard Atkins said daily mortgage application volume during the first two weeks of January was running 20% higher than in December. The company had $71 billion of home loan applications in its pipeline at year-end. Wells estimates that it now accounts for 12% of the mortgage origination market, up from 10% a year earlier. Wells originated $50 billion of home loans during the fourth quarter and $230 billion for the full year. Wells' fourth quarter results did not include results from Wachovia, which Wells officially acquired on Dec. 31. Wachovia lost $11.2 billion in the fourth quarter. Wells' mortgage servicing portfolio swelled to $2.1 trillion at year-end with the addition of Wachovia's $379 billion servicing portfolio.

The House Judiciary Committee Tuesday evening approved legislation giving bankruptcy judges broad authority to reduce or "cram down" the principal amount of a mortgage on a primary residence - with the exception of government insured loans. The measure passed by a vote of 21 to 15. Mortgage industry lobbyists tried to narrow the scope of the bill, but committee chairman John Conyers, D-Mich., only agreed to exempt Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans from cramdowns. An amendment by Rep. Trent Franks, R-Ariz., to limit bankruptcy cramdowns to mortgages originated from 2004 through 2008 was defeated by a 20-15 vote. Committee action on the bankruptcy bill (H.R. 200) came too late to attach it to the economic stimulus bill. Chairman Conyers will probably attach H.R. 200 to the next major piece of legislation moving through Congress. Rep. Conyers said during the markup session that he is still open to making improvements to the bill. The Conyers bill basically follows the outline of a compromise Citigroup endorsed, which allows cramdowns on existing mortgages originated up to the date of enactment. Rep. Conyers added one provision that allows lenders to share in future appreciation of the property.