Servicing

New foreclosure regulations that took effect May 1 will produce a temporary lull in Massachusetts foreclosure filings through the end of July, according to ForeclosuresMass.com. The Framingham, Mass.-based company reported that the record high of 3,414 foreclosure filings in April were followed by only 392 filings in May, an 88.5% plunge. The reason for the drop is a law that extended from 30 days to 90 days the "right-to-cure" period after a default on owner-occupied residential mortgage loans, the company said. "We are in the midst of a foreclosure tsunami here in Massachusetts, and this storm is not going away any time soon," said Sheila Farragher-Gemma, co-founder of ForeclosuresMass. "The new filing requirements have created a situation similar to the eye of a hurricane -- it may seem calm now, but the storm will come raging back with even more force in the days ahead." The company can be found online at http://www.foreclosuresmass.com.

Loan servicers participating in the Hope Now alliance have agreed to a uniform approach to loan modifications, repayment plans, partial claims, and forbearance to make foreclosure relief more readily available to troubled homeowners. Faith Schwartz, executive director of Hope Now, said the new guidelines "will greatly expedite the process of preventing foreclosures." The guidelines establish a streamlined timeline to be used by each Hope Now mortgage servicer and encourage servicers to make free, independent credit counseling services available to borrowers. The servicers have agreed to fully implement the uniform approach to foreclosure prevention within 60 days. The agreement also includes guidance for dealing with second mortgages and short-sales.

Nine Republican senators are demanding the right to fully debate and amend a major housing bill that Senate leaders may try to bring to the floor Tuesday, but their demands could delay passage of the bipartisan bill until after the July Fourth recess. The bill would "greatly expand access to taxpayer-backed Federal Housing Administration loans for delinquent borrowers," and "reorganize the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Banks," according to a June 16 letter the senators sent to Sen. Mitch McConnell, the Republican leader. "Due to the seriousness and complexity of this issue, we ask that you protect our rights to fully debate and amend this legislation." Supporters of the housing bill want to limit debate and amendments. But the nine Republicans, including several Senate Banking Committee members, could stonewall the proceedings when the measure comes up for debate. Meanwhile, sources say that Sen. McConnell wants to move the bipartisan housing bill through the Senate. However, the Republican leader is trying to block other Democratic initiatives, which could also delay legislative action.

The National Association of Home Builders has dropped demands that struggling builders receive tax rebates, and now the trade group is urging Congress to pass a "robust" homebuyer tax credit to stimulate the housing market. "That tax credit needs to be as big and unencumbered and as rapid-acting as Congress can make it," NAHB chief executive Jerry Howard told reporters. In February, the NAHB cut off political contributions to legislators because Congress refused to include a net operating loss carry-back provision in an economic stimulus package. The NOL provision would have allowed homebuilders and other unprofitable companies to deduct losses in 2008 and 2009 from their profits in prior years and receive tax rebates. In April, the Senate passed a foreclosure prevention bill that included an NOL provision, but it came under heavy criticism. House tax writers did not include an NOL provision in a bill that gives first-time homebuyers a $7,500 tax credit. However, the tax credit works like an interest-free loan that has to be paid back in 15 years. The builders want a real tax credit that is not limited to first-time homebuyers. The NAHB's analysis shows that a robust tax credit would have a more stimulative effect on the economy than an NOL provision, Mr. Howard said.

Citing mortgage-related concerns, Fitch Ratings has placed the long- and short-term Issuer Default Ratings of Constitution Corporate Federal Credit Union, Wallingford, Conn., on Rating Watch Negative. The credit union's long-term IDR stands at AA-minus, and its short-term IDR stands at F1-plus. The rating agency said it is concerned that the CU faces a growing likelihood of realizing significant losses. "Constitution's exposure to the troubled mortgage market, including home equity, subprime, and [alternative-A] product, has contributed to a large unrealized loss position in relation to capital," Fitch said. The rating agency can be found on the Web at http://www.fitchratings.com.

With price declines of 50% and more, home sales are picking up in the Central Valley of California thanks to higher loan limits on Federal Housing Administration-insured mortgages, but more losses for the banking industry are in the pipeline, according to Friedman Billing Ramsey. "With interest rate resets, defaults and foreclosures still growing, the peak in industry losses will probably be sometime in 2009," said FBR Capital Markets managing director Paul Miller. In Sacramento, a house that sold for $385,000 in April 2005 is likely to be sold at auction for $120,000 today, the company said. Prices are generally down 30% to 70% from peak values, with the average decline around 50%. FBR equity analysts who toured the valley during the week of June 9 said they were "surprised by just how bad things are" in the Central Valley and that it would be "even worse" without FHA financing, which is the "only game in town." Construction activity in the Central Valley has stopped, and speculators are getting back into the market because they can purchase properties for rentals at prices "with breakeven or even positive cash flows," the FBRCM report says.

KeyCorp, a Cleveland-based financial services company and mortgage lender, has priced offerings of $1 billion of common shares and $650 million of noncumulative perpetual convertible preferred stock. The approximately 85.1 million common shares were priced at $11.75 per share, while the 6.5 million shares of series A preferred stock were issued with a liquidation preference of $100 per share. Each share of the preferred stock will be convertible at any time, at the option of the holder, into 7.0922 shares of KeyCorp common stock at a conversion price of $14.10 per share, the company said. Citi is serving as the sole book-running manager of the offerings. KeyCorp can be found online at http://www.key.com.

The Ford Foundation has announced a $2 million grant to the Consumer Credit Counseling Service of Greater Atlanta to support new technology that allows credit counselors to speed up mortgage loan modifications. The foundation said the grant will enable the CCCS, which has piloted the new software platform, to increase its counseling staff by 80 employees and open another counseling facility in the Atlanta area. "Preventing foreclosure is beneficial to borrowers and lenders alike, yet confusion, delay, and distrust on both sides have often stood in the ways of sensible loan modifications," said Frank DeGiovanni, director of economic development at the Ford Foundation. "This new system is finally breaking down those barriers." The foundation said the grant is the first in a series of "major investments" that will address the foreclosure crisis. The organizations can be found online at http://www.fordfound.org and http://www.cccsinc.org.

The long-term counterparty credit rating of the Federal Home Loan Bank of Chicago has been downgraded from AA-plus to AA by Standard & Poor's Ratings Services, according to the Office of Finance. The FHLBank was removed from CreditWatch, and its outlook was upgraded to stable. When S&P placed the bank on CreditWatch, the rating agency said its deteriorating profitability had been attributed to hedging losses involving assets in its Mortgage Partnership Finance program and other hedging adjustments that would hurt future earnings. The Office of Finance, the debt issuance facility of the FHLBanks, also reported that S&P has affirmed the counterparty credit ratings of the FHLBank of Seattle at AA-plus/A-1-plus and upgraded its outlook to positive. The Office of Finance can be found online at http://www.fhlb-of.com, and S&P can be found at http://www.standardandpoors.com.

Thornburg Mortgage Inc., a troubled real estate investment trust based in Santa Fe, N.M., has announced stockholder approval of an increase in the number of authorized shares of capital stock from 500 million to 4 billion. The shareholders also okayed amendments to the company's charter to modify the terms of all Thornburg's series of preferred stock, eliminating substantially all voting rights of preferred stockholders and making preferred stock dividend payments noncumulative, among other things. The company said it must still obtain consents from holders of each series of preferred stock before the modifications can take effect. "Winning shareholder approval of management's proposals marks a milestone achievement in our efforts to rebuild the company and resume more normal business operations," said Larry A. Goldstone, president and chief executive officer of Thornburg Mortgage. Thornburg completed a $1.35 billion private placement in recent months after announcing that it had to raise nearly $1 billion to keep in place a key agreement with counterparties involved in potentially material margin calls it had been facing. The company can be found online at http://www.thornburgmortgage.com.