Servicing

National Asset Direct, a purchaser of distressed residential assets and loans, has hired Ray Schalk, Melissa Dant, and Jill Parker, all formerly of Accredited Home Lenders, to senior management positions. Before joining NAD's whole loan trading team, Mr. Schalk sold loans and participated in the securitization of subprime and alternative-A loans for Accredited's capital markets group. He will be responsible for all aspects of loan acquisitions, including maintaining communication with sellers at all levels, monitoring credit and real estate market trends, and managing NAD's pricing model. Ms. Dant, who has been named general counsel, will be responsible for all legal affairs of the entire company and its affiliates. She was formerly associate general counsel at Accredited Home Lenders. Ms. Parker, NAD's director of project management, is responsible for all NAD and iServe (mortgage, real estate, servicing) projects. She previously managed the project office for Accredited Home Lenders.

A new GSE regulator should require Fannie Mae and Freddie Mac to adjust their investment portfolios in a "countercyclical manner" so they could provide more liquidity for the mortgage market the next time the housing market goes bust, according to the director of the Office of Federal Housing Enterprise Oversight. OFHEO Director James Lockhart told a banking conference that the two government-sponsored enterprises loaded up on risky loans and securities during the recent housing boom, and now they are dealing with credit losses and have been forced to raise capital. In a future downturn, Fannie and Freddie could provide more liquidity for the mortgage market if their regulator requires them to build up capital during the boom and sets standards for the operation of the portfolios so they can provide "liquidity and stability to the secondary mortgage market at all points in the credit cycle," Mr. Lockhart said. Congress is working on a GSE reform bill that would authorize the new regulator to set such standards. "An important issue for supervisory agencies is how to create incentives for institutions to behave in a less pro-cyclical manner without interfering with their ability to earn reasonable returns on capital," the GSE regulator said.

Mortgage servicers of REMIC securitizations no longer have to wait for a borrower to miss a payment before they contact and offer a homeowner a loan modification with a lower interest rate or principal reduction, according to an Internal Revenue Service ruling. Revenue Procedure (2008-28) opens the door for servicers to actively identify borrowers likely to end up in foreclosure without jeopardizing the tax status of a real estate mortgage investment conduit. "This is an important change that will allow more homeowners who may potentially get in trouble to be able to have their loans modified prior to default," said Anne Canfield, executive director of the Consumer Mortgage Coalition. The IRS recognizes that servicers have developed sophisticated programs to identify borrowers likely to default using data such as declining credit scores, falling house prices, or interest rate resets. Once they form a reasonable belief that there is significant risk of foreclosure, "then they can go ahead and contact the borrower before any payment goes late," IRS associate counsel Susan Baker said. Currently, REMIC regulations prohibit a loan modification before the borrower is in default.

The California Department of Real Estate has granted a license to originate and service first mortgage loans to iServe Servicing Inc., a wholly owned subsidiary of National Asset Direct, a purchaser of distressed residential assets and loans. With this approval, iServe is now qualified to service first mortgage loans in 29 states, including Florida, Illinois and Texas, and exempt from qualification in 10 additional states, qualifying iServe to service first mortgage loans in a total of 39 states. iServe's "high-touch" servicing system is designed to correctly diagnose a borrower's unique conditions, match creative solutions to meet the best interests of the borrower, and encourage resolutions that provide immediate relief, near-term stabilization, and promote long-term viability of retaining homeownership. Louis Amaya, chief investment officer and chief operating officer of NAD, said, "We are particularly pleased to be able to offer our solutions to borrowers in California, which continues to represent a disproportionate share of the foreclosure starts in the country. In an environment where third-party servicers have been inundated with a growing number of nonperforming mortgages, being able to service our portfolio of loans provides NAD with a critical competitive advantage."

Ten classes from four scratch-and-dent mortgage-backed securities transactions issued by Citigroup Mortgage Loan Trust have been downgraded by Fitch Ratings. Fitch also placed four classes of securities on Rating Watch Negative and affirmed the ratings on more than $340 million of scratch-and-dent MBS.

REOTrans LLC, Hawthorne, Calif., which automates the default management process, has reported that its e-commerce marketplace handles more than 100,000 transactions daily. The marketplace tracks and provides detailed performance report cards on the entire industry. This allows sellers to select the best performing agents and vendors. "This is an incredible volume of transactions per day," said Chris Saitta, CEO of REOTrans. "The high volume of transactions assures a current and fair assessment of performance." He said the marketplace is a vibrant e-commerce exchange that allows everyone in the default servicing industry to connect and do business electronically. There are currently 4,090 sellers (asset managers), 6,025 vendors and 254,874 real estate agents nationwide handling 110,115 transactions each day. With no software to install or hardware to maintain, this platform creates an efficient and seamless system for the default industry. In addition to the marketplace, REOTrans also provides a highly configuration workstation. The workstation is easy to adopt, highly configurable and provides dramatic process efficiency gains making it easy to handle higher volumes, according to the company. Together the marketplace and workstation provide everything and everyone needed to efficiently automate the default process and sell REO in a safe and transparent online environment.

Don Henig, former president of third-party lending at American Home Mortgage, Melville, N.Y., has found a new career after mortgages, investing in foreclosed properties at public auctions. Since the end of November, Mr. Henig has been involved in 30 home purchases. His goal is to buy the homes at a deep discount for cash, fix them up and resell them quickly. He is out raising capital through his firm, First Light Capital, Farmingdale, N.Y. He works with another company, Island Properties, also of Farmingdale, to fix up the homes and then find investors that eventually will buy what he acquires. For now, he is concentrating on buying homes in New York and New Jersey but not the five boroughs of New York City. American Home, a publicly traded REIT that specialized in both prime and nonprime lending, filed for bankruptcy protection last summer after being margin-called by its lenders on Wall Street. Most of the company's assets have been liquidated.

Hanover Capital Mortgage Holdings lost $23.3 million, or $2.71 per share, in the first quarter, as $21.2 million in declines to the fair value of its subordinate mortgage-backed securities portfolio weighed heavily on results. The company also faced an increase in interest expense under its new repurchase agreement with Ramius Capital Group. As of March 31, seriously delinquent loans in the company's subordinate MBS portfolio totaled 0.83% of collateral balances, up from 0.55% at Dec. 31, 2007. Chairman and CEO John Burchett said the company is continuing efforts to raise capital "sufficient to enable the company to return to profitability and to provide a positive return for our shareholders."

Under pressure from industry groups, Fannie Mae is retreating from its policy of requiring higher downpayments in markets where house prices are declining. Starting June 1 the mortgage giant will begin purchasing 97% LTV loans again in declining markets, provided the loans are processed through Desktop Underwriter, its automated underwriting system. Fannie also said it will accept manually underwritten single-family loans with 95% loan-to-value ratios under its new policy that will equalize downpayment requirements nationwide. "We are able to adopt his new, national downpayment policy requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk-layering and assess each loan more precisely," Fannie senior vice president Marianne Sullivan said. The National Association of Realtors recently complained to Fannie and Freddie Mac that their declining market policies are contributing to price declines and "stigmatizing" entire metropolitan areas as declining markets. By dropping the extra 5% downpayment requirement, Fannie's "new policies will help stabilize the credit markets," said NAR president Dick Gaylord, and "encourage buyers to come back into the housing market." Freddie recently clarified its policy and urged lenders and appraisers to be more vigilant in assessing local market conditions before determining a property is located in a declining market.

Nonperforming assets at Downey Financial of Newport Beach, Calif., climbed to 13.24% at the end of April, a 45% increase over the past three months. At month's end, Downey had $13.15 billion in assets on its balance sheet which means $1.74 billion are in some stage of delinquency. Roughly 4.6% of its assets fall into a category it calls "performing trouble debt restructurings." During the month Downey originated $281.7 million in new one-to-four family loans, compared to $232.1 million in March. The thrift services $5.44 billion in loans for others.