Servicing

Although foreclosure sales declined in California in September, they actually rose by 5% on an average daily basis, according to ForeclosureRadar, Discovery Bay, Calif.The company reported that 8,818 California foreclosures (with a total loan value of $3.60 billion) were sold at auction in September, compared with 9,477 (with a total value of $3.86 billion) in August. "Although it appears that foreclosure activity has slowed this month, digging deeper into the numbers tells another story," said Sean O'Toole, founder and chief executive officer of ForeclosureRadar. "In the month of August there were 23 recording and auction days. In contrast, September had 19 recording days and only 18 auction days, so we actually saw across-the-board increases in average daily foreclosure activity." ForeclosureRadar, a foreclosure listings and software company, can be found on the Web at http://www.foreclosureradar.com.

A Better Business Bureau-type organization called the Better Mortgage Bureau has been formed in Baltimore to provide the tools and education consumers need to make informed homebuying decisions, according to the BMB.The bureau said its mission is to "elevate consumer awareness through shared experiences and industry experts" and to establish the best-practices benchmark for the mortgage industry. Calling itself the "Good Housekeeping Seal of Approval" for the mortgage industry, the organization said consumers can search the repository of all BMB members to find the mortgage professional that meets their needs. "For the first time, consumers can be assured that their mortgage professional is licensed, trained, and will adhere to the BMB code of ethics," the bureau said. The BMB can be found online at http://www.bettermorgagebureau.com.

The PMI Group Inc., Walnut Creek, Calif., has issued a preliminary estimate that it will take a third-quarter loss of approximately $1.05 per share.The company cited incurred losses in its U.S. mortgage insurance operations and a mark-to-market adjustment at its unconsolidated subsidiary, FGIC, as the cause. Defaults significantly worsened in September. As a result, PMI said it expects approximately $350 million in paid claims, loss adjustment expenses, and additions to the reserve for losses for its U.S. mortgage insurance operations in the third quarter. It is withdrawing its full-year total incurred loss guidance and other financial guidance. Regarding FGIC, in which it holds a 42% stake, mark-to-market adjustments on the insured credit derivative will result in an unrealized loss of approximately $206 million. FGIC anticipates that as a result of this adjustment it will report a net loss of approximately $65 million for the third quarter. PMI's share of that loss is $0.32 per share.

State attorneys general are not going to take a back seat to the Treasury Department's Hope Now initiative when it comes to working with and monitoring the top 10 subprime servicers and their loan modification activities, despite the suggestions of one mortgage industry group."We think the Hope Now initiative and our initiative are very complementary," Iowa AG Tom Miller said. It is important to have people at the local as well as the federal level involved in the monitoring, he added. In a letter to the Iowa AG, the Consumer Mortgage Coalition said the Treasury is putting together a coordinated effort to prevent foreclosures and that requiring servicers to work with two initiatives will make them less effective. "We believe that by concentrating our efforts in the Hope Now Alliance, we will be able to maximize the benefit for the citizens of your state," CMC executive director Anne Canfield says in the letter. Mr. Miller told MortgageWire that the top 10 servicers have agreed to work closely with a group of state AGs and banking regulators. "None of them have indicated they are not going to honor their commitment," he said.

Forced to sell high-quality jumbo loans at a discount, Thornburg Mortgage, Santa Fe, N.M., posted a $1.1 billion loss in the third quarter.Company president and chief operating officer Larry Goldstone argued that the liquidity crisis in the nonconforming market -- at least as it pertains to Thornburg -- reflects "investor perception, not investment reality." At the end of September, the publicly traded real estate investment trust had assets (mostly adjustable-rate mortgages) of $36.3 billion, compared with $52.7 billion at the end of December. At the end of the third quarter it boasted a delinquency rate of just 0.27%. However, because of the liquidity crisis, the company has been forced to sell high-quality assets as a way to keep its lenders happy.

The liquidity provided by private-label mortgage-backed securities fueled aggressive lending practices that have contributed to rising defaults and foreclosures, according to a Government Accountability Office study.The GAO study indicates that underwriting standards deteriorated from 2000 to 2006 along with the increase of adjustable-rate mortgages and limited- or no-documentation loans. "Growth in the market for private-label MBS beginning in 2003 provided liquidity to some brokers and lenders to support these aggressive lending practices," the congressional watchdog agency says. The National Association of Mortgage Brokers said the GAO study shows that securitization and too much liquidity led to aggressive practices by banks and other lenders. "Mortgage brokers are not to blame for the meltdown in the subprime market," NAMB president George Hanzimanolis said. The study points out that mortgage brokers accounted for 60% of originations in the subprime market and 25% in the prime market in 2005.

Rep. Paul Kanjorski, D-Pa., has introduced a mortgage servicing and appraisal reform bill that he plans to attach to a comprehensive predatory lending bill the House Financial Services Committee is expected to mark up this fall."This bill helps to protect consumers by improving mortgage servicing, enhancing appraisal quality and standards, ensuring better appraisal oversight, and requiring escrows for those mortgages where borrowers are more likely to experience difficulty in budgeting for the often substantial cost of taxes and insurance," Rep. Kanjorski said. The second-ranking Democrat on the Financial Services Committee has been working on servicing and appraisal reforms for several years as a result of a major developer scam in his Pennsylvania district that led to scores of foreclosures. One aim of the bill (H.R. 3837) is to address the lack of escrow accounts on subprime loans. Lenders would be required to provide an estimate of taxes and insurance when borrowers apply for a mortgage so that they understand the annual costs if they opt out of establishing an escrow account at closing. The bill also attempts to shield appraisers from lender pressure and updates the Real Estate Settlement Procedures Act to create new servicing protections for consumers and increases penalties for violations.

The Senate Banking Committee has approved a five-year extension of the National Flood Insurance Program and a seven-year extension of the federal government's terrorism insurance program in strong bipartisan votes.By a 21-0 vote, the committee passed the NFIP extension bill that would forgive $21 billion in debt accumulated by the flood insurance program in the 2005 hurricane season and phases out subsidized premiums for vacation homes and properties with repetitive flood losses. The Senate bill does not expand coverage to include wind damage, as a House-passed flood bill did, because committee leaders are uncertain of the costs and concerned that it would sink the bill. By a 20-1 vote, the committee approved an extension of the Terrorism Risk Insurance Act that the Bush administration says it can support. The House is working on a 15-year extension of TRIA along with expanding coverage to include nuclear, biological, chemical, and radiological acts of terrorism. The Senate bill includes a study of such expanded coverage.

Subprime servicer NovaStar Financial, Kansas City, Mo., has agreed to sell its servicing portfolio to an affiliate of Morgan Stanley & Co. for $175 million in cash.According to the Quarterly Data Report, at the end of June NovaStar serviced $15 billion in subprime loans, ranking 19th nationwide. The publicly traded NovaStar said it would use the proceeds to reduce debt. "As we continue to endure a difficult period for the mortgage industry and the secondary market for mortgage loans, our focus is on managing our portfolio of mortgage securities, along with brokering loans with a retail team that continues to serve homeowners," NovaStar president Lance Anderson said in a statement. NovaStar added that it is evaluating "the impact of this transaction on its servicing organization, including its servicing work force of approximately 300 persons, but expects that substantial reductions in both its organization and work force will result." NovaStar can be found online at http://www.novastarmortgage.com.

DRI Management Systems Inc., a provider of default management software based in Newport Beach, Calif., and Artemis Enterprises LLC, Chicago, announced an alliance at the Mortgage Bankers Association convention that offers single-source access to process and information management technology.Mutual clients will gain "substantial cost saving benefits" through time efficiencies and reduction in the risk associated with untimely and inaccurate communication errors, the companies said. "The combination of process and cross-enterprise contact and content data management has never been offered in this industry before," said Mary Hunter, president and chief executive officer of Artemis. The companies can be found on the Web at http://www.dridefault.com and http://www.artemisinfo.com.