Servicing

Home prices rose just under 1% in April for the second consecutive month following declines during the first two months of this year, according to the CoreLogic housing price index. The CoreLogic HPI posted a 0.1% increase in March after dropping 2% in February and 1.6% in January. "The monthly increase in the HPI shows the lingering effects of the homebuyer tax credit," said Mark Fleming, chief economist for CoreLogic. The tax credit expired April 30. "We expect that we will see home prices remain strong through early summer, but in the second half of the year we expect price growth to soften and possibly decline moderately," Fleming said. The CoreLogic HPI is not seasonally adjusted and includes distressed sales. House prices have risen 2.6% during the 12-month period ending April 30. Excluding distressed sales, the HPI is up 2.3% during the same 12-month period.

House Financial Services Committee chairman Barney Frank, D-Mass., is asking Senate conferees to drop a "qualified" mortgage exemption that would allow nongovernment loans to be securitized without risk retention. In reconciling the House and Senate financial services regulatory reform bills, Rep. Frank is offering to totally exempt Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service guaranteed loans from a 5% risk retention requirement for MBS issuers. However, issuers of Fannie Mae and Freddie Mac MBS would have to retain 5% of the credit risk under the Frank proposal. "It would create a huge imbalance in the marketplace in favor of FHA and VA loans," said Glen Corso, managing director of the Community Mortgage Banking Project. Mortgage industry groups prefer a Senate-passed provision that would allow regulators to totally exempt safe, fully documented mortgages from risk retention, which presumably would encompass Fannie/Freddie loans. Industry groups claim qualified mortgages that are exempt from risk retention and shielded from liability could lead to a revival of the private mortgage market. "The lack of a true safe harbor for following federally mandated minimum standards for a qualified mortgage will result in lenders and investors establishing even tighter credit standards than those called for in the qualified mortgage or avoiding residential mortgage investments altogether because of the potential for excessive legal risks," the joint letter says. House and Senate conferees are in meetings, trying to work out differences on such mortgage related issues as yield spread premiums, appraisals, underwriting standards, risk retention, and the creation of a consumer protection agency.

Fannie Mae and Freddie Mac are increasing their use of short sales which is considered a better alternative for lenders and homeowners than a foreclosure sale, according to a report by their regulator. The Federal Housing Finance Agency says the two government sponsored enterprises completed 23,400 short sales in the first quarter, compared to just 8,050 a year ago. GSE servicers are expected to implement a new 'Home Affordable Foreclosure Alternative' program by August 1 that places more emphasis on short sales as an alternative to foreclosure. Fannie and Freddie completed 92,760 foreclosure sales in the first quarter, up 27% from the previous quarter. Short sales allow the homeowner to walk away from their house debt free and generally results in a higher sales price and less expenses than a foreclosure or REO. An Amherst Securities Group report shows that short sales have a significantly lower loss severity than REO sales, "but that difference has been narrowing over time." ASG analysts note that servicers are becoming more proficient at short sales. However, the loan-to-value ratios on short sales have been increasing relative to REO sales. And the amount of servicer advances has increased more for short sales than for foreclosures. "We believe the narrowing between short sale and REO sale is largely complete," Amherst says.

USFN recently joined forces with the Second Harvest Food Bank of Metrolina, a nonprofit hunger relief organization that supplies food and grocery items to charitable agencies that assist people in need. On June 9, over 40 members of USFN, a not-for-profit association of select attorneys; trustee companies and associates in the default services industry, volunteered their time to the SHFBM's food drive program. This service project took place at SHFBM's main warehouse in Charlotte, N.C. and consisted of inspecting and sorting incoming food donations and essential household products from both individual and corporate donors. The sorted food and products will later be distributed to thousands of families, agencies and local food pantries throughout 19 counties in North and South Carolina.

Federal Deposit Insurance Corp. chairman Sheila Bair is warning against indefinite government control of Fannie Mae and Freddie Mac. In a recent speech on housing policy, Bair said some government involvement in mortgage finance is "certainly justified." But the nation's financial crisis, which included the 2008 seizure of the GSEs by their regulator and the Treasury (to prevent their collapse) proved "any such program must be much more definitive about where the financial obligation of taxpayers begins and ends," she said. In prepared remarks at the Wharton School's International Housing Finance Program, she noted that "there are a variety of options for making some of their functions governmental while putting others in private hands." The FDIC chief said policymakers should address the government's role with the enterprises after financial regulatory reform is finished. "After the financial reform package becomes law, GSE reform should rise to the top of the agenda," Bair said. "The goal must be to clarify once and for all which functions should be governmental, and which are strictly subject to the discipline of the marketplace."

Vornado Realty Trust has submitted a bid to buy CW Financial Services, the parent of the second-largest manager of delinquent commercial real estate loans, according to a report by Bloomberg. A winner for New York-based CW Financial could be selected by next week, the news organization reported, quoting a source familiar with the deal. Buyout firms Apollo Global Management LP and Centerbridge Capital Partners LLC, which had made competing offers, are no longer seeking to buy the company, according to two people familiar with the auction. CWCapital Asset Management, a unit of CW Financial, is the special servicer of $144 billion of securitized real estate loans, including more than $18 billion that are delinquent, according to data compiled by Bloomberg. Ben Thypin, an analyst at Real Capital Analytics Inc. in New York, said CWCapital has access to valuable pricing and payment information. "Owning a firm like CW gives access to information on a lot of troubled loans as well as an established platform for originating new ones," Thypin said. "That puts the owner in the driver's seat and in control of distressed real estate that they may want for themselves." Vornado is the third-largest U.S. real estate investment trust by market value.

Almost half of all distressed homeowners who did not qualify for a permanent HAMP loan modification have received assistance through alternative or proprietary modification programs offered by private servicers, according to new figures released by the Obama Administration. Housing and Urban Development secretary Shawn Donovan said only 11% of borrowers in the Home Affordable Modification Program payment trials have fallen into foreclosure or lost their homes through a short sale. "It is a clear indication that the efforts of HAMP, combined with other efforts, are having a substantial effect," the HUD secretary told reporters on Monday. Another 26% of the 277,600 borrowers that dropped out of HAMP trials (as of April 30) are still being evaluated by servicers for a proprietary modification. (As of May 30, 429,700 borrowers had dropped out of HAMP trials.) The secretary also noted that 2.8 million borrowers have received restructured mortgages through HAMP, Federal Housing Administration and proprietary programs during the 12-month period ending April 30. "This is nearly three times the number of foreclosures completed during this same period," secretary Donovan said.

Investors believe financing and buyer interest in "second-tier" commercial real estate markets remains limited, according to a new survey from PricewaterhouseCoopers. Respondents told the accounting firm that until they see signs of "uniform patterns of stability" in the market, investment opportunities will be highly bifurcated with little attention paid to offerings with vacancy issues that don't deliver sought after gains in value. But there was some good news in the survey: commercial investors said financing for properties has become more readily available for the right borrower seeking quality assets. The economy is blamed for the lack of quality buying opportunities that many CRE investors feel should have materialized by now. Among the concerns is the large amount of CRE debt that comes due in 2011 and 2012. Troubled sales accounted for just 25% to 30% of the market with lenders more willing to extend existing loans than take back assets along with special servicers providing greater flexibility in modifying loans in lieu of forcing defaults. But, the low percentage of distressed asset deals is also being attributed to buyers steering clear of what they consider to be "junk" and focusing only on core assets.

Lenders living off of refinancings will be sorely disappointed by a new forecast from Fannie Mae. The GSE sees refinancings falling to just 34% of total production in fourth quarter, the lowest reading in almost a decade. (The third quarter of 2008 was a near disaster for refinancings with a reading of 38%, according to figures compiled by the Quarterly Data Report. In 3Q08 the stock market was about to begin a freefall with Fannie being taken over by the government and several other large financial firms failing or teetering.) In the first quarter of this year, refis accounted for 65% of residential fundings. Last year refis accounted for 67% of production.

It appears that House/Senate conferees are leaning toward adopting risk retention language requiring issuers of residential MBS to hold a "vertical" slice of securitized assets, which means mortgage bankers will be affected by losses on all tranches, not just one. According to interviews with lobbyists working the issue, the details will not be hammered out until next Tuesday, at the earliest. "We think we're going to be okay on the issue but you never know," one MBS investor told National Mortgage News. It appears that language stipulating 5% risk retention for "qualified" mortgage assets (Fannie Mae, Freddie Mac, FHA and other government products) will survive, though there was even talk of cutting that down to 3% for certain loans. If issuers are required to take on vertical risk they suffer losses on all MBS tranches that are created. Under a "horizontal" model only the most subordinated bond is first in line to absorb credit losses. None of the executives interviewed wanted to be identified because of the sensitive nature of the talks. The House and Senate are trying to shape a compromise bill on overhauling regulation of financial services, including many facets of mortgage banking.