Servicing

The House of Representatives Thursday afternoon overwhelmingly passed an FHA reform bill allowing the agency to triple annual premium payments to 150 basis points, a move designed to bolster the insurer's wobbly finances. The measure also mandates that seller/servicers repay the government for any losses on mortgages funded using delegated underwriting. If fraud is discovered on an FHA loan, the agency could hold the lender liable in full. Among other things, the legislation gives a break to FHA homebuyers who purchase properties with a downpayment of 10% or greater. "For any mortgage involving an original principal obligation that is less than 90% of the appraised value of the property, this premium may be required to be paid for the first 11 years of the mortgage." If the downpayment is less than 10%, the premium will be assessed over 30 years. (The values are subject to appraisal confirmation.) The final tally on the vote for the FHA Reform Act (H.R. 5072) was 406-4. In a statement, HUD secretary Shaun Donovan said the bill would enable the Federal Housing Administration to "reform its current mortgage insurance premium structure by shifting some of the upfront cost to the annual premium—a move that will increase FHA's capital reserves and reduce risks" to the government insurance fund. With the House bill passed, the Senate must come up with its version of the measure.

It's safe for distressed commercial real estate investors "to go in the water" again, according to a top analyst that covers the market for Ernst & Young. "Yes, enjoy the swim," said Mark Grinis, a partner in the real estate distressed services group at E&Y. But he also cautioned that buyers need to have a reasonable outlook about their returns. Speaking at a National Mortgage News conference on "Buying and Selling Distressed Mortgage Portfolios," he gave this sobering assessment: "You will need to earn your returns." Buyers of distressed assets, he said, need to come up with a strategy that dovetails with where the distressed assets actually are. For example, notice of defaults on land loans peaked last year. Another asset class where NODs have peaked is in hotels. Grinis said those are areas where buyers will be seeing plenty of action. Everyone expected to see a flood of distressed assets on the market, he said. But each lender is making an individual decision on when to sell and take a hit, he said, adding that there is "no rush for the exits," which has helped to keep prices up.

Builders gathering at the nation's largest regional housing trade show this week were told they'd have to hang on for a few more years before the market picks up any kind of steam. Eventually, builders will produce 1.4 million units a year, but that's "three or four years down the road," said Elliott Pollack, a Phoenix investor and consultant. Speaking at the Pacific Coast Builders Conference in San Francisco he noted, "There's going to be a recovery, but it's going to be a weak recovery." David Crowe, chief economist at the National Association of Home Builders, said patience will be "a builder's best virtue" going forward. But he also said the states which will recover first are relatively small ones. "North Dakota can double its production and we're not going to feel it at the national level," he said. Kicking off PCBC's new Capital Markets Forum, Pollack told builders not to get caught up in numbers. "Things are going to get progressively better, capital will show up and there will be less competition," he said, noting that the number of builders operating in the Phoenix area has dropped from 864 at the height of the market to 133 today. "If I'm you, I'm doing cartwheels because I'm still here," he told the crowd. Pollack, who heads Elliott D. Pollack & Co., also predicted that house prices will jump once the oversupply of building lots is worked off. But he warned that credit for both builders and their buyers will be tougher to come by. "If you want to know what credit is going to look like, go back to the '70s and '80s," he said.

Essent Guaranty, a startup mortgage insurance firm, has finally written its first policy but isn't giving out much in the way of details. In a statement issued to National Mortgage News, the Pennsylvania-based company said it is "actively engaged with lenders and has issued mortgage insurance certificates." But the company declined to say how many MI policies it has issued and when. The privately held firm was formed two years ago by Mark Casale and other industry veterans. During his career, Casale worked for Radian Guaranty, and Advanta Mortgage, the latter of which eventually was sold to Chase Manhattan Bank (now JPMorgan Chase). With Essent's entry into the market, there are now seven MI firms actively writing new policies. Triad Guaranty is in "wind-down" mode.

Interactive Mortgage Advisors, Denver, has launched a new fund to invest $100 million of cash in delinquent residential loans, but also "scratch and dent" products, GSE "kickbacks" and performing notes. The fund, an affiliate of the company, is called Spurs Capital and has already invested roughly $40 million, said IMA managing member Thomas Piercy. He said IMA's niche will be "smaller transactions," adding that many banks "don't want to deal with just a few [troubled] loans so we're providing a solution. You can't be all things to all people." IMA is well known in the servicing space as an advisor and seller of mortgage servicing rights.

More than 57,256 90-day preforeclosure notices were sent to New York homeowners who have fallen behind on their mortgage payments since Feb. 13, 2010, according to the New York State Banking Department. The five counties with the highest total number of preforeclosure filings on owner-occupied, one-to-for family properties in the state are Suffolk with 8,293, Queens with 6,267, Nassau with 5,755 filings, Kings (Brooklyn) with 4,485 and Erie with 2,917. The data was based on filings from almost 200 mortgage loan servicers between Feb. 13 and May 31, 2010, in accordance with the state's 2009 Mortgage Foreclosure Law. The new law requires all servicers of New York residential mortgages to provide the department with key information from the 90-day preforeclosure notices sent to homeowners. More than half, or 30,182, of the preforeclosure notices were sent on mortgages or refinances originated between 2005 and 2007. Throughout the state, more than 31% of the notices were on loan amounts under $100,000, which suggests that economic issues are at the root of current defaults as such loan amounts are significantly less than home values. More than half, or 31,044, were on mortgages that were less than 60 days delinquent. "We are well past the point of this being a subprime or predatory loan crisis," said Richard Neiman, superintendent of banks for New York State. "The recession and job losses, as well as the overall decline of the housing market, have led to the current situation of responsible homeowners who may have had a good loan being overwhelmed by temporary economic hardships."

The serious delinquency rate on FHA-insured home mortgages has been declining, loan modifications are accelerating, but foreclosures are still rising at an alarming rate. Yet, Federal Housing Administration officials are optimistic that foreclosures will start to decline if delinquencies continue to fall. "It is simply a timing lag" because servicers are still dealing with a large inventory of problem FHA loans, said chief risk officer Bob Ryan. FHA recently reported that 8.5% of its insured single-family loans were 90 days or more past due in April, down from 8.8% in March and 9.17% in February. "If we continue the trend of declining delinquencies, we will see a corresponding decline in claims (foreclosures) several months down the road," he said. (FHA officials refer to foreclosures as claims.) Servicers modified 70,800 FHA loans during the first seven months of fiscal 2010, up 78% from the same period in FY 2009, according to an April FHA report. But foreclosures totaled 53,300 during that same period, up 47% from FY 2009. The chief risk officer noted that current trends are positive and foreclosures should decline. However, he is worried about the performance of the modified loans and redefaults, which would push up foreclosures. "We hope we have been able to achieve modifications that provide meaningful relief for the borrowers," Ryan told National Mortgage News. The housing market is "fragile," he said. A weakening economy, more jobs losses, or other economic events, "could cause them to re-default," he said.

With securitized private-label mortgage product in short supply in the United States, investors are showing an interest in international product, according to one speaker at the American Securitization Forum's annual meeting. Sixty percent of an international residential mortgage-backed securities deal done a month ago was sold to U.S. investors, said David Jacob, executive managing director at Standard & Poor's, speaking as part of a mid-year securitization market review panel. Bob Behal, vice president and co-head of asset- and mortgage-backed securities research at investor The Vanguard Group Inc., confirmed that investors have an appetite for product that has sent them on a search for it. "We're trying to find other sources of loans to...feed the machine," he said.

Paul Peters, the former president of Hibernia Bank's mortgage division, has joined residential mortgage advisory firm KLS Consulting LLC, dba Mortgage Banking Solutions. Peters, who will be a senior mortgage consultant at MBS, will run a national practice focused primarily on bank and credit union-owned mortgage operations. He will advise banks and credit unions on cross selling, risk mitigation, and regulatory compliance issues, among others. In addition to being the former president of Hibernia's mortgage division, Peters also was president of Capital One Mortgage N.A. for two years after the latter company acquired the former.

The American Securitization Forum is planning to issue a paper on risk retention proposals and related amendments. The paper was not immediately available at press time but executive director Tom Deutsch told this publication at the group's annual meeting Tuesday that it would weigh in with suggestions that the proposal allow for different treatment of different asset classes. It also would address a proposal to allow strict underwriting requirement to serve as a form of risk retention. Deutsch said the group is unified in calling for different forms of risk retention for different asset classes given differences in the way they are affected by regulatory capital requirements and recently-changed accounting standards. For example, while mortgage deals might be able to accomplish the 5% risk retention through a "vertical" slice of all the asset classes in a deal without triggering certain onerous accounting requirements, another type of securitized assets may not. Some issuers of non-mortgage assets would prefer the option of using a horizontal slice of the deal to accommodate this, he said. The group —which sometimes issues separate "educational" positions split between investor and issuer contingents when they cannot immediately agree on an issue —is currently divided when it comes to the underwriting issue, Deutsch said.