Servicing

Federal Reserve chairman Ben Bernanke Wednesday blamed a weak housing market for restraining the pace of the economic recovery, saying residential real estate conditions have "firmed only a little" since mid-2009, despite homebuyer tax credits. The central banker also called the private label MBS market "nonfunctional," saying the "status quo" of using Fannie Mae and Freddie Mac to provide liquidity via securitizations is not sustainable. The Fed chairman told the House Budget Committee the economy would nevertheless continue its slow expansion with the nation's gross domestic product growing at a 3.5% this year and 4% in 2011. He noted that housing "activity is being weighed down, in part, by a large, inventory of distressed or vacant existing houses and by the difficulty of many builders in obtaining credit." At the last meeting of the Federal Reserve's monetary policy committee, members expressed concerns that the recovery in housing had "stalled," according to the minutes of the April 28 meeting. Federal Open Market Committee members noted that house prices have stabilized in many parts of the U.S. However, some members see "elevated foreclosures as posing a downside risk to home prices," according to the minutes of the meeting. The next FOMC gathering is June 22. Bernanke did have some good news, noting that there is a "glimmer of hope" in the commercial real estate market. He said the Fed, as a regulator, is working with lenders to restructure troubled CRE loans.

Industry groups are urging House lawmakers to pass a Federal Housing Administration reform bill while rejecting several amendments that would lower the insurer's loan limit to $500,000, reduce its market share to 10%, and increase downpayments. "We urge you to oppose these amendments that will only hamper this important program," according to a joint letter signed by the Mortgage Bankers Association, National Association of Home Builders, and National Association of Realtors. The House is about to begin debate on the bill (H.R. 5072) which would give FHA more flexibility in adjusting its mortgage insurance premium structure. The measure also strengthens the agency's hand in getting lenders to indemnify FHA for bad loans and to terminate lenders with excessive early default rates. Industry groups oppose an amendment by Rep. Scott Garrett, R-N.J., that would increase the FHA 3.5% minimum downpayment to 5% and prohibit closing costs from being rolled into the loan amount. The Garrett amendment is expected to be voted down. An amendment by Rep. Melissa Bean, D-Ill., that requires FHA to report annually on its downpayment policy discussions is expected to pass. FHA currently has a market share of 30% and Rep. Tom Prices, R-Ga., is offering an amendment to cap it at 10%. Rep. Michael Turner, R-Ohio, wants to reduce the agency's maximum loan limit to $500,000 from $720,000. Industry groups contend the amendment would be disruptive and hurt the housing recovery. Meanwhile, real estate, apartment and low-income housing groups are supporting an amendment by Reps. Anthony Weiner, D. N.Y, and Gary Miller, R-Calif., that increases the FHA multifamily loan limit for elevator properties in high-cost areas. The House is expected to vote on final passage of H.R. 5072 Thursday.

The California Senate reversed itself and overwhelmingly passed a measure expanding mortgage protections to homeowners who have refinanced their original home loans. According to a report in The Orange County Register, by a 30-4 vote, the Senate adopted SB 1178, which would prohibit lenders from seeking repayment from homeowners when a foreclosed home is worth less than its mortgage balance. The body voted 19-5 last week against the measure, which the lending industry opposes. Supporters won more support for the measure after a compromise that limited benefits for homeowners who received cash back with their refinance.

Freddie Mac is issuing another $1 billion security backed by apartment loans as part of its 'K-Certificates' program. The mortgage-backed securities are expected to price on or about June 11, and settle later in the month. In total, 83 rental buildings serve as collateral for the multifamily bonds. A few months back Freddie came to market with a $1 billion K-Certificate deal. The GSEs are a key source of liquidity for the apartment market with commercial banks remaining skittish about commercial lending. Bank of America Merrill Lynch, and Deutsche Bank Securities Inc. are the co-lead managers and joint book runners on the transaction. Barclays Capital Inc., Goldman Sachs & Co., J.P. Morgan Securities Inc., Jefferies & Company, and Wells Fargo Securities LLC are the co-managers. The K-007 multifamily MBS deal is the third K-Certificate deal this year. Freddie plans to issue three more K-Certificate deals this year.

The amount of outstanding housing debt in the U.S. fell to $9.8 trillion at March 31, compared to $10.1 trillion at yearend, the first such sequential decline since National Mortgage News began tracking such figures 12 years ago. Overall, the lower balance owed shouldn't come as a total surprise. Millions of homes have entered foreclosure the past two years, wiping that debt off the balance sheet of residential servicers. When mortgage bankers finally take title and place the house back on the market, the "new" sales price will be lower - in come cases much lower - than the old price. What this effectively does is reduce not only the outstanding mortgage bill for the nation, but it lowers the base of receivables that mortgage bankers can earn servicing fees on. "The numbers are definitely declining," said Jay Brinkmann, chief economist for the Mortgage Bankers Association. The trade group tracks mortgage debt differently than this newspaper, but its findings are similar: consumers have reduced their residential debt load. (For the full story see this week's paper edition of National Mortgage News.)

Experian has expanded CreditHorizons for Securities, which delivers Experian's consumer credit information for nonagency mortgage-backed security deals, to offer the ability to link consumer credit data to Lewtan's private-label deal library, ABSNet Loan. This capability expands the CreditHorizons for Securities offering to a broader base of nonagency residential mortgage-backed securities investors. By linking consumer credit data to loan-level data, CreditHorizons for Securities provides an additional set of influences that helps investors better predict delinquency and default probabilities, obtain more granular data about the underlying collateral and understand how consumer trends impact their RMBS portfolios. Using a proprietary matching algorithm developed by Experian's credit and industry experts, Experian has achieved a high consumer-to-loan match rate in linking to Lewtan's data.

The growing number of credit union failures has forced NCUA's Asset Management and Assistance Center, which had been managing as many as 1,000 residential properties in south Florida, to expand into California and Las Vegas in recent months. The National Credit Union Administration still owns 633 houses in southwest Florida, as a result of previous CU failures. Of these, 220 are leased out, according to NCUA spokesman John McKechnie, who noted the agency originally had about 1,000 houses in the area. "Our plan is to sell 150 houses this year, so sales this year are slightly above plan," he said. "All sales of our residential properties are through local real estate brokers," he said. "We have a professional onsite property manager in southwest Florida, which is the only area where it has made economic sense to do so." NCUA is also considering selling some of the loans in packages but has no current plans to do so, and the agency is not holding any other significant assets from failed credit unions other than loans, he noted.

Fitch Solutions' index of credit default swaps linked to subprime residential mortgage-backed securities shows subprime prices rose to a high not seen since December 2008 in the latest month. The index jumped 7.6% month-to-month to 9.37. Managing director Thomas Aubrey said subprime asset quality is not only stable but also significantly improved in contrast to historic lows at the beginning of 2010. Month-to-month, the 2004 and 2006 vintages rose 10% and 14%, respectively; the 2005 vintage inched up 2% and the 2007 vintage increased 12%. However, the particularly troubled 2007 vintage's increase brings it to a point that leaves it almost flat compared to the start of the year. The 2004 and 2006 vintages, in contrast, have seen 27% and 57% gains since the start of the year, respectively. Sixty- and 90-day delinquencies have improved across all vintages and three- and six-month constant default rates have dropped. However, the three-month constant prepayment rate has slightly improved, suggesting there could be a slowdown in the price index's upward trend. A peak in prepayments could signal the departure of higher quality borrowers from the pool, leaving the pools with a lower credit quality profile as a result of adverse selection.

If home prices do not appreciate over the next few years, homeowners dealing with negative equity are likely to become renters, pushing down the U.S. homeownership rate to a level not seen since 2000, according to researchers at the New York Federal Reserve. "Negative equity households will very likely convert to renters when they move out of their current homes because they will be unable to save enough to cover negative equity, the transaction costs of selling their existing home and a downpayment on another home," three Fed researchers explain in their paper "The Homeownership Gap." The homeownership rate peaked at 69% in 2006 and has fallen to 67.2% by the end of 2009. If borrowers with negative equity are dropped from the homeownership calculation, the "effective" rate for the fourth quarter of 2009 would be 61.6%. In a separate report, mortgage analysts at Amherst Securities Group estimate that 250,000 homeowners a month are going delinquent for the first time. "These new delinquencies are primarily borrowers with negative equity: they are going delinquent for the first time at alarming rates," according to an Amherst Mortgage Insight article.

The former head of the Federal Housing Administration questioned the ability of the agency to continue its role as the bulwark of the mortgage market for much longer without an infusion of cash and staff. Brian Montgomery, who was FHA commissioner in the last Bush Administration, stopped short of predicting the agency's antiquated technology systems would eventually crash under the weight of insuring almost one-third of all residential loans. But he told the National Association of Real Estate Editors' annual conference in Austin that the agency wouldn't be able to keep pace with its lender-partners unless its computer systems are brought up to date and it can add much-needed new hires. Montgomery told NAREE that the FHA is running on a patchwork of 37 computer systems, "some of which are over 30-years-old." He also pointed out that while Fannie Mae has grown by something like 1,000 employees since it was taken into receivership by the government and still has more than 500 vacancies, the FHA is "still the same size it was" when he headed the agency and it had only a 3% market share. The former commissioner said at worst, the FHA and Ginnie Mae should be allowed to keep a portion of the revenues they generate so they can upgrade themselves. "Even if they kept only $100-$200 million of the $6.3 billion in receipts they turn over to the Treasury, they could update their systems and add staff," he said. But ideally, he added, the two should be allowed to become separate, autonomous government agencies.