Servicing

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.

The House of Representatives is expected to vote on, and pass legislation this week giving the Federal Housing Administration more flexibility in adjusting mortgage insurance premiums and tools to rebuild its capital reserves. The FHA reform bill (H.R. 5072) also strengthens the agency's hand in getting lenders to indemnify the agency against bad loans and to terminate lenders with excessive early defaults. The House Financial Services Committee approved the bill by a voice vote in April after rejecting (by a 52-12 vote) an amendment by Rep. Scott Garrett, R-N.J., to increase the FHA's 3.5% minimum downpayment to 5%. Getting the FHA reform bill through the Senate could be tougher. Sen. Richard Shelby, R-Ala., has tried several times to increase the FHA minimum downpayment to 5%. He likely will try again. The Senate is not expected to take up the FHA reform bill until after the July 4th recess, according to sources. If passed in its current form, H.R. 5072 would allow FHA to reduce its 2.25% upfront premium to 1% and raise its 55 basis point annual premium to 85 bps on single-family mortgages with loan-to-value ratios up to 95% and to 90 bps for LTVs above 95%. FHA officials estimate this change would increase the agency's reserve fund by $300 million a month.

Bank of America has agreed to pay the Federal Trade Commission $108 million to cover foreclosure-related servicing abuses by Countrywide Home Loans, the mega lender/servicer that it purchased almost two years ago. Overall, the settlement will benefit more than 200,000 consumers who were charged excessive fees while facing foreclosure or trying to save their homes from bankruptcy. Countrywide profited from failed loans and "illegally extracted the last dollar out the pockets of the most desperate consumers," FTC chairman Jon Leibowitz said in announcing one of the largest settlements in FTC history. "To have a major servicer like Countrywide piling on illegal and excessive fees is indefensible," he added. B of A bought Countrywide Financial Corp., the parent of CHL, in August 2008 and "took responsibility for fixing the problems," Leibowitz said. "Bank of America did step up to the plate." The FTC worked with bankruptcy trustees to investigate allegations that CHL made inaccurate claims to the courts on the amounts mortgagors owed on their loans. "Countrywide's outdated computer systems made the records incredibly difficult to sort out. But we believe thousands of borrowers in bankruptcy ended up overpaying," the FTC chairman said. He also noted that Countrywide used affiliates to provide default services such as property inspections and lawn mowing, charging excessive fees in the process. "Countrywide's mortgage contracts prohibited these inflated charges but that didn't stop Countrywide from passing on those markups in violation of the FTC Act," Leibowitz said.

Citigroup's plan to shift bad loans to a new division from its U.S. consumer finance business will make the remaining network profitable, said Mary McDowell, CEO of the CitiFinancial unit. Bloomberg reported that the "streamlined" branch network will serve 1.6 million customers and manage $18 billion of loans and other receivables, or about 70% of the current total. McDowell told employees on a June 1 conference call that the network will be profitable when excluding losses on $8 billion of receivables being moved to a new CitiFinancial division specializing in loan modifications, she said. Citigroup is carving up CitiFinancial to attract buyers 17 months after CEO Vikram Pandit tagged it for sale. While results for the Baltimore unit are not disclosed, it is part of Citigroup's local consumer lending group, which had a loss of $10.5 billion last year. Citigroup said June 1 that CitiFinancial also will close 330 U.S. branches and cut 500 to 600 jobs under the strategy. The unit has its roots in Commercial Credit, a consumer finance unit that Citi inherited when it merged with Travelers.

The Mortgage Bankers Association, which took a bath on the sale of its custom designed and environmentally friendly Washington headquarters, has finally moved into new space a few blocks away. At press time the trade group was in the process of completing the move to 1717 Rhode Island Avenue from L Street, allowing employees to work from remote locations on Friday. The new headquarters will officially open on Monday. Earlier this year CoStar Group, a provider of commercial real estate data, bought MBA's 10-story headquarters for $41.3 million. The negotiated sale price was well below the $79 million the trade group paid to construct the building from scratch. The lender on the deal was PNC Bank.

Subprime may have fanned the fire that brought the housing market to its knees, but it wasn't the root cause, a researcher who closely follows the new home sector in 81 metropolitan statistical areas told a gathering of real estate writers. Housing's downfall began in markets with strong growth restrictions, and stumbled from there, Michael Inselmann, president of Metrostudy, Houston, said at the NAREE conference in Austin, Tex. "It didn't start with subprime," Inselmann said. "Subprime added gasoline to the fire, but it was builders' running up against the inability to meet demand" in places like California, Las Vegas and Florida that started the worst nosedive in housing since the 1930s. Inselmann, whose company has its fingers on nearly 70% of the new home market, called artificial, government-invoked growth limits "the unindicted co-conspirator" of the downturn, and said that if governments want to slow growth in their communities, they should tell their local chambers of commerce not to create prosperity. The researcher also told reporters to beware of national housing statistics. "Real estate is a local market," he said. "Every single one is different. There is no such thing as a national market." National sales figures and prices are nothing more than "a roll-up" of local markets, he said, but they are only a statistical number. Metrostudy's database covers housing starts, absorption rates and house and lot inventories.

The South Carolina State Housing Finance and Development Authority next week expects to price $100 million of homeownership revenue bonds in its first issuance under the Treasury Department's New Issue Bond Program. According to a report by the Bond Buyer, the deal includes $60 million of tax-exempt bonds the HFA will convert from short-term, taxable debt bought by the Treasury at the end of 2009. Like other issuers participating in the NIBP, South Carolina needs to convert the debt by the end of this year if it wants to use proceeds to purchase mortgage-backed securities. The deal also includes $40 million of new money tax-exempt bonds that the South Carolina HFA is required to issue to match the Treasury purchase. The bonds will be offered to retail investors Monday and to institutional investors Tuesday. Goldman, Sachs & Co. is lead underwriter, with Barclays Capital and Citigroup Securities. The Bond Buyer is an affiliate of National Mortgage News.

Mortgage servicers completed 104,300 proprietary loan modifications in April, down slightly from 114,900 in the prior month, according to the Hope Now alliance. Meanwhile, the 38 Hope Now servicers and others participating in the Home Affordable Modification Program completed 68,300 permanent HAMP modifications in April, according to newly released figures. The proprietary program allows servicers to be more flexible and help homeowners that don't qualify or fall out of the HAMP program. But it is unclear how they rate in terms of re-defaults. During the first four months of 2010, Hope Now servicers completed 409,800 proprietary modifications, compared to 232,150 under the HAMP program. "Our data continues to show that the industry's comprehensive loan modification efforts are making significant headway," said Faith Schwartz, senior advisor for HOPE NOW. "The total number of modifications, including HAMP, show that more than three million homeowners have received modifications since 2007."

The mortgage market is entering a period of "retrenchment" and a recovery will depend on the growth of the U.S. economy and employment, according to Fannie Mae economists. "Clearly we are entering a period of retrenchment with the expiration of the [homebuyer] tax credits," said Richard Koss, director of mortgage market analysis at Fannie Mae. "It is still a very open question as to how deep and how long that retrenchment is going to be," he added. Fannie's latest forecast shows single-family originations peaking at $361 billion in the second quarter, which will serve as the high point for 2010. For the third and fourth quarters, the GSE predicts that fundings will fall 10% and 9%, respectively. Koss noted the tax credits have drawn sales from the future which will take the wind out of activity for the balance of the year. But he hopes to see a recovery in mortgage applications in the fourth quarter. Over the past five months, private job growth has averaged 125,000 a month, including the May report which shows a disappointing 41,000 increase in private sector jobs. Koss expects to see "modest" job growth going forward and into next year. In the coming months, he believes job growth could average 250,000 to 275,000 new positions a month, which would help the mortgage market.