Servicing

A Miami judge took the extreme action of wiping out the $207,238 mortgage debt of a borrower who was in foreclosure but trying to get a loan modification after HSBC Bank USA ignored a previous court order to post a bond. Miami-Dade Circuit Court Judge Jennifer Bailey cancelled the mortgage debt of a local teacher at a hearing May 6 to determine whether HSBC should be sanctioned for failing to post a $414,000 bond because it had lost the underlying mortgage note. The judge said she hoped to give "a wake-up call" to lawyers handling foreclosure cases that they need to know where the borrower and bank are in the process of loss mitigation. In a contentious exchange with HSBC's lawyers, Judge Bailey lambasted banks for the "chaos and disorganization" that has bombarded courts with foreclosure actions while banks simultaneously pursue loan mods. "Somehow in Foreclosure World everybody thinks that...you can know absolutely nothing about your files and walk in here and ask judges for things left and right without even knowing what's going on." Suzanne Hill, a lawyer who represents Florida Default Law Group in Tampa, the attorneys handling the foreclosure action for HSBC, said it was evaluating whether to appeal or file a motion for a rehearing before the same judge. The Florida Attorney General has identified the Florida Default firm as the subject of a civil investigation.

PennyMac Mortgage Investment Trust is offering a $98 million pool of loans to investors, according to market sources. One bidder who has seen the offering documents said the Calabasas-based vulture fund is marketing the loans as "mostly performing," adding that investors are allowed to buy different portions of the pool. No other details were available at press time. A PennyMac spokesman said the company generally does not discuss its auctions until after a sale actually takes place. He noted that the publicly traded vulture fund and servicer will consider securitizing some of its assets "as a way of exploring leverage" but could not say anything concrete about the matter. PennyMac also is rolling out a conduit to securitize agency quality loans and eventually jumbo mortgages.

Fannie Mae and Freddie Mac seller/servicers will continue to face extra charges called "loan level price adjustments" which compensate the GSEs for buying certain non-vanilla mortgages. Federal Housing Finance Agency acting director Edward DeMarco told a congressional panel that the LLPAs the GSEs charge are periodically reviewed, but gave no indication there would be any coming reductions in these fees. Rather, he told Rep. Scott Garrett, R-N.J., that the mispricing of risk on loans the GSEs bought between 2006 to 2008 landed them in conservatorships that have cost taxpayers $145 billion, and counting. Despite better underwriting, Fannie and Freddie will continue to set their fees to cover expected losses on new loans. The regulator also noted that guarantee fees have been reduced and the performance of the 2009 book of loans is quite good. The current Home Valuation Code of Conduct regulation on appraisals is due to sunset in November. HVCC critics want to see it replaced or abolished, including Rep. Paul Kanjorski, D-Pa., who sponsored appraisal reforms that were incorporated in the House-passed financial services regulatory reform bill. But the FHFA director told Rep. Kanjorski that the HVCC regulation would still apply to Fannie and Freddie seller/servicers after November. FHFA also is reviewing a new practice of including a private real estate transfer tax in sale documents that allows investors to receive a percentage of future sales proceeds. DeMarco said he is "troubled" by this practice and FHFA is reviewing the matter to see if this transfer tax should be banned in Fannie/Freddie transactions.

Mission Capital Advisors is taking bids on what is roughly a $500 million sub- and nonperforming commercial mortgage loan portfolio. Collateral types securing the loans include multifamily, office, student housing, condominiums, marina, industrial, residential and commercial land, medical office and bank stocks. Properties are located in various parts of Florida, Illinois, Wisconsin, Arizona, Colorado, New Jersey, Kansas, Minnesota, Indiana, North Carolina, Nevada, Ohio, Missouri and Virginia. The loan pools are broken down by region with the largest portfolios located in Florida, Illinois and Wisconsin. On behalf of an unidentified seller, Mission Capital is initially soliciting indicative bids on May 27 for the purchase of individual loan pools, any combination of loan pools or the entire portfolio. The top 15 single assets by size range between $8 million and $36 million each and represent 55% of the entire portfolio, for a total balance of about $278 million. Many of the loans have recent appraisals, which will be provided to investors. The sale must be completed prior to quarter end; investors will be required to finalize loan sale agreements prior to the final bid date on June 16.

House prices fell 1% in the first quarter, compared to the previous quarter, and 3.2% from the first quarter of 2009, according to the Standard & Poor's/Case-Shiller 20-city house price index. The HPI released Tuesday also shows that prices on a nonadjusted basis have fallen for the past six months, including 0.5% in March and 0.6% in February. "The housing market may be in better shape than this time last year, but when you look at recent trends there are signs of some renewed weakening in home prices," says David Blitzer, chairman of the S&P index committee. IHS Global Insight economist Patrick Newport said that housing demand is improving due to a better job market and low rates. However, an increase in foreclosures is putting downward pressure on prices. "In our view, the housing glut and foreclosures will drive the national Case-Shiller down another 6%-8% with prices bottoming in 2011," Newport said.

Fannie Mae and Freddie Mac say the declining condition of commercial properties is one of the biggest challenges facing multifamily servicers today. "Our top shared concern is really all about physical risk," said Karyn Sandelman, portfolio services director for Freddie Mac, speaking at an MBA conference in New York. "We have declining cash flows and overextended borrowers and an unwillingness to take care of the real estate." Fannie Mae is conducting onsite inspections to deal with the problem. "We are concerned about the health of our servicers," added Caroline Blakely, vice president, Fannie Mae. Also, so-called watch lists on problem loans are growing in size. Robert Shean, chief operating officer of M&T Realty Corp., listed loan maturity management as a third hot topic for servicers. He says it causes him "a lot of sleepless nights," adding that "balloons [mortgages] are facing their maturity dates. While the flow of maturing loans isn't particularly overwhelming [presently], when you look out over the next few years, we all know we're in for a rough ride." Wells Fargo is trying to be proactive on CRE problems, said Maureen Fitzgerald, senior vice president of the bank. Wells is staffing up while reducing the number of loans per asset manager. The bank also is hiring experienced managers with "more expertise" to handle watch lists. Such employees come at a higher price tag because they are "more mature," Fitzgerald told the conference.

Loan workout efforts conducted by the mortgage insurance business of Genworth Financial saved nearly $3.4 billion in mortgages from foreclosure in the 12 months ending March 31. Its Foreclosure Prevention Scorecard found the leading states for workouts, in order, were California ($347 million), Florida ($342 million), Arizona ($175 million), Texas ($173 million), Illinois ($167 million), Georgia ($164 million), New York ($152 million), New Jersey ($144 million), North Carolina ($122 million) and Maryland ($107 million). Mortgage dollars saved were up more than 81% from the same period last year. During the period, Genworth worked with its lender partners and servicers to complete more than 23,000 mortgage workouts nationwide. Loan modifications (33%), were the leading workout type, followed by the federal government's Home Affordable Modification Program (24%), repayment plans (19%) short sales (18%), and Fannie Mae's Homesaver Advance program (4%). Nationally, eight out of 10 workouts were classified as cures. Genworth's cure rate remains above 80% in 35 of 50 states nationwide.

New home sales jumped 15% in April to the highest level in nearly two years following a 30% surge in March. Most analysts attributed the strong performance to two homebuyer tax credits that hit an expiration deadline recently, saying consumers rushed into contracts, pulling these sales "forward." The U.S. Census Bureau reported that sales of newly constructed homes rose to a seasonally adjusted annual rate of 504,000, compared to a 439,000 rate in March. New home sales rose 48% compared to April 2009. Sales were "driven by looming expiration of the tax credit and cheap, cheap home prices," said Mike Larson of Weiss Research. He noted the median sales price "tanked" by 9.7% in April from the prior month. Barclays Capital analyst Theresa Chen said with the credits now off the table, "Some negative payback is likely in the coming months, but looking through the volatility, the underlying trend should remain mildly positive."

The serious delinquency rate on Freddie Mac guaranteed single-family loans fell for a second consecutive month during April, the first time this has happened since 2007. Although it may be too early to celebrate that the worst of the housing crisis is over, servicers are hopeful that it may be a sign of better times ahead. Freddie reported that in April 4.06% of its one-to-four family loans were 90 days or more past due, down from a reading of 4.13% in March and 4.2% in February. The GSE's monthly activity report also shows a slowdown in refinancing activity and mortgage-backed securities issuance. Freddie purchased $18.4 billion in refinanced loans in April, down from $23.1 billion from the prior month. Meanwhile, MBS issuance fell to $25.1 billion, down from $31 billion in March. Ginnie Mae MBS issuance totaled $32.6 billion in April.

DebtX, Boston, is selling $500 million of mostly commercial real estate loans on behalf of three financial institutions. The first offering consists of $364 million in performing and nonperforming loans with the seller being a Northeastern regional bank. There are two separate bid deadlines on two separate dates. Bids for the first transaction are due June 15 by 2:00 p.m. Eastern. A total of $207 million in loans will be sold, including $76 million of CRE, $57 million of land/acquisition and development, $52 million of commercial and industrial and $22 million of loan participations. Bids for the second transaction are due June 21 by 2:00 p.m. Eastern. A total of $157 million in loans will be sold, including $69 million of CRE, $39 million of C&I, $36 million of land/A&D, $5 million of consumer and an $8 million loan participation. The second seller, an undisclosed bank in the South, is offering $97 million of nonperforming CRE loans for bidding on two separate dates. Both transactions include income-producing properties secured by condominiums and subdivisions throughout the U.S. Bids for the first transaction, which includes $90 million in loans, are due June 3 by 2:00 p.m. Eastern. Bids for the second transaction, which includes $7 million in loans, are due June 16 by 2:00 p.m. Eastern. The third seller, a financial services company in the South, has a portfolio of $39 million of nonperforming CRE loans for sale. The transaction includes loans secured by properties in South Carolina, Florida and Georgia. Bids are due June 8 by 2:00 p.m. Eastern.