Servicing

Members of the Federal Reserve's monetary policy committee are concerned the recovery in the housing market has "stalled," according to minutes of its April 28 meeting. Federal Open Market Committee members noted that home prices have stabilized in many parts of the U.S. and in some areas are rising. However, certain members see "elevated foreclosures as posing a downside risk to home prices," according to the transcript. The FOMC minutes reveal that members discussed the Fed's $1.25 trillion MBS purchase program which ended, as planned, on March 31. The discussion centered on when the central bank should begin the sale of MBS as well as the pace of those sales. There was a wide range of views and no decisions were made concerning a strategy. For now, the Fed will continue to allow its MBS portfolio to run off.

The California Association of Realtors is trying to drum up support for a bill in the state legislature that would ban deficiency judgments on refinancings. Most states place some limit on lenders' ability to go after borrowers if the sale of a home does not satisfy the entire mortgage balance. In California, for example, the lender cannot pursue a deficiency judgment if the loan was taken out to buy the home. But the Golden State does not currently extend that protection to refis. And most defaulted borrowers "have no idea they are personally liable" for the full value of the mortgage even after the bank has repossessed their property, Steve Goddard, the real estate agent group's president, said in a press release issued Tuesday. Of course, the trade group may have ulterior motives for backing the bill sponsored by Sen. Ellen Corbett, a Democrat from San Leandro. After all, the prospect of a deficiency judgment hanging over their heads might deter homeowners from giving up their homes through a short sale or strategic default. And right now, distressed sales make up a sizable chunk of the market. Foreclosure sales alone accounted for 36.4% of California home resales in April (though this figure was down from an all-time high of 56.7% in February 2009), according to MDA DataQuick. The trade group did not return a call seeking comment by press time. Deficiency judgments in residential foreclosures are rare. Most foreclosures in California occur under a deed of trust (not a judicial foreclosure), in which there is no liability for a deficiency, lawyers said. But if that were to change and lenders became more aggressive about collecting leftover debts, deficiency judgments could pose a threat to agents' commissions as well as borrowers' peace of mind.

Nine mortgage industry groups along with the U.S. Chamber of Commerce are urging the Department of Labor to reconsider and withdraw its recent ruling that requires residential lenders to pay overtime to certain loan officers. "The interpretation constitutes a sharp break from existing law that will result in both very considerable costs to, and adverse effects on, employers and employees alike," the industry groups say in a letter to DOL's director of Wage and Hour Division. On March 24, DOL issued an interpretation that requires lenders to pay overtime to retail loan officers that work in an office. There are currently 110,000 retail mortgage loan officers and they are "well compensated by commissions and frequently work irregular hours," the May 19 letter states. The trade groups contend DOL made the new interpretation without notice and it represents a "sharp break" with the department's 2004 interpretation. "The interpretation should be withdrawn and the department should embark on a new rulemaking with notice and comment if it wishes to change policy or implement new requirements in this area," the joint letter says.

Banks and thrifts posted their best earnings in two years during the first quarter due to an improvement in mortgage buybacks and lower loan losses, according to new figures compiled by the Federal Deposit Insurance Corp. A key contributor to the bottom line was a steep, 50% drop in mortgage buybacks from the first to the fourth quarter. Overall, banks and thrifts repurchased $9.3 billion of home mortgages, after being slapped with claims from secondary market investors including Fannie Mae and Freddie Mac. Net charge-offs on residential and construction loans both declined in the first quarter, a sign that charge-offs may be peaking. Overall, the industry earned $18 billion. FDIC-insured institutions charged off $13.5 billion of one-to-four family loans, down 13% from fourth quarter. However, the serious delinquency rate rose to 7.98%, up 57 basis points from the previous quarter. Part of the rise may be due to banks shrinking their holdings of residential mortgage loans and loan modification efforts. On construction loans, the percentage of loans 90 days or more past due fell to 22.8% in the first quarter, down nearly 300 bps. But net charge-offs totaled $1.7 billion down from $2.5 billion in the previous quarter.

Sovereign Bank and M&T Bank Corp.--two midsized players in mortgages--have ended their merger talks, according to combined news reports. A report by Dow Jones said the two banks were in advanced merger discussions in recent weeks. The deal would have catapulted Sovereign's owner--Spain's Banco Santander SA--into the upper ranks of U.S. banking along with such other foreign banks as HSBC and ING. Sovereign is also an active player in providing warehouse credit to nonbank mortgage firms. According to figures compiled by National Mortgage News and the Quarterly Data Report, Sovereign ranks 25th nationwide among residential funders, M&T 28th.

Impac Mortgage Holdings said its real estate and mortgage services unit earned $1.3 million in the first quarter from an array of vendor activities, including loss mitigation and REO services. In a new filing with the Securities and Exchange Commission, the Irvine, Calif.-based nonbank notes that it would like to begin funding loans again but remains relegated to being a loan broker only. (In the filing it provides no volume figures.) It also reveals that most of its revenue stems from services performed on its own portfolio. A former alt-A lender, Impac is trying to reinvent itself in a variety of field and REO services. Its stock recently began trading on the American Stock Exchange after being on the OTS pink sheets.

An increase in distressed sales later this year will drag home prices down before the market hits bottom in the first half of 2011, according to Moody's Economy.com chief economist Mark Zandi. The West Chester, Pa., forecasting firm expects prices will fall 5% from the start of this year into 2011, based on the Standard & Poor's/Case-Shiller house price index. A key statistic for housing prices is the proportion of distressed sales to nondistressed sales. If foreclosure and short sales are increasing, "house prices will fall," Zandi told the National Association of Home Builders at its construction forecast conference on Tuesday. "We will see the number of problem loans going into foreclosure or short sales increase later this year," he said. He noted that 4.3 million first mortgages are 90 days or more past due and likely will default. The Treasury Department this week reported that 122,500 borrowers in trial loan modifications dropped out of the HAMP program in April. Economy.com forecasters expect 1.89 million foreclosure and short sales this year, down slightly from 1.97 million in 2009.

Residential delinquencies climbed to yet another new high at March 31 with 10.06% of all mortgagors behind on their payments, according to new figures released by the Mortgage Bankers Association. According to calculations made by National Mortgage News using MBA's findings, that means $1 trillion in both first and second liens are now in arrears. Compared to the same period a year ago, late payments rose 10%. Late payments worsened in all delinquency categories, but there was a slight respite in the "seriously delinquent" bucket which includes loans that are 90 days or more late or in foreclosure. The trade group found that 9.54% of all mortgages were seriously delinquent at March 31, a slight improvement from the 9.67% number recorded at yearend. At March 31, 2009, 7.24% of all loans were seriously delinquent.

Bank of America completed more permanent HAMP loan modifications in April than CitiMortgage, JPMorgan Chase, and Wells Fargo & Co. combined. A new tally of the Home Affordable Modification Program released by the Treasury Department shows that B of A completed 23,500 HAMP modifications, compared to 8050 for Chase, 6100 for CitiMortgage and 6080 by Wells Fargo. Overall, HAMP servicers completed 68,300 permanent modifications in April, compared to 60,600 in the previous month. Roughly 97,000 permanent modifications are pending that have not yet been signed by borrowers. Over the past several quarters, Treasury has pressured servicers to expedite the approval process which has dramatically forced more homeowners out of the payment trials. Overall, 277,640 borrowers have dropped out of the HAMP payment trials, including 122,170 in April. Herb Allison, Treasury Assistant Secretary for Financial Stability, noted that many of the trials were started based on the borrower's stated income -- but servicers have had a hard time verifying such information. Now HAMP servicers are requiring borrowers to verify their income upfront before starting the three-month payment trials. "We expect a much lower rate of cancellations going forward," Allison said. The Association of Mortgage Investors noted that the number of homeowners who have failed a trial modification is nearly as large as the 295,350 active permanent modifications. AMI has been critical of the HAMP's reliance on interest rate and term modifications. It supports Treasury's new emphasis on principal reductions of first and second mortgages.

Fidelity National Information Services, which manages the largest residential servicing bureau in the nation, confirmed that buyout talks with Blackstone Group and two of its partners have ended. A leveraged buyout for the payment processing company could have reached $15 billion. The consortium bidding for FNIS pulled out because of a disagreement over price, according to combined press reports. FNIS' servicing platform has a market share approaching 70%, according to past research conducted by National Mortgage News and MortgageStats.com. The publicly traded FNIS, which was spun off by Fidelity National Financial, the title insurance giant, saw its share price fall 5% Tuesday to $27.50.