Servicing

While the odds of passage remain strong, the process behind the regulatory reform legislation is increasingly chaotic. Senate Banking Committee Chairman Chris Dodd (D-Conn.) took to the floor late Thursday to beg his colleagues on both sides of the aisle to stop adding more amendments, warning the process is in danger of spinning out of control. In a rare spectacle, Dodd rebuffed another senior retiring Democrat, Sen. Byron Dorgan of North Dakota, and argued his plea to debate yet another amendment was threatening the legislation. "I'll be very candid with my friend from North Dakota, it complicates my job," Dodd said. "They all have amendments they want to bring up. ... We run the risk of losing this bill." This past week, several amendments directly affecting the residential mortgage industry were introduced, including language on risk retention, underwriting standards, yield spread premiums, and reverse mortgages.

Interactive Mortgage Advisors, Denver, is selling a $294 million package of Fannie Mae residential servicing rights. IMA, one of the more active brokers of housing receivables, said delinquencies on the portfolio are 2% with the weighted average note rate at 4.69%. The firm declined to identify the seller. Most of the homes backing the receivables are in Illinois and Texas. Seventeen other states are represented as well. The first round of bidding ends late next week.

NeighborWorks America has teamed with The Advertising Council to create new public service announcements designed to educate consumers in danger of foreclosure where to turn to get help. The aim of the campaign (originally launched in 2007) is to get these distressed homeowners to call the Homeowner's HOPE Hotline. "With an estimated 4 million homeowners at imminent risk of foreclosure this year, there is an urgent need to reach those homeowners and provide them with the information and counseling they need to move forward and make the right decisions," said Ken Wade, chief executive of NeighborWorks America. "It is an increasingly cluttered and confusing marketplace and even though homeowners want to take action, they are unsure of the steps they can take to prevent foreclosure. We are pleased to partner with the Ad Council and Cossette New York on this campaign to provide homeowners with a clear next step - call the HOPE hotline." Cossette New York created the television and radio PSAs pro bono. The PSAs use humor and hyperbole to get the intended target's attention. Bill Oberlander, the chief creative officer at Cossette New York said, "A well balanced message of entertainment and education was used to debunk scammers and well-intentioned, misinformed family members. To get straight talk, go to the Hope Hotline first."

Fannie Mae purchased $83 billion of mortgages during March, a 55% increase from the prior month. Compared to the same period a year ago, the government-controlled entity saw acquisitions fall by 11%. The $83 billion it purchased was its best month since last July. (Like everyone else in the mortgage business, Fannie benefited from the expiring federal tax credit for new homeowners.) During the first three months of the year, Fannie bought $191 billion in mortgages, giving it an annual run-rate of $764 billion. Last year it purchased $823 billion in mortgages but 2009 was a stronger year for loan production. Meanwhile, new figures show that homeowners who refinanced during the first quarter again overwhelmingly chose fixed-rate loans, regardless of whether their original loan had a fixed or adjustable rate. Also, shorter-term mortgages gained some favor, according to research conducted by Freddie Mac. More than 95% of refinanced loans during the quarter were FRMs, as interest rates remained historically low. According to the Quarterly Data Report, a National Mortgage News publication, FRMs accounted for 90% of all originations in the third and fourth quarters of last year.

A total of 103,762 properties received default notices in April, a decrease of 12% from March and down 27% from a year ago, according to RealtyTrac. Even with these substantial drops, the number of properties now part of real estate owned hit a record monthly high for the report with a total of 92,432 properties repossessed by lenders, up 1% from the previous month and up 45% from April 2009. RealtyTrac expects a similar pattern to continue for most of this year "with the overall numbers staying at a high level and ripples of activity hitting the various stages of the foreclosure process as lenders systematically work through the backlog of distressed properties." In total, foreclosure filings were reported on 333,837 properties in April, a 9% decrease from March and down 2% from April 2009. Of this, foreclosure auctions were scheduled on 137,643 properties in April, a decrease of 13% from March. Nevada posted the nation's highest state foreclosure rate for the 40th straight month. A 57% monthly increase in REO activity pushed the state's overall foreclosure activity up 10% from March. Arizona saw a decrease of 15% from the previous month, but the state's foreclosure rate moved from third highest in March to second highest in April thanks to an even bigger decrease in California. The state reported 69,725 properties with a foreclosure filing, although that total was down 25% from March and 28% a year ago. Florida activity was down 18% from the previous month and down 25% from April 2009, but the state still documented the nation's second highest state foreclosure activity total, with 48,384 properties receiving a foreclosure filing during the month. Metro areas in the sand states of Nevada, Florida, California and Arizona continued to account for all of the top 10 foreclosure rates among metropolitan areas with a population of 200,000 or more, but foreclosure activity decreased on a year-over-year basis in nine of those top 10 metros.

The Federal Housing Administration expects the capital ratio of its reserve fund will be higher at yearend than it is today thanks to improving claim rates. FHA commissioner David Stevens told a Senate appropriations subcommittee Thursday morning that the federal mortgage insurance fund will end fiscal 2010 "where we are or higher." According to outside auditors, the MIF had a capital ratio of 0.53% as of Sept. 30, 2009. But the agency has not provided a public update on the MIF cash position in seven months. Stevens told the panel the fund's capital position is in a "stronger position" today than it was last fall but is still far below its 2% statutory minimum capital ratio. Stevens stressed that early default and claim rates on FHA single-family loans have declined 15% since December, which is a "strong indicator that loan quality is improving." However, he noted that actual foreclosures are increasing. He expects 125,000 foreclosures with a 50% loss on each sale. Last year, FHA paid claims on 76,300 foreclosures.

The Senate Thursday evening approved by unanimous consent an amendment that will exempt "qualified mortgages" from the 5% risk retention provisions in the Wall Street reform bill. As approved, the language will ensure the 5% risk retention provision does not obstruct the securitization of the safest mortgages: loans that generally have 20% down payments or carry mortgage insurance. The amendment, sponsored by Senators Mary Landrieu, D-La., Johnny Isakson, R-Ga., and Kay Hagan, D-N.C., instructs federal regulators to exempt low risk, fully documented loans from risk retention. "We commend the Senate for the passage of the Landrieu/Hagan/Isakson amendment that exempts soundly underwritten, stable, consumer friendly mortgages from the risk retention requirements," said Glen Corso, managing director of the Community Mortgage Banking Project. Sen. Isakson supported the qualified mortgage exemption after his effort to strike the risk retention provision from the bill failed. "Risk retention is not the cure-all for good lending-underwriting is," the Georgia lawmaker said. Sen. Landrieu noted the amendment will ensure that applicants with good credit who finance their home the "old fashioned way" will not face higher interest rates due to risk retention. At the same time, the 5% risk retention provision will "eliminate the risk taking we saw in the home mortgage market between 2004 and 2007," Landrieu said.

A new report issued by the National Credit Union Administration on last year's failure of Eastern Financial Florida Credit Union of Florida found that the one-time high-flying CU was brought down by risky investments in derivatives known as collateralized debt obligations, or CDOs, as well as loan losses and other concerns. "Eastern Financial suffered substantial losses in the CDO investments during 2007 and 2008 that, coupled with increasing loan losses and other contributing operating factors, quickly eroded the credit union's net worth and led to its insolvency," said the report, conducted by NCUA's Office of Inspector General. At one time, EFFCU boasted $2.4 billion in assets. To date, its failure is the largest in CU history, according to The Credit Union Journal. The nonprofit was chartered in 1937 to serve employees of Eastern Airlines. Eventually it was acquired in a supervisory merger by Space Coast Credit Union. NCUA says as Eastern's profitability lagged its asset growth, management and the board approved a leverage strategy allowing it to invest in risky investments-specifically CDOs.

While there was some good news in the first quarter results for Triad Guaranty Inc., its deficit in assets related to the runoff of its mortgage insurance business increased to nearly $733 million as of March 31. Ken Jones, president and chief executive, explained this means to meet all of its existing obligations, Triad would have to earn an equal amount during the remaining run-off period. The company had a net loss of $28 million for the first quarter 2010, an improvement over losses of $79 million for the fourth quarter 2009 and $55 million in the first quarter 2009. Jones said Triad's cure rates increased in the first quarter for the first time since the first quarter 2009, attributing it to improved results from the government's loan modification efforts. He added that the first quarter of a year normally sees an improvement in the cure rate, and thus right now "we are unable to determine whether the lower first notices of default and the improved cure rates experienced during the quarter reflect typical seasonality, or whether they mark the beginning of a recovery in the U.S. mortgage and housing markets."

Indicating growing investor interest in commercial deals, bidders rushed to a U.S. Department of Housing and Urban Development auction of $306 million in non-performing multifamily and healthcare HUD loans that generated proceeds equal to almost half their unpaid balance, according to loan sale advisor KDX Ventures. KDX said 67 bidders submitted over 200 individual and pool bids for the 26 assets offered for sale in April. Executives said the 12 winning bids submitted on individual assets generated proceeds of over 48% of unpaid principal balance demonstrating "the pent-up demand and liquidity for commercial real estate assets." According to DebtX CEO Kingsley Greenland, even though over the past two years, investors have amassed a tremendous amount of capital to invest in commercial real estate loans, "there has been only a small amount of product available for sale." KDX is a joint venture between boutique investment banking firm KEMA Advisors, Hillsborough, NC, and international online marketplace, DebtX, Boston.