Servicing

Fannie Mae economists expect the second quarter will be the high point for single-family originations this year before fundings fall below the $300 billion mark in the fourth quarter. Fannie chief economist Doug Duncan estimates originations will hit $361 billion in the second quarter boosted by the homebuyer tax credit and low mortgage rates. With rising rates, loan production will drift down to $324 billion in the third quarter and fall to $294 billion in the fourth. "We expect purchase originations to increase and refinance originations to drop off sharply," Duncan says. His forecast calls for refinancings to drop from 45% of originations in the second quarter to 36% on the third quarter and 37% in the fourth quarter. Meanwhile, total home sales will rise from 5.5 million in the first quarter to 6.01 million in the year-end quarter. "The pace of employment growth and confidence in the labor market will be key factors for a pickup in home sales by the end of the year," Duncan said.

With rumors mounting that some USDA offices are running out of money to fund its single-family insurance program, a Senate committee has included a premium increase for the Rural Housing Service in an emergency supplemental appropriations bill. Lenders that fund home mortgages in rural areas hope the measure will pass, placing the RHS program back on solid financial footing. The RHS provision, sponsored by Sen. Michael Bennet, D-Colo., allows the agency to increase its current 2% upfront premium to 3.5%, making the insurance program self-funding and removing it from the congressional appropriations process. The House passed a separate RHS reform bill, sponsored by Rep. Paul Kanjorski, D-Pa., that raises the upfront premium to 4%. House and Senate appropriators want to pass the emergency supplemental before Congress adjourns for the Memorial Day recess. Meanwhile, the Agriculture Department is being tightlipped about the funding status of the RHS program, frustrating many lenders that use it. It's believed the agency has exhausted its loan commitment authority, a belief shared by the Mortgage Bankers Association. "This is affecting independent mortgage bankers," said Tamara King, MBA's director of loan production. Even though the program may have run out of money, RHS has issued "conditional" commitments to some lenders. RHS officials have not responded to numerous requests by this newspaper for information about the status of the lending program.

The former servicing manager of U.S. Mortgage Corp./CU National Mortgage has pleaded guilty to conspiring to defraud credit unions and Fannie Mae in the $140 million mortgage scandal. Leroy Hayden, 47, was convicted of conspiracy to assist U.S. Mortgage/CU National president Michael McGrath in his scheme to fraudulently sell Fannie Mae mortgages that the company was servicing on behalf of credit unions. "Frauds of this magnitude don't happen without someone to cook the books and push the paper," said U.S. Attorney Paul Fishman of Newark, N.J. "Leroy Hayden had to decide whether to go along with his boss' fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice." Hayden told authorities he provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions' portfolios, and falsified records, at McGrath's direction, to conceal these fraudulent sales. Hayden also admitted that he modified data in U.S. Mortgage's servicing system to help carry out the scheme. As many as 28 credit unions in the Mid Atlantic states stand to lose as much as $125 million in the case and are frantically negotiating with Fannie Mae for the return of their mortgages. Several of the credit unions are also in litigation with their insurer, CUNA Mutual Group's CUMIS Insurance Society over coverage of the fraud. McGrath pleaded guilty last June and is scheduled to be sentenced in July.

Foreclosure filings in California fell in April for the first time since the beginning of this year, according to a report from ForeclosureRadar.com. Notices of default were down 16% from March and 41% from April a year ago. Notices of trustee sales dropped 10% from the previous month and 3% from March, 2009, according to a report in The Orange County Register. But though filings declined, the number of properties in preforeclosure or scheduled for auctions dropped just slightly as the dip in filings was offset by an increase in the time to foreclose, said Sean O'Toole, CEO of ForeclosureRadar. Cancellations of foreclosure auctions, or trustee sales, also continue to climb, up more than 32% from the beginning of 2010. "The steady rise in cancellations leads us to believe that loan modifications and short sales are gaining traction," he said. "I'd caution, however, that cancellations also occur due to filing errors and extended postponements, which require the Notice of Trustee Sale to be re-filed. In fact, 14.6% of new Notice of Trustee filings in April were on previously cancelled foreclosures." In general, California, historically, accounts for 15% to 20% of the origination market.

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.