Servicing

Stung by increasing credit losses on delinquent home mortgages, Fannie Mae lost $13.1 billion in the first quarter, prompting its regulator to ask the Treasury Department for $8.4 billion in cash to keep the GSE's net worth above zero. A new accounting rule that affects the consolidation onto its balance sheet of 'variable interest entities' added $3.3 billion to its net worth deficit. During the quarter Fannie paid $1.5 billion in dividends on senior preferred stock owned by Treasury. Unlike its cross-town rival Freddie Mac, Fannie saw worsening delinquencies. Its single-family seriously delinquent rate increased to 5.47% at March 31, from 5.38% at year-end. Its credit losses increased to $5.1 billion from $4.1 billion in 4Q. The government controlled mortgage giant noted that it bought $191 billion of loans during the period, $40 billion of which were delinquent loans that came out of its own (existing) securitizations. Fannie also grew its MBS issuance market share to 40.8% in the first quarter from 38.9% in the fourth. With the new request for financial assistance, Fannie Mae's total debt to taxpayers stands at $83.6 billion. Freddie has required roughly $64 billion in aid from the Treasury. Last week Freddie posted a $6.7 billion loss in the first quarter.

Expectations are sinking that big banks can continue to capitalize on their balance-sheet spreads. Net interest margins expanded at most of the nation's biggest banking companies -- all major players in mortgages -- in the first quarter compared with the previous quarter, suggesting banks have found another way to counter continued credit losses. But banks will be hard-pressed to hold on to these healthier spreads amid sluggish loan demand and potentially higher interest rates. "The best they can do over the rest of this year is maintain" margins, said William Fitzpatrick, an analyst at Optique Capital Management, Racine, Wis. He said most of the expansion that took place last quarter likely resulted from aggressive balance-sheet management in recent periods. "Banks will be thrilled if they can keep the margins they have now," he said.

GMAC Inc. may be close to naming a chief financial officer and has considered appointing Barbara Yastine, the former CFO for investment banking at Credit Suisse Group AG and Citigroup Inc., according to a report by Bloomberg. The news service cited "three people with knowledge of the search" but a GMAC spokesman called the story "speculative," adding that it is not making "any management announcements at this time. Jim Mackey continues to serve as interim CFO, and the company continues to move forward with its strategic priorities." Yastine, 50, is considered a prospect because she worked at Citigroup with Michael Carpenter, GMAC's new chief executive. GMAC and its mortgage affiliate both posted a profit in the first quarter. The company is considering its options on Residential Capital Corp., including a possible sale of stock to the public.

Rep. Maxine Waters (D-Calif.) is urging members of the Congressional Black Caucus to withhold their votes on the financial reform bill unless it contains a provision establishing an office of minority assistance within the new Consumer Finance Protection Agency. "If they expect us to vote for it, we've got to be in it, and I'm prepared to do whatever is necessary to make sure we are," Rep. Waters told a mortgage industry diversity conference. The senior-most woman in the House and the senior-most African American, Rep. Waters described situations where minorities are being excluded from participating in the real estate recovery. Minority contractors are not being hired in sufficient numbers to rehab foreclosed properties and minority realty brokers are being denied listings to sell them, she said at the Mortgage Lending Industry Strategic Markets and Diversity Conference at the Gaylord National Resort on the Maryland side of the Potomac River. "It's unfair, unjust and I'm going to make it right," she said. "I'm focused like a laser beam on this issue." The 10-term Congresswoman from South Central Los Angeles said every federal regulator should have a minority assistance office. "Whether it's the Treasury or the FDIC or the Fed, minorities are not there in the numbers they should be," she said. Rep. Waters, who chairs the House Subcommittee on Housing and Community Opportunity and is often described as the most powerful woman in politics today, also told the meeting that she is so "disappointed" with the inability of mortgage servicers to modify troubled borrowers' loans that she believes the entire servicing business is in need of reform.

Industry veteran Rudy Orman has resigned as vice president of Marathon Asset Management, a New York-based private equity fund that invests in distressed residential whole loans and mortgage-backed securities. At press time Orman and officials at Marathon declined to comment on the situation. His departure became official on Friday. Two weeks ago National Mortgage News reported that an affiliate of Marathon was selling about $90 million in distressed whole loans. During his career in mortgages Orman has worked as a vice president at Goldman Sachs & Co. and at lending firms as well. In a statement Orman would only say that he will become a director and senior vice president of business development at Residential Credit Solutions.

An Ohio man facing eviction from his foreclosed home has gone to extreme lengths to call attention to his plight and that of other homeowners in distress. A few days ago Keith Sadler and five activist friends locked themselves inside his Toledo-area home and are refusing to leave until a moratorium on foreclosures is declared in Wood County, Ohio. "We tried working all these avenues, and we feel like the system is geared toward the banks and not the people, so we felt we needed to take matters into our own hands," Sadler told American Banker. "The only other option for them is to come in and drag us out." Sadler's two-bedroom, one-bath home in Stony Ridge, which is just outside Toledo, was sold to the owner of the mortgage, State Bank and Trust Co., in a January sheriff's sale for $33,333, according to the Wood County sheriff's office. Sheriff Mark Wasylyshyn said he has a court order to hand the house over to the bank, a subsidiary of $653 million-asset Rurban Financial Corp. of Defiance, Ohio. Wasylyshyn said he plans to execute the order but would not say when. Wasylyshyn said he gave Sadler plenty of time to move out and that he had agreed to leave the property by midnight Sunday. "I'm just disappointed in him that he gave me his word that he was going to move out and he didn't," the sheriff said. If Sadler leaves the property without incident, he will not be arrested. However, if he refuses to leave, he will face arrest, the sheriff said. Sadler, a co-founder of the Toledo Foreclosure Defense League, said he and the others in the house are prepared to stay for as long as is necessary.

Clear Capital reports a slowdown in both home price gains and real estate owned saturation rates in April suggesting price trends are only in part dependent on distressed sale volume and "re-enforcing the need to understand local markets." The company's Home Data Index Market Report shows U.S. home prices dropped 5% in April, marking an additional 1.1% decline nationally compared to March. The increase in the nation's real estate owned saturation rate slowed down in April, rising less than one percentage point to 29.6%. Analysts note that while REO saturation rates averaged over 33% during the last quarter, the country's highest performing metro areas saw "relatively flat" prices, a trend that was different from lowest performing areas where REO saturation rates were much lower and prices declined 11.1%. "This paradox" suggests that price trends are not wholly dependent on distressed sale volumes, Clear Capital said. HDI also shows "a marked slowdown in the rate of decline" compared to a 3.9% drop compared to February data and "steady" year-over-year price gains at 5.1% in all four regions. It warns however that the decline is "sufficient enough to halt" the recent growth in year-over-year gains for the center regions of the nation.

Freddie Mac lost $6.7 billion in the first quarter, and after accounting changes tied to guarantees issued on off-balance sheet instruments, saw its net worth plunge by $14.9 billion. With its net worth now clearly in the red (by $10.5 billion) the government controlled mortgage giant is asking the Treasury Department for $10.6 billion in aid. The government's policy is to keep both Freddie Mac and Fannie Mae in a positive net worth position, a move designed to assure investors that the bonds they issue are safe investments. The large drop in Freddie's net worth was caused by an accounting change that forced the company to add $1.5 trillion of assets and liabilities to its consolidated balance sheet, which in turn caused its net worth to plunge. (Fannie Mae, which soon will release its 1Q results, is facing a similar problem.) Although Freddie's loss and decline in net worth was indeed bad news, there were some positives in its report. The GSE established credit reserves of $5.4 billion in 1Q, down from $7 billion in the prior quarter. It also reported lower delinquencies on its single-family loans: 4.13% at March 31, compared to 4.2% at the end of February. Freddie's chief financial officer Ross Kari said its 1Q results "were driven significantly" by the Financial Accounting Standards Board-promulgated changes. He added that the firm is seeing some signs of "modest stabilization" in housing. If Treasury grants Freddie's request for new capital, the government's investment in the GSE will increase to $62.3 billion.

Invesco Mortgage Capital has completed its public offering of 900,000 shares of common stock, raising $187 million -- cash that will be used for mortgage-related investments. Using leverage, the REIT will purchase loans and residential and commercial mortgage-backed securities. The real estate investment trust also plans to use the net proceeds for general corporate purposes. Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Inc. acted as joint book-running managers for the offering. Keefe Bruyette & Woods, Inc., Stifel, Nicolaus & Company, Incorporated and JMP Securities LLC served as co-managers.

State regulators have issued a cease and desist order against Bay Gulf Credit Union of Florida, forcing the one-time $217 million credit union that has been hit hard by the region's real estate bust to boost its allowance for loan losses. William DeMare, president of Bay Gulf, said the main focus of the supervisory order revolved around a disagreement on ALL calculation on loan modifications, especially with respect to debt restructuring in one of the most troubled real estate markets in the country. As a result, Bay Gulf added $850,000 to its ALL in December and restated its 2009 financials to show a $2.1 million loss for the year. "It's just huge," DeMare told the Credit Union Journal. "Our allowance for loan losses account is just such so significant in terms of the amount of our loans." The supervisory order cites Bay Gulf for operating without adequate polices for accounting for troubled debt restructures and loan modifications. Bay Gulf, which reported an $823,706 loss for the first quarter of 2010, has modified about 700 loans, according to DeMare. Of those 66% are still active, 14% have been paid off and 20% have been charged off. CUJ is an NMN affiliate.