Servicing

The 30-day delinquency rate on securitized multifamily mortgages fell slightly in April after a 332 basis point spike in March due to the default of the Stuyvesant Town and Peter Cooper Village project in Manhattan. In April, the delinquency rate on securitized multifamily mortgages fell 13 bps to 13.06%. It is the first decline in the multifamily rate since May 2009, according to a Trepp LLC report. The New York firm tracks the performance of commercial mortgage-backed securities. Overall, the 30-day or more past-due rate on CMBS rose 41 bps to 8.02% in April, up from 2.45% a year ago. This marks the first time ever that CMBS delinquencies hit or surpassed 8%, according to Trepp. Office delinquencies rose the most (64 bp) in April followed by retail (41 bp).

Mortgage vulture fund PennyMac Mortgage Investment Trust earned $1.3 million in the first quarter and reported that it's beginning to see more activity in the nonperforming loan market. A publicly traded REIT, the firm said it bought five mostly nonperforming loan portfolios during the quarter. The pools were valued at $115 million based on unpaid principal balances of $208 million. The firm said in early April it agreed to purchase a $141 million pool of nonperformers for $71 million. Company CEO Stan Kurland said, "Market activity for non-performing whole loans accelerated throughout the first quarter, and continues to accelerate into the second quarter of 2010." Meanwhile, the company said it is beginning to gear up its lending conduit by purchasing loans from small and mid-sized banks. The product is then delivered to Fannie Mae and Freddie Mac for securitization. A spokesman noted that, "We're looking at prime agency paper" but added that jumbo lending will be a "natural progression" for the firm.

Mortgage insurer Radian Group posted a first quarter loss of $310 million but signaled its intention to move forward with a $550 million public stock offering. At press time its shares were down 10% to $13.11 with other MI stocks trading down as well. The nation's third largest MI company (in terms of new coverage written) noted that it completed the sale of its remaining equity interest in Sherman Financial, a consumer asset and servicing firm. However, the impact of the sale, which is expected to result in a pre-tax gain of about $70 million, will be reflected in Radian's second-quarter results. The mortgage insurance business at Radian lost $237 million for the first quarter of 2010, compared with a loss of $89 million one year prior. Despite the loss, there was positive news: for the first time in nearly four years Radian had fewer delinquent loans at the end of the quarter compared with the start of the quarter. As of March 31, Radian's book-of-business had delinquencies of 143,914 loans underwritten through the primary channel in default -- or 17.64% of its portfolio. Radian expects to end 2010 with fewer delinquent loans than in 2009.

The Obama administration's bank tax proposal could curtail borrowings from the Federal Home Loan Bank system by large depositories and reduce mortgage liquidity for member institutions, according to the American Bankers Association. The administration's proposal would impose a tax on financial institutions with more than $50 billion in assets --but only for firms that were eligible for emergency assistance programs such as the Troubled Asset Relief Program. ABA chief economist James Chessen told the Senate Finance Committee the 15 basis point tax on non-deposit liabilities (including FHLBank advances) would increase the costs of large banks borrowing from the system, and reduce demand for FHLB advances. This has "important implications for the financial stability" of the 12 regional banks and "could lead to a downward spiral" with fewer advances being made, he warned. The trade group is concerned that members will reduce their holdings of the FHLB stock required to borrow, thus shrinking the system and its ability to provide liquidity to all members. Treasury secretary Timothy Geithner said the bank tax could raise $117 billion over 10 years to cover the government's cost of the financial crisis. He stressed the tax will not affect 99% of depository institutions.

A quarterly survey by two Chicago professors shows a dramatic increase in the number of "strategic defaults" where an underwater homeowner willingly defaults on his mortgage even though he can afford to make the payments. An estimated 31% of foreclosures involved strategic defaults in March, compared to 22% a year ago, according to the Chicago Booth/Kellogg School Financial Trust Index. The survey is conducted by professors Paolo Sapienza of the Kellogg School of Management, and Luigi Zingales of the University of Chicago Booth School of Business. They said the likelihood of strategic default increases by 23% if a homeowner discovers that a neighbor with negative equity received loan forgiveness from their servicer. The likelihood increases to 29% if homeowners can find alternative financing for a new home. The survey found that 56% of homeowners do not believe that lenders will come after them if they walk away from their home. "With more and more homeowners believing that lenders are failing to pursue those who default on their mortgage, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford the payments," Sapienza said.

Fannie Mae has set new standards for purchasing and securitizing adjustable-rate mortgage products with the aim of ensuring consumers who hold them can sustain their payments beyond the loans' initial interest rate periods. The new standards require ARMs with initial interest rate periods of five years or less to be qualified at the greater of the note rate plus 2% or the fully indexed rate (index plus margin). In addition, qualification criteria for interest-only loans will change such that the maximum loan-to-value ratio cannot exceed 70%, the borrower's credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after closing. Balloon loans, which generally are characterized by lower initial interest rates and a significant balance due at maturity, will no longer be eligible unless they receive special approval. All loans not meeting the new guidelines have to be purchased as whole loans on or before Aug. 31 or delivered into mortgage-backed securities pools with issue dates on or before Aug. 1.

For the second consecutive month, members of the Mortgage Insurance Cos. of America reported more primary insurance cures than defaults for March 2010. Mortgage insurers had 77,909 cures and 63,126 defaults for a ratio of 123.4%. This compares with 80,758 cures and 68,675 defaults in February for a ratio of 117.6% and 69,931 cures and 84,042 defaults for a ratio of 83.2% in March 2009. March was also the best month of the first quarter 2010 in terms of both applications received and dollar volume of primary new insurance written. Including policies written for loans refinanced in the HARP program, MICA members had $4.5 billion written in the traditional channel and $400,000 in the bulk channel, vs. $3.6 billion total in February and $9.8 billion in the traditional channel and $9.7 million in the bulk channel in March 2009. Primary insurance in force continues to decline, going from $844.4 billion in February to $828.6 billion in March. There was $1.8 million of new pool risk written in March; total pool risk in force at the end of the first quarter was $7.4 billion.

Federal Housing Administration veteran Meg Burns has departed HUD to manage the Federal Housing Finance Agency's newly restructured Office of Congressional Affairs and Communications. A career FHA official, Burns was senior advisor to former FHA commissioner Brian Montgomery and was generally considered the second in command there. The new FHA commissioner brought in Vicki Bott, a Wells Fargo Home Loan executive, to fill that role. On May 10, Burns will join FHFA, as the senior associate director for congressional affairs and communications. FHFA oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks-which Congress will move to restructure next year. Peter Brereton will continue to be responsible for congressional affairs and Mary Ellen Taylor will be responsible for interagency relations and media communications. During her career at the Department of Housing and Urban Development, Burns worked at the former HUD Office of GSE Oversight.

After several quarters of horrendous losses, GMAC's residential mortgage division posted a small profit in the first quarter, attributing the turnaround to improved servicing revenue and lower loan losses and buyback costs. Residential Capital Corp., the nation's fourth largest funder of home mortgages, earned $110 million compared to a loss of almost $1 billion in the same period a year ago. The mortgage division is continuing to dispose of delinquent assets, though like most sellers, is not revealing much information about the buyers of such loans. During a conference call on Monday the company said it is contemplating an initial public offering to help the car and home lender repay some of its $17.3 billion of federal bailout funds. GMAC chief executive, Michael Carpenter, said he plans to meet with Treasury Department officials Tuesday to discuss several matters "which may well include an IPO [to] allow us to repay [the] Treasury in a reasonable period of time." The government has a 56% stake in GMAC. ResCap originated $13.3 billion of home mortgages during 1Q, a 26% decline from 4Q. Compared to 1Q 09, production was relatively flat. GMAC has retained Goldman Sachs & Co. as its advisor.

The completion of the PMI Group Inc.'s sale of common stock and senior notes has contributed enough proceeds to bring the Walnut Creek, Calif.-based company's primary mortgage insurance underwriter back into compliance with the risk-to-capital ratio and minimum policyholders' position requirements some states have. The transactions netted $706 million, of which $586 million went to PMI Mortgage Insurance Co. This had the effect of reducing the company's risk-to-capital ratio on a pro forma basis as of March 31 to 13.4:1. In its first quarter earnings release, the company gave a preliminary risk-to-capital ratio figure of 26.6:1 for the subsidiary, above the 25:1 requirement a number of states have. However because the capital raise took place after that date, this is not being reflected in PMI Mortgage Insurance Co.'s balance sheet, policyholders' position or risk-to-capital ratio for the first quarter statutory filing. Steve Smith, chairman and chief executive noted that this means the PMI Mortgage Insurance Co. is able to continue writing new policies in all 50 states and the company won't have to turn to a reactivated subsidiary to write policies in states with a risk-to-capital or related requirement.