Servicing

PennyMac Mortgage Investment Trust, a vulture fund that invests in troubled mortgage assets, will release its first-quarter results on Tuesday morning before the opening of the stock market. Since going public almost a year ago the company has yet to turn a profit but has reviewed billions of dollars in delinquent loans for possible purchase. The company is also working on launching a new lending conduit and could be eyeing the jumbo market.

Even though servicers are improving their "cure rates" the housing market is still saddled with 7.4 million delinquent loans, according to a new report from Lender Processing Services. In its latest Mortgage Monitor update, LPS said Florida, Nevada, New Jersey, Arizona, California, Illinois, Indiana and Ohio showed foreclosure inventories at a higher percentage than the average national foreclosure rate of 3.27%. The total U.S. loan delinquency rate was 9.12%. The number of noncurrent loans has declined over the past six months, but 16 states showed an increase in the number of noncurrent loans. The figures represent a snapshot of the market at March 31. Total delinquencies, excluding foreclosures, decreased 10.3% from February to March. However, the total represents a year-over-year increase of 15.7%. States with the most noncurrent loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Illinois, Rhode Island, New Jersey and Michigan.

Buoyed by lower delinquencies, the mortgage insurance division of Genworth Financial lost $36 million in the first quarter, a major improvement from prior periods and a sign that the unit could be on the road to recovery. Genworth reported "increased cures" on its book of business which totals about $130 billion in residential coverage. According to a research note from Sandler O'Neill, the MI unit's results "were driven by a better-than-expected loss ratio of 138% compared to our expectation for 170%. Loan loss mitigation activities resulted in $233 million of savings compared, a little less than our expectation for $250 million. The lower loss ratio and lower loss mitigation levels suggest that the underlying book of business is performing better than we expected." According to figures compiled by National Mortgage News, Genworth ranks fourth in terms of policies-in-force and about the same in new business written. In the first quarter Genworth made a number of changes to its underwriting guidelines, including coverage on higher LTV loans in once-troubled real estate markets. In the fourth quarter Genworth's MI unit lost $74 million. In 1Q09 it lost $135 million. All of Genworth--which includes other insurance divisions--earned $178 million, compared to a loss of $469 million in the same period a year ago.

Wells Fargo Securities said it has expanded its residential mortgage-backed securities unit that previously had limited structuring and distribution capabilities. WFS has been working on expanding the RMBS unit since early this year. The unit is now fully staffed, providing advisory, structuring, research, distribution and trading services to lenders and investors as well as to its own Wells Fargo Home Mortgage unit. Mike Buttner, who previously managed the hedging of Wells Fargo Home Mortgage's servicing rights, loan pipeline and warehouse assets, heads the RMBS unit. In addition to Buttner, key senior executives include Doug Lucas, head of mortgage trading. Lucas most recently ran structured products trading in London for Bear Stearns. Dash Robinson heads residential mortgage finance structuring and lending. Robinson was previously responsible for the execution surveillance and restructuring oversight of Wells Fargo's structured finance transactions.

With more borrowers falling out of the Home Affordable Modification Program, short sales are finally gathering steam. Short sales have skyrocketed in the past two months after overtaking sales of real estate-owned in January, suggesting that the government's Home Affordable Foreclosure Alternatives program kick-started the short-sale market even before going into effect April 5. Roughly 28,000 REO sales were completed in March by seven of the top 10 mortgage servicers, nearly flat from 26,000 in February, according to data provided to American Banker by Equator LLC, a Los Angeles software firm. But 55,000 short sales were done in March, up from 29,500 in February, according to Equator. Christopher Saitta, Equator's chief executive, said it will take the market some time to absorb all the distressed properties, whether they are sold as REOs or in short sales. "I think it's going to take two to three years to get through everything the foreclosure moratoriums and the economy have created," Saitta said.

Capstead Mortgage Corp., a REIT that invests in GSE-backed MBS, is warning that higher prepayments will hit the market in the second and third quarters because of efforts by Fannie Mae to "buy out" delinquent loans from MBS pools. Capstead also believes that government-sponsored loan modifications will play a role in faster prepayment speeds on the securities it buys, possibly putting its earnings under some pressure. Capstead earned $40 million in the first quarter, a slight decline from the same period a year ago. Fannie began its buyouts of delinquent loans from MBS pools in March and will continue the effort in the coming months. By purchasing nonperforming loans out of pools, the GSE avoids forwarding those payments to the ultimate bondholder--a move that can save Fannie money but reduces the bond's yield to the investor. Capstead is publicly traded and monitors prepayments closely.

Even though PHH Corp.'s new CEO says his "transformation initiative" is working, the mortgage banker suffered an earnings decline and lower profit margins in the first quarter. The company had "core earnings" of $13 million in 1Q10 compared to $52 million for the same period in 2009. The performance was driven by a reduction in the mortgage profit margin to 118 basis points from 193 basis points. But CEO and president Jerry Selitto promised investors that PHH has seen the worst of the margin contraction and is confident margins will remain where they are for the rest of the year. The CEO also trumpeted the fact that while mortgage originations at PHH Mortgage fell 12% during the quarter (compared to 1Q09), many top originators suffered 1Q production declines of 30%. He noted that a new private-label client of PHH Mortgage, KeyBank, is adding $1.5 billion of production volume on an annualized basis. PHH's mortgage production unit posted a profit of $25 million, but its servicing division lost $13 million.

Late payments on Freddie Mac-guaranteed mortgages fell to 4.17% in March, the first monthly decline in almost two years and a sign that real estate conditions might finally be improving. A spokesman for the GSE told National Mortgage News that an "uptick in completed loan modifications" and rising short sales were the chief reasons for the improvement. Delinquencies on Freddie's book of business declined 7 basis points from February. A year ago late payments totaled a more benign 2.41%. Even though loan performance improved, secondary market purchases by Freddie from seller/servicers increased slightly to $31 billion in March from February. However, compared to March 2009, loan acquisitions fell by 64%. Based on the first-quarter run-rate, Freddie will buy $384 billion this year compared to $548 billion the year before.

When the Information Solutions Group of First American Corp. becomes a separately traded public company, it will take the name CoreLogic and trade on the New York Stock Exchange under the symbol CLGX. The spin-off is targeted for June 1. The title company will be part of First American Financial Group, which will retain the FAF ticker symbol. The new CoreLogic will encompass more than 20 different business lines, making it larger and more diverse than the entity currently known as First American CoreLogic. Meanwhile, two sets of First American bondholders have approved debt tender offers and consent solicitations. The approvals by those who hold the 5.7% senior notes due 2014 and the 8.5% capital securities due 2012 expressly affirm the spin-off transaction. A third solicitation for the holders of the 7.55% senior debentures due 2028 remains in progress, with 43% tendered so far.

African-American and Hispanic homeowners are more likely to face foreclosure than their white counterparts, according to a study by National Community Reinvestment Coalition. Minority borrowers in the Washington D.C. metropolitan area are "facing foreclosures more often than white borrowers even after controlling for borrower, loan and neighborhood characteristics," the researchers concluded. They also noted that "income has almost no statistical significance" in explaining the likelihood of foreclosure. Hispanic homeowners are almost twice as likely to face foreclosure and African-Americans are 1.18 times more likely than whites to face foreclosure. A recent survey by NCRC discovered that African-American borrowers in loan modification programs went to foreclosure faster than whites. Further research is needed, the study says, to determine if servicers "act more quickly to foreclose" on minority borrowers. The Department of Justice's fair lending unit is said to be reviewing loan modification data provided by servicers participating in the government's Home Affordable Modification Program.