Servicing

A Supreme Court decision could make it easier for consumers to sue collectors for sending erroneous collection notices. The high court, in a 7-2 opinion Wednesday, ruled that collectors cannot protect themselves from such lawsuits simply by stating they made a legal error when sending a notice. At issue were the actions of an Ohio law firm, Carlisle, McNellie, Rini, Kramer & Ulrich Co., that mistakenly started foreclosure proceedings on behalf of Countrywide Home Loans Inc. A homeowner later sued the law firm, arguing that it violated the Fair Debt Collection Practices Act by contending in the foreclosure suit that her alleged debt would be assumed to be valid unless she contested it in writing. The case will return to a lower court.

First American Corp. is buying Experian Information Solutions' 20% stake in First American Real Estate Solutions LLC for $314 million. First American, Santa Ana, Calif., is exercising a purchase option it holds. The deal will close at yearend. "Experian has been a valued partner in the FARES joint venture and we look forward to furthering our working relationship with them in the coming years," said Parker Kennedy, chairman and chief executive of First American. "Our exercising of the purchase option, combined with our previously announced transactions for the non-controlling interests in First Advantage Corp. and First American CoreLogic, provide us with control over substantially all of our assets as well as provide the Information Solutions Group with increased financial and operational flexibility as it prepares to be a stand-alone public company."

FCI Lender Services of California, the largest servicer of privately held real estate notes, has launched a new online trading platform designed to match sellers of distressed mortgages with buyers. Company EVP Gordon Albrecht said the site -- dubbed FCI Exchange LLC -- is now operational. "Right now we have 2,500 loans, with about $470 million in principal up there," he said. FCI joins such existing online platforms as BigBidder.com and LoanExchange.com as sites where buyers can hunt for product. "Ours is a trading platform, not an auction site," Albrecht cautioned. "We're the first trading platform run by an actual servicer of loans." Websites that cater to loan trading -- be it nonperforming notes or not -- tend to be marketing tools as opposed to a place where trades actually take place. "The problem with most of these websites is that after you make a bid you need a lot of handholding and that occurs offline, not online," said one investor who has used both LoanExchange and BigBidder. FCI said it will not charge firms to list their loans and will only get paid if an NPL trades, a strategy used by the other two.

The Treasury Department is threatening to deny or even claw back incentive payments to mortgage servicers that are not modifying loans, according to the administration's guidelines. The department would not say how many servicers have broken the rules, let alone which ones. But consumer advocates say noncompliance is rampant in the Home Affordable Modification Program. They have documented cases in which servicers wrongly denied modifications or foreclosed before reviewing a borrower for HAMP. The program is voluntary, so withholding or taking back the incentive payments is the biggest club the Treasury holds over servicers. It pays $1,000 for each completed permanent modification for a delinquent borrower and $500 for each mod given to a current borrower. So far, servicer payments have totaled $68.4 million. (A total of 109 servicers are participating in the program.) At a meeting two weeks ago with consumer advocates and Freddie Mac, the department's compliance agent for HAMP, a Treasury official said the government had privately rebuked "four to six" servicers for "systemic noncompliance" with HAMP guidelines, according to three people who were in the room. "Everyone asked, 'How come we haven't heard about this?' " said Andrew Jakabovics, an associate director for housing and economics at the Center for American Progress. The Treasury has "been doing compliance checks, and they've found systemic problems," he said, "but we don't know what actions have been taken to fix the problems or even if they are working on it."

The Private National Mortgage Acceptance Co. has named former Bank of America executive Steve Bailey as its chief servicing officer, effective immediately. In his new role, Bailey will oversee all mortgage servicing activities at PennyMac Loan Services, the servicing arm of PNMAC and its publicly traded vulture fund parent, Penny Mac Mortgage Investment Trust, Calabasas, Calif. At B of A he oversaw about $2 trillion in receivables. At Penny Mac he will oversee about $2 billion, a figure the company hopes to grow. However, the company hopes to enter the origination market shortly through a new conduit operation. To date, the firm has said little publicly about its conduit plans.

A proper reading of the Standard & Poor's/Case-Shiller 20-city house price index shows that home prices have declined by 0.7% over the past 12 months ending in January. The S&P index committee is advising users of the Case-Shiller HPI not to rely on the seasonally adjusted numbers. "After reviewing the data, the S&P Case-Shiller HPI committee believes that at the present time the unadjusted series is the more reliable indictor of U.S. housing trends," the committee said. In the last 20-city HPI report, prices fell by 0.4% in January, following a decline of 0.2% in December. Prices were up 0.3% in November. On a seasonally adjusted basis, values rose 0.3% in January and then a similar amount in December, which has been highlighted in many news reports. One independent economist said that large inventories of foreclosures and unsold and vacant houses on the market outweighs any seasonal effects. Few housing and mortgage analysts believe there will be any significant improvement in home prices until next year at the earliest.

First American CoreLogic, a provider of advanced property and ownership information, analytics and services, is partnering with The Prieston Group to offer a comprehensive fraud prevention and insurance solution to mortgage lenders. The solution combines First American CoreLogic's pattern-recognition fraud tool with TPG's risk management services, indemnity programs and training. Through this partnership, TPG will help lenders establish business rules and guidelines and employ the First American CoreLogic LoanSafe Fraud Manager tool to enforce those policies in the lender's daily operations. Lenders who use this joint solution will be insured against fraud losses by Lloyd's of London, which has a special relationship with TPG. The anti-fraud tool integrates patented pattern-recognition technology with a national property and fraud database. Tim Grace, senior vice president of fraud solutions at First American CoreLogic, said fraud is a $13 billion problem for the lending and investor communities. "This partnership will help lenders focus on best practices, products and processes and provide enterprise- and loan-level metrics to measure results. Our new joint effort will improve loan quality and rebuild confidence levels among lenders and investors," added Arthur Prieston, TPG's chairman.

Loan defaults will continue to escalate for United States commercial mortgage-backed securities, with the overall rate to exceed 11% among Fitch-rated deals by the end of the year, according to Fitch Ratings. New CMBS loan defaults increased more than five-fold last year (1,464 conduit loans totaling $17.75 billion), with 34% taking place in the fourth quarter alone. "Fourth-quarter default rates reached their highest ever levels both in principal balance and number of loans with no clear signs of stabilization," said managing director Mary MacNeill. In fact, 2009 defaults on their own surpassed the cumulative number from the inception of the CMBS market through 2008 ($17.74 billion). Another area of concern is large loan defaults, which increased dramatically last year. In 2009, 56 loans over $50 million in size defaulted compared to just five in 2008. Not surprisingly, most of the defaulted loans came from 2006-2008 vintages. Retail was the property type with the most new defaults at 32.3% last year. It was followed by former category leader multifamily at 22.1% new defaults, office (20.2%) and hotel (17.8%). Fitch projects sizeable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans. "Office defaults spiked in the fourth quarter last year, with further rental and net operating income declines likely through next year before a rebound takes place," said senior director Richard Carlson. "Larger concentrations of hotel loans in recent vintages will translate to higher defaults, particularly among luxury properties, resort destinations and those hotels heavily reliant on group and convention business."

Freddie Mac's full menu of relief policies for borrowers affected by disasters is being extended to families whose homes were damaged or destroyed by the recent floods in Rhode Island, Massachusetts, New Jersey and West Virginia and are located in federally declared major disaster areas. "We are instructing our servicers to work with borrowers with Freddie Mac-owned mortgages to receive forbearance on their mortgage payments for up to one year," said Ingrid Beckles, senior vice president of default asset management at Freddie Mac. The GSE gives servicers the discretion to reduce or suspend mortgage payments for up to 12 months for borrowers. Each case must be individually assessed to determine, however, Freddie Mac also strongly encourages servicers to help affected borrowers by waiving assessments of penalties or late fees against borrowers with disaster-damaged homes; not reporting forbearance or delinquencies caused by the disaster to the nation's credit bureaus; and suspending foreclosure and eviction proceedings for up to 12 months. The U.S. Department of Housing and Urban Development is also stepping up to help borrowers. HUD said it will speed federal disaster assistance to six counties in New York State, including Nassau, Orange, Richmond, Rockland, Suffolk and Westchester, and provide support to homeowners and low-income renters forced from their homes. HUD has granted a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration-insured home mortgages. HUD's Section 203(h) program provides FHA insurance to disaster victims who have lost their homes and are facing the daunting task of rebuilding or buying another home. Borrowers from participating FHA-approved lenders are eligible for 100% financing, including closing costs. HUD's Section 203(k) loan program enables those who have lost their homes to finance the purchase or refinance of a house along with its repair through a single mortgage.

Wells Fargo & Co. on Wednesday promised that it soon would begin modifying second mortgages under a new wrinkle to the government's Home Affordable Modification Program. Wells noted that it would modify second liens when the corresponding first mortgage also is modified. During a conference call regarding the bank's earnings, chief financial officer Howard Atkins said the HAMP second lien program (2MP) would be up and running before the end of the second quarter. "We expect to begin offering the second lien program to customers who have both a Wells Fargo first and second lien in the next couple of weeks," Atkins said. Wells will offer 2MP to "other customers later in the second quarter," he said. The CFO told analysts and investors that the bank's $125 billion home equity loan portfolio "demonstrated some positive credit trends in the first quarter." The 60-day or more delinquency rate declined to 3.4% down from 3.58% in the fourth quarter. For HELs with LTV's above 100%, only 5.2% are delinquent. "The vast majority of customers with negative equity continue to make their payments," Atkins said.