Servicing

Wells Fargo & Co. earned $2.5 billion from its residential mortgage business in the first quarter-a 26% decline from the prior period-due to lower originations and a reduction in hedging results. The nation's largest residential funder originated $76 billion in single-family loans, down 19% from the fourth quarter of 2009. Mortgage hedging results fell $983 million in the first quarter due to a change in the composition of hedge instruments to "maintain ongoing hedge effectiveness," the company said. Chief financial officer Howard Atkins said the performance of credit card, auto and commercial real estate has turned up, but it will take a "little longer" for residential real estate loans. The first quarter report shows the early delinquency rates on prime mortgages, home equity loans, and pick-a-pay loans crested in the first quarter. But one- to four-family loans in the non-accrual category-including charge-offs and foreclosures-increased significantly.

MGIC Investment Corp. has priced the sale of 65.1 million shares of its common stock at $10.75 per share, for gross proceeds of approximately $700 million. The Milwaukee-based company also priced a $300 million offering of 5% convertible senior notes. Goldman Sachs & Co. is the sole book-running manager for both offerings. A report by FBR Capital Markets analysts Steve Stelmach and Amy DeBone commented, "We generally view the capital raise as a positive as it will bolster capital ratios and should remove liquidity risk at the holding company. Nonetheless, it does limit the potential upside in shares had MGIC been able to manage the current crisis and reach a point where it could have harvested future premiums on the existing book without the added share count." They added the new funds would allow MGIC to write more business and to withstand expected losses. FBR said it expected $700 million to be allocated to writing new business, giving MGIC $900 million for this purpose when adding in the $200 million set aside to write business at MGIC Indemnity Corp. As of midday on Wednesday, MGIC's common stock was trading at $11.58 per share, up $0.52 from the previous close.

Technology provider ISGN Corp. is partnering with EquityRock, a company with experience in residential real estate equity sharing, to create RESET, a loss mitigation solution for lenders. The product's creators say they can help lenders reduce losses from properties in imminent danger of foreclosure, while also keeping the borrower in the property. RESET (Real Estate Shared Equity Transaction) gives a borrower who is qualified for a loan modification a principal reduction in exchange for a share in equity with their lender. With RESET, in addition to modifying or refinancing the borrower's mortgage, the lender writes down the borrower's principal balance so that the borrower no longer owes more than the property is worth, ensuring they have equity in their property, says ISGN. As part of the transaction, the lender will gain a stake in any future appreciation should the property be sold or refinanced. When the transaction is complete, the borrower gets to stay in the home and keeps a monetary stake in the property. A key feature of RESET is a fair, debt-for-equity exchange that benefits both the lender and the homeowner. The service can be used by lenders and investors, as well as by housing finance agencies in support of the Treasury Department's Help for the Hardest-Hit Housing Markets (4HM) program. An estimated 3.7 million homeowners across the five states targeted by 4HM have negative equity with loan to value ratios that exceed 125%.

Carlton Advisors Services has been hired by a Florida bank to help the depository unload $400 million worth of real estate owned assets and commercial mortgages. Carlton declined to name the bank. The auction firm said the assets are collateralized by certain Florida cash-flowing apartment buildings, retail and hospitality properties. The assets up for bid include a 39,515 square foot shopping center in Miami, unpurchased condominium units, and a motel, among other assets. Carlton says investors can view the assets and bid on selected properties "on a first come, first serve basis" through its web platform.

The auction of nonperforming loans will remain strong for six more years, with hedge funds and private investors continuing to drive the market, according to specialty servicer FCI Lender Services, Anaheim Hills, Calif. Gordon Albrecht, an FCI executive vice president, and other executives who play in the NPL space said over the past several weeks they have seen a definite pickup in loan auctions of troubled residential loans. (FCI claims it is the largest servicer of privately held mortgages with a portfolio in excess of $2 billion.) "There was a huge disconnect in the market between buyers and sellers," said Mr. Albrecht, a sentiment echoed by other players in the market, "but all that's changed." Jon Daurio of Kondaur Capital, a buyer and seller of NPLs, told National Mortgage News that the first quarter was one of the busiest he's seen in terms of offerings. "Billions were available for sale," he said. "I think we'll see even more in the second quarter."

MGIC Investment Corp., the nation's largest mortgage insurer, saw a slight improvement in its first quarter results, losing $150 million compared to a loss of $185 million for the same period last year. However its volume of new business continues to slide, with only $1.8 billion of new insurance written in the first quarter versus $6.4 billion for the first quarter of 2009. (The 1Q10 total, however, does not include nearly $685 million of insurance written on loans modified under the Home Affordable Refinance Program.) MGIC had total loan delinquencies of 18.14% compared to 13.51% a year ago. In the safe harbor portion of its earnings release, MGIC said it expects to incur substantial losses for this year and cannot assure investors when it will return to profitability. During the first quarter, rescissions mitigated MGIC's paid losses by $373 million. (For the full year 2009, rescissions mitigated paid losses by $1.2 billion.) The lawsuit Bank of America filed over the rescission policy has been moved back to California Superior Court in San Francisco from the U.S. District Court for the Northern District of California. MGIC also started an arbitration action against B of A and Countrywide on the rescission matter. Countrywide filed a response objecting to the arbitrator's jurisdiction over the matter. In its response, the lender said it is seeking damages of at least $150 million. MGIC also has commenced a public offering of $700 million of common stock and $300 million of convertible senior notes due 2017. Proceeds will be used to pay off at maturity or purchase prior to maturity $78.4 million in debt due in 2011 and for general corporate purposes, including increasing capital at its mortgage insurance subsidiary.

The Seattle-based law firm of Perkins Coie has opened an office in Dallas, Texas, and former Greenberg Traurig shareholder, Steven R. Smith, has joined the firm and will be partner in charge of the office. Smith will focus his practice on real estate workouts and lending, adding to the firm's growing national practice. The addition of Smith helps Perkins expand its representation of commercial mortgage-backed securities special servicer clients, many of which have offices in Dallas. Smith has experience working with defeasance transactions, assumptions, loan modifications, REMIC tax issues, pooling and servicing agreement compliance and review, foreclosure, bankruptcies, asset dispositions, litigation, and loan sales. Since 2005 the firm has added over 200 lateral attorneys in a variety of practice groups.

Equator, a provider of automated default servicing, REO and short sale technology in Los Angles, has hired John Vella to serve as its chief operating officer. Vella will be leading efforts to further expand the scope of the company's EQ Workstation, an online system that provides financial institutions with tools for managing default servicing and the EQ Marketplace, which acts as an ecommerce forum where these institutions connect with asset management vendors and real estate agents. Vella has more than 27 years in the mortgage industry. Previously, he worked as executive vice president of GMAC/Rescap, which is responsible for special servicing; president and chief executive officer of EMC Mortgage, a subsidiary of JPMorgan Chase; CEO of Household Automotive; chief administrative officer of Option One Mortgage and director at Freddie Mac and the FDIC.

GMAC Mortgage Servicer Advance Funding Co. Ltd. has issued a new series of notes rated by DBRS. A review for possible downgrade on an earlier series by Moody's Investors Service based on operational issues GMAC has been working on correcting is still pending. Responding to GMAC's request for an opinion on whether the new series would have an effect on the older series' ratings, Moody's said the new issuance and related amendments alone wouldn't hurt them. However, it would not opine on "whether the new issuance or amendments could have other, credit-related effects." The amendments remove pooling and servicing agreements that include Fannie Mae/Freddie Mac collateral from the transactions eligible for funding by the servicing advance facility and establish cash flow allocations between the earlier notes and the later notes aimed at ensuring credit support for the former is not diluted by the latter. In addition, the amendments increase the size of the reserve fund, enhance third party verification of the facility's operations and revise discount rates that set the limit of the amount of notes that can be issued for each type of advance receivable. Moody's previously put the earlier servicing advance facility series on review due to a concern involving the netting of cash flows. It subsequently said GMAC had corrected this by setting up "segregated trust-specific custodial accounts," something it had planned to monitor through March. A similar netting issue that prompted a review of GMAC residential mortgage-backed securities ratings for possible downgrade got underway later and was slated to take longer.

The second half of this year will bring continued challenges for the housing market, according to two Wells Fargo Securities economists, who expect higher mortgage rates and new home price declines. "The housing market will not return to a position of strength until late next year or in 2012," said Mark Vitner and Adam York. In their April "Housing Chartbook," they note that the housing recovery so far has been based on tax incentives, artificially low mortgage rates and "unprecedented" assistance for struggling homeowners. The Federal Reserve stopped buying agency MBS at the end of March and the homebuyer tax credit is set to expire late in the Spring. "We have significant concerns about the sustainability of the housing recovery once the stimulus is removed from the marketplace," the economists say, adding that an excess supply of 2 million unsold homes will continue to exert downward pressure on prices. "We estimate housing prices could fall an additional 6% to 8% from their current levels before they ultimately bottom out," York told National Mortgage News. But he noted that most of the drop in prices will come from sales of higher-end homes.