Servicing

During its earnings call Wednesday, mega bank JPMorgan Chase hinted that the loan buyback plague may have peaked but the bank isn't quite ready to declare that its battles with Fannie Mae and Freddie Mac are over. In a question and answer period with Wall Street analysts, JPM chairman and CEO Jamie Dimon noted that the company has established a "litigation reserve" of $2.3 billion to cover residential buybacks, saying the company, at this time, has no reason to update the figure. He cautioned that it appears delinquencies are improving and there is solid improvement in conditions as measured by credit scores, and loan-to-value ratios. Dimon also said jumbo lending doubled at JPM during the quarter and he believes that the nonagency securitization market will revive. JPM, for now, is letting its home equity and subprime portfolios run off. The company predicted that home equity losses could reach $1.4 billion over the next several quarters. It projects $600 million in losses on prime mortgages, and $500 million on subprime. However, these loss projections exclude residential assets acquired from Washington Mutual, the troubled mega thrift it bought with federal assistance in the fall of 2008. WaMu's residential problems, alone, added $1.2 billion to JPM's credit costs in the first quarter of 2010. At the end of March, its loan loss reserves (company wide) totaled $38.2 billion, compared to $27.4 billion in the same period a year earlier.

Interactive Mortgage Advisors has completed the sale of a $532 million package of bulk servicing rights. The residential receivables are tied to loans purchased by Fannie Mae. Denver-based IMA declined to identify the buyer or the seller. The package has 3% delinquencies, a figure that includes foreclosures. The weighted average coupon on the loans is 5.395%. A handful of other large bulk packages are currently out for bid, including $20 billion of rights belonging to the now-defunct AmTrust Bank of Cleveland. Milestone Merchant Partners is selling the receivables on behalf of the Federal Deposit Insurance Corp.

Deutsche Bank and a group of Saudi Arabia-based investors have formed a joint venture providing home financing compliant with Islamic law. The Saudi investors will have a 60% ownership stake in the venture, which is called Deutsche Gulf Finance. DB's Riyadh branch will own the remaining 40%. Deutsche Bank said the company will have an initial capitalization of approximately $110 million. It is starting by providing Shariah-compliant home financing for properties located in Saudi Arabia and plans to expand its operations into Bahrain, Qatar and Kuwait in the future. Deutsche Gulf Finance already has started financing completed units as well as those under construction on individual lots or at real estate developments. Doug Naidus, managing director and global head of residential MBS lending and trading at Deutsche Bank, said Islamic finance is key to the company's global mortgage platform and Saudi Arabia is an important country in DB's emerging markets strategy. Deutsche Bank research projects Saudi Arabia will need 1.2 million additional housing units by 2015. The bank estimates that when a new Saudi mortgage law is enacted the legislation will contribute to incremental demand of about 55,000 additional units per year.

Former Washington Mutual CEO Kerry Killinger on Tuesday blamed federal regulators and an insular Wall Street culture for the demise of the mega thrift, saying that firms that were "too clubby to fail" were protected during the financial crisis of 2008. The Seattle-based thrift, once the nation's largest, was a top-ranked subprime and payment-option ARM lender. Last decade, it grew rapidly by purchasing prime and nonprime shops, including A- to D lender, Long Beach Mortgage, a firm controlled by subprime magnate Roland Arnall. Killinger, in prepared testimony before the Senate Homeland Security and Governmental Affairs Committee, complained of "unfair treatment" of WaMu, the largest thrift (or bank) failure in history in 2008, when it was seized by the government and then sold to JPMorgan Chase. Killinger, who was forced out prior to the JPM sale, argued that the seizure "was unnecessary" and said the company "should have been given a chance to work through the crisis." However, committee chairman Carl Levin said the thrift's subprime loans were rife with fraud and may make a criminal referral to the Justice Department. Levin is holding four hearings on the financial crisis. Based on an 18-month investigation, Levin said, he believes that certain provisions of pending financial reform legislation, such as the creation of a consumer protection agency and a requirement that lenders maintain a stake in loans they sell to the secondary market, could have helped avoid, or lessen the impact of, the thrift's failure. "A lot of proposed reforms will gain additional support, we believe, from these findings," Levin said. "It is my hope that these hearings, these findings, give a boost, a momentum to strong regulatory reform in many, many different ways."

GMAC Financial Services has agreed to sell its European mortgage assets-including performing and nonperforming loans-to Fortress Investment Group, LLC, a company managed by former Fannie Mae CEO Daniel Mudd. No price was disclosed. A spokesman for GMAC said Fortress will take control of active lending units of Residential Capital Corp. in Germany, the Netherlands and the United Kingdom. At press time no information was available on the production or servicing volume of these divisions. Fortress is also taking title to 6,000 whole loans of GMAC/ResCap but no dollar amount was provided. The sale of its European assets is the latest move by GMAC to divest its exposure in residential finance in favor of auto lending. Its U.S. mortgage operation is currently on the auction block, though it remains to be seen who might buy it. Mudd currently serves as CEO of Fortress, a publicly traded equity fund and investment manager. He was fired by the government as CEO of Fannie Mae when it took control of the GSE in the fall of 2008. In a statement, GMAC said, "The agreements to sell the European mortgage assets and businesses are key steps toward our objective of reducing the ongoing exposure for GMAC from the legacy mortgage operation. This is a significant achievement and will contribute in putting GMAC on a path toward improved performance."

A federal court agreed to consolidate lawsuits brought by three credit unions asking for the return of more than $35 million of mortgages fraudulently sold to Fannie Mae by U.S. Mortgage and its subsidiary CU National Mortgage. While several smaller credit unions have settled claims, the three plaintiffs-Picatinny Federal Credit Union, Proponent Federal Credit Union and Sperry Associates Federal Credit Union-are among the biggest victims in the fraud in which CU National sold almost $140 million of mortgages owned by 28 credit unions to Fannie without their knowledge and kept the funds. In his order, Judge Garrett Brown of the U.S. District Court in Newark, N.J., ruled that the consolidation of the cases is in the best interests of the credit unions. Meanwhile, two more former executives of the now-defunct mortgage company are preparing to plead guilty in the massive fraud. Michael McGrath, the president of U.S. Mortgage and CU National Mortgage, has pleaded guilty in the case and next month is expected to be sentenced to up to 20 years behind bars. The fraud has created a tangle of legal claims, with several of the credit union victims suing CUNA Mutual Group to ensure coverage of any losses they end up with, and CUNA Mutual suing the credit unions for a declaratory judgment that it is not liable for the coverage.

First American Corp., Santa Ana, Calif., has received an $850 million credit facility that will finance the operations of its Information Solutions Group once the unit is split off into a separate publicly traded company. In addition, First American Financial Corp., the company that will be the parent of its title insurance business, has an agreement in place to receive a $400 million line of credit concurrent with the split which will occur June 1. The ISG credit facility consists of a $500 million secured revolving credit line due in 2012, and a $350 million term loan due in 2016. It is secured by substantially all of the group's assets. The First American credit facility is partially secured and due in 2013. First American also commenced a cash tender offer for all $350 million of its outstanding public debt securities. It is soliciting consents from debt holders to amend the indenture agreement to expressly affirm that the split does not conflict with the terms of the indentures. First American will pay an early consent fee of 100 basis points over par for holders of the 5.7% senior notes due 2014 and the 8.5% capital securities due 2012 if they are tendered by 5 p.m. Eastern time on April 23, 2010.

Not only has Redwood Trust purchased jumbo loans for a planned nonagency MBS, but is actively shopping the mortgages to rating agencies, according to officials familiar with the company's plans. The publicly traded REIT has been working on reviving its "Sequoia" jumbo MBS program for several months. "A year ago there were no buyers for an AAA-rated jumbo MBS," said one mortgage official familiar with Redwood's efforts, "but the situation has reversed." Sources say Mill Valley, Calif.-based Redwood has purchased at least $100 million of jumbo loans with hopes of securitizing them. The REIT declined to comment but in a recent company report said it is working "closely with credit rating agencies to model a safer and more straightforward securitization structure that will promote investor and public confidence in a time of higher scrutiny and uncertainty." Except for "re-securitizations" there have been no new jumbo MBS issued in about two years.

John Vella, executive vice president of portfolio servicing strategies for Residential Capital Corp., has resigned from the company, effective immediately, and is on the verge of taking a job with Fannie Mae, industry officials told National Mortgage News. At press time, Fannie Mae had not commented on the matter. According to a memo from GMAC mortgage chairman Tom Marano, Vella's duties will be given over to chief servicing officer Joe Pensabene. Vella joined the nation's sixth largest residential servicer in the fall of 2008. In his memo Marano said, "John provided leadership for our mortgage employees in Dallas, Carlsbad and Costa Mesa during a time of considerable change as we sought to reduce costs, and restructure and refocus our operations." Last month, NMN reported on the departure of about eight servicing managers at ResCap.

JPMorgan Chase is working on in-house, targeted principal reduction programs but has strong reservations about the government's efforts to develop a large-scale, broad-based principal reduction program for first and second mortgages. "We know this will be surprising to some, but we have found that [interest] rate reductions and term extensions-not principal reductions-have the largest impact in achieving payment affordability and result in more modifications," said David Lowman, chief executive of Chase Home Lending. In testifying before the House Financial Services Committee, Lowman said Chase is using principal reductions to refinance conventional borrowers into Federal Housing Administration loans. This summer, Chase will offer delinquent borrowers an option to refinance through the FHA's Hope for Homeowners program if they need a principal reduction or a second lien extinguished. Chase also is developing a principal reduction program for certain payment-option ARM borrowers and conducting targeted tests to see if principal reduction is effective for "other high-risk borrowers," Lowman said. "Once we observe the results of these tests, we will be able to better evaluate the effectiveness of a broader principal reduction program."