Servicing

John Vella, executive vice president of portfolio servicing strategies for Residential Capital Corp., has resigned from the company, effective immediately, according to a memo provided to National Mortgage News. At press time, the GMAC-owned ResCap could not be reached for comment. 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.

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. Mr. 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."

The Federal Home Loan Bank of New York will provide up to $250 million of disaster relief loans to member institutions that can turn around and use the money to help troubled homeowners in flood affected areas in parts of New York and New Jersey. The money is being made available through the FHLB's community lending program, and can be used as gap financing while insurance settlements are being worked out. Before a loan can be made the area must be designated as a flood-affected area by the Federal Emergency Management Agency. A few weeks ago parts of New York and New Jersey were affected by heavy flooding caused by heavy rains. Alfred A. DelliBovi, president and chief executive of the FHLB-NY, said, "The funds we are making available today will allow our members to make an immediate, positive impact on recovery efforts, while providing the flexibility our members need to suit these efforts to the individual communities they serve." The money can be used for housing, small business and economic development lending. The funds are available for relief efforts in every county in New Jersey except for Sussex, Warren, Hunterdon and Hudson. In New York, the areas covered are Nassau and Suffolk counties on Long Island, Courtland and Chenango in central New York and Allegany, Cattaraugus, Chautauqua and Erie in western New York.

The mortgage servicing industry should brace itself for a continued wave of redefaults on modified loans, according to Diane Pendley, managing director at Fitch Ratings. Speaking at SourceMedia's 4th Annual Servicing Conference in Dallas, Pendley warned residential servicers that the housing crisis will continue and mortgage bankers should dedicate themselves to mitigating losses to stop the financial "bleeding" caused by loan defaults. While Fitch is seeing an increase in modifications, redefaults are continuing. The rating agency is forecasting that an additional 10% to 12% of modified loans will redefault. While borrowers who make decreased payments under HAMP will be able to stay in their homes, unemployment will continue to create stress on delinquencies, said Bryan Bolton, SVP of loss mitigation for CitiMortgage. One of the main drivers of delinquencies is unemployment, speakers at the conference agreed. Amherst Securities is seeing rising default rates in borrowers with negative equity. Lack of equity is a major problem especially on alt-A and payment-option ARMs, said Robert Hunter, a vice president at Amherst Securities.

In February, the total number of delinquent loans was 21.3% higher than the same period last year, according to the latest Mortgage Monitor report from Lender Processing Services Inc. in Jacksonville, Fla. Although the data showed a small 1.45% seasonal decline in delinquencies from January 2010 to February 2010 month-end, the national delinquency rate still stood at 10.2%. In February the foreclosure rate of 3.31% represented a 51.1% year-over-year increase. LPS, a provider of mortgage performance data, says the total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. The percentage of new problem loans is also at its highest level in five years. More than 1.1 million loans that were current at the beginning of January were already at least 30 days delinquent or in foreclosure by the end of February. As a result of HAMP, delinquent loans that were modified and that remained current through HAMP's three-month trial period-called "cures-to-current"-have increased. Advanced delinquency rolls, however, remain elevated from a historical perspective. The total U.S. non-current loan rate was 13.5% in February, the report said. States with most non-current loans, which combine foreclosures and delinquencies as a percent of active loans in that state, included Florida, Nevada, Arizona, Mississippi, California, New Jersey, Georgia, Illinois, Ohio and Indiana. States with fewest non-current loans were North Dakota, South Dakota, Alaska, Wyoming, Nebraska, Montana, Vermont, Colorado, Washington and Minnesota.

PHH Mortgage is broadening its subservicing menu, and will take on assignments involving loan loss sharing arrangements with the Federal Deposit Insurance Corp. Among other new initiatives, the Mt. Laurel, N.J.-based PHH will take on servicing assignments that include delinquent loans. It also is offering what it calls a "hybrid" subservicing option that allows client mortgage firms to maintain customer contact while PHH Mortgage completes all the back office servicing processing. According to the Quarterly Data Report, PHH ranks seventh nationwide, among subservicers with $22 billion in contracts at December 31.

Former executives and regulators, testifying Thursday before the Financial Crisis Inquiry Commission, all tried to shift blame for the giant company's problems. Charles Prince, Citigroup's former chief executive, pointed a finger at the credit rating agencies and overly complex products-like collateralized debt obligations-that no one understood. (Mr. Prince was onboard when Citi made several disastrous investments in subprime lenders, including its acquisition of assets from Ameriquest and Argent.) Robert Rubin, a former Treasury secretary and former chairman of Citi's executive committee, laid the blame on a confluence of market events while saying he was out of the loop for most of the company's decisions. The bank's regulators, meanwhile-John Dugan, the comptroller of the currency, and his predecessor, John D. Hawke-criticized the institution, its managers, other regulators and the market in general. If there was an underlying consensus, it was this: the financial crisis was either entirely unforeseeable or should have been spotted first by somebody else.

In dealing with billions of dollars worth of troubled homes, residential servicers need to hire trained engineers, statisticians, and even scientists to enhance the way they approach loss mitigation. Speaking at SourceMedia's 4th Annual Mortgage Servicing Conference, Ocwen Financial Corp. president Ron Faris told attendees, "The problem is that many of us are still using basically the same type of loss mitigation technology we did 20 years ago. We haven't had our industrial revolution yet. We're still craftsmen who hire others to carry out our trade." He noted that Ocwen, one of the nation's top ranked subservicers, has reached out and hired professionals in behavioral science and psychology. The company also has a consumer psychology department headed by a Ph.D. in psychology, he told the audience. "Their focus is on taking what they have learned to help us determine how to approach our customer," he said. "Now it's time to take it to another level." In order for the borrower to get the best payment plan or modification, it does not mean the servicer has to give them a modification at 31% DTI or a modification at the maximum amount the servicer thinks they can afford, for example. Servicers need to have models that optimize the resolution for each individual borrower, he said. "If you give them a lower payment than what they can afford today, you will reduce the redefault probability across a lot of loans, and the net present value to the investor is significantly better than pushing the limit right upfront."

The National Credit Union Administration has entered the Fort Myers, Fla., real estate market in a major way as it struggles to sell hundreds of properties it ended up holding from three large credit union failures: Norlarco FCU, Huron River Area FCU and New Horizons Community FCU. The credit union regulator became the biggest landlord in the adjacent developments of Cape Coral and Lehigh Acres-located just east of Naples-after it took control of the three credit unions. The CUs were among a handful of lenders that helped finance a get-rich-quick scheme known as "Millionaire University" which promised unsophisticated investors a chance to earn a guaranteed 14% return by quickly flipping soon-to-be constructed homes. NCUA projects that it will suffer roughly $700 million in losses on the three CUs. Thanks to the failures, NCUA holds 754 properties, of which 281 are for sale or rent, 254 are still in foreclosure, 34 in litigation and 185 are rented, according to John McKechnie, chief spokesman for the agency. In addition, NCUA has made 158 loans to facilitate the sale of the properties. The agency has hired a professional property management firm to oversee its holdings.

Credit default swap indices compiled by Fitch Solutions show subprime residential mortgage-backed securities prices have continued to strengthen with some variation by vintage. Month-over-month, subprime RMBS overall were up 7% as of April 1. The 2006 vintage, which was up 15%, reached a high not seen since December 2008 in the most recent month. The 2004 vintage was up 9% and the 2005 vintage was up 6%. The relatively weak 2007 vintage, which managed to gain 4% during the market, was still at its third-lowest-ever value. Fitch Solutions' loan-level analysis shows the constant default rate for all vintages dropped during the period. In addition, the constant prepayment rate fell across the board. "While refinancing remains challenging for subprime assets, the general drop in default rates is an encouraging sign," said Fitch Solutions managing director Thomas Aubrey.