Servicing

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.

During the height of the mortgage boom, a thriving private-label MBS market "threatened" Fannie Mae financially, driving the congressionally chartered mortgage giant into the alt-A market which ultimately led to huge credit losses at the company, a former top Fannie official told a congressional panel Friday. The growth of the private-label securities market threatened Fannie "financially" along with its "relevance" to its seller/servicers, said former Fannie executive Robert Levin in testimony before the Financial Crisis Inquiry Commission. Speaking before the same panel, former Fannie Mae CEO Daniel Mudd testified that the GSE gradually entered the alt-A market and understood the risks. Fannie's alt-A loans performed better "by a factor of two" than alt-A loans generated by the Wall Street conduits, Mudd said. But FDIC chairman Phil Angelides noted that alt-A, subprime and other high-risk loans caused 69% of Fannie's credit losses in 2009, even though they comprised only 24% of total loans. He also noted the GSE was highly leveraged. (At one point, Fannie's alt-A holdings totaled $350 billion.) Mudd said the bulk of Fannie's alt-A loans were bought during the peak of the housing boom and their performance suffered as a result of declining house prices and the nation's economic downturn. In September 2008 the Federal Housing Finance Agency seized control of Fannie, placing it into conservatorship. Upon the GSE's seizure, Mudd was fired. In his opening remarks to the commission, Mudd said the GSE's business model and structure could not "withstand a multiyear 30% home price decline on a national scale, even without the accompanying global financial turmoil."

Morgan Stanley-owned Saxon Mortgage has been identified as the seller of a $6.9 billion bulk package of residential servicing rights to Ocwen Loan Servicing, West Palm Beach, Fla. Industry sources confirmed to National Mortgage News that Saxon was indeed the seller, although there was no investment banker of record on the transaction. A sale agreement was executed at the end of March but was not disclosed publicly until this week. OLS's parent company mentioned the acquisition in a filing with the Securities and Exchange Commission but provided no details on the portfolio, except to say it included 38,000 loans. Both Saxon and Ocwen did not return telephone calls about the sale. Servicing advisors noted that more bulk servicing sales were seen in the first quarter of 2010 than in all of last year. One of the most closely watched pending deals is the auction of roughly $20 billion in rights belonging to the now defunct AmTrust Bank of Cleveland. The Federal Deposit Insurance Corp. is selling the package through Milestone Merchant Partners.

Several medium-sized nonbanks are exploring the possibility of buying depository institutions using cash from stellar residential profits enjoyed over the past 18 months, according to investment banking officials. In interviews with National Mortgage News this week, three active mortgage advisors noted that "the play" for these nonbank acquirors is to solidify warehouse financing. "Even though the warehouse situation has improved in recent months it's still not great," noted one New York-based advisor. "The idea here is to self-fund." These investment bankers did not want to be identified because they are currently working on transactions that haven't closed. One noted that a Midwestern-based wholesaler he's been working with earned $29 million on originations of $1.6 billion last year. He called such a profit performance "unheard of." One risk for nonbank buyers is dealing with delinquent commercial real estate loans of troubled banks. Another challenge is gaining approval from the Federal Deposit Insurance Corp. "In the end will the government accept their business plan?" asked one investment banker.

Reverse Mortgage Solutions Inc. promoted chief operating officer Marc Helm to president. Helm, a founding partner of the Spring, Texas-based firm, replaces Ken Austin, who is leaving the company to pursue personal interests, a company statement said. Helm joined RMS after a career of 30 years in the mortgage-servicing sector. He is a former senior officer at Washington Mutual, where he was responsible for helping WaMu integrate all loan servicing acquisitions into its system. In addition, RMS hired Michael Clendennen as chief financial officer and Michael Kent as senior vice president of portfolio retention. Clendennen has served the past eight years as vice president and controller at Allied Home Mortgage Capital Corp., Houston. Kent has over 28 years of experience with regional and national lending institutions, including several senior management and executive positions. For the past eight years, he has owned and operated mortgage and real estate sales companies in Los Gatos, Calif.

Generation Mortgage Co., Atlanta, has introduced a new fixed-rate Home Equity Conversion Mortgage product with no origination fee and no servicing fee to provide senior clients more upfront loan proceeds at a lower cost. This Federal Housing Administration-insured reverse mortgage product is available through the company's retail and wholesale production channels. It allows qualified borrowers to receive additional, upfront loan proceeds of up to $10,000 or more, depending on the equity in their home. "We are in the business of helping clients put as much money as possible back into their pockets, and the best way to do that is by regularly evaluating how we can maximize each client's reverse mortgage," said Scott Peters, president and chief executive of Generation Mortgage. "This attractive option is a function of positive market conditions. It makes sense for seniors to investigate this option now as these conditions can change at any time."

The 30-day-and-more past due rate on home equity lines of credit fell 8 basis points to 2.04% in the fourth quarter, the first quarter-to-quarter decline in six quarters, according to an American Bankers Association survey. The seasonally adjusted delinquency rate on closed-end home equity loans edged up only 2 bps to a record high of 4.32 in the fourth quarter. "The first sign of improvement has been a long time coming and is finally some positive indication that the housing market is stabilizing," ABA chief economist James Chessen said. The Federal Deposit Insurance Corp. reported that banks and thrifts charged-off $5.2 billion in HELOCs in the fourth quarter, which is a 3.13% net charge-off rate. Charge-offs on closed-end home equity loans totaled $2.9 billion, which is a 6.27% net charge off rate.

The Center for Responsible Lending applauded the approval by the California Senate Banking, Finance and Insurance Committee of a proposal that would apply part of the Home Affordable Modification Program rules to all servicers who do business in the state, whether they participate in HAMP or not. The bill, SB 1275, would require all servicers to complete an evaluation of the borrower's eligibility for a loan modification before they begin the foreclosure process. In addition homeowners who have been erroneously foreclosed upon could receive a financial remedy of up to $10,000. Paul Leonard, director of CRL's California office, said, "It's a modest proposal, but it could do a world of good for Californians who are faced with losing their homes. Bill co-sponsor Sen. Mark Leno, D-San Francisco, explained, "Laws are not being broken. That's why we need laws. The vote to approve the bill was 7-1, and the Senate Judiciary Committee will now take up the legislation."