Servicing

The Obama administration is funding foreclosure prevention programs in five more states that are suffering from high rates of unemployment and home foreclosures. The five states -- North Carolina, Ohio, Oregon, Rhode Island and South Carolina --will share in $600 million that will be funneled though state housing finance agencies. To gain access to the "Hardest Hit Fund," the housing agencies will have to submit "innovative" plans to the Treasury Department for assisting unemployed homeowners and providing incentives for servicers/investors to modify loans and reduce principal. In the first round, California, Arizona, Florida, Michigan and Nevada were selected as the hardest hit states. Housing finance agencies in those states are in line to share $1.5 billion in funds when Treasury approves their foreclosure prevention plans. "We want to test models that potentially could be used in other states," HUD secretary Shaun Donovan recently told a Senate committee.

Lenders participating in a new Federal Housing Administration refinancing program to help homeowners with underwater mortgages can pool those FHA loans in standard Ginnie Mae mortgage-backed securities. In reducing the principal to a 97.75% loan-to-value ratio, the "FHA Short" refinancings will be treated like standard FHA refinancings and placed in Ginnie Mae I and Ginnie Mae II pools, according to sources. A previous FHA principal reduction program, known as Hope for Homeowners, had more restricted pooling options. Ginnie Mae only allowed pooling of H4H refinanced loans in multiple-issuer MBS. The Obama administration unveiled its new FHA Short Refinancing program last Friday and it requires principal reductions of at least 10%. FHA officials said claim and default rates on these refinancings won't be counted toward the lender's Credit Watch score.

House prices rose 0.3% on a seasonally adjusted basis in January following a similar rise in December, according to the Standard & Poor's/Chase-Shiller 20-city house price index. On a non-adjusted basis, prices fell 0.4% in January following a 0.2% decline in December. Prices are down only 0.7% from January 2009 on a non-adjusted basis. "Fewer cities experienced month-to-month gains in January than in December 2009 on both a seasonally adjusted and unadjusted basis," said David Blitzer, chairman of S&P's index committee. "The rebound in housing prices seen last fall is fading," he said. Citicorp mortgage analyst Robert Young said, "Home prices could drop another 5% from current levels." He noted that the housing market is being negatively impacted by the large inventory of distressed properties and seriously delinquent mortgages. "Although we are not expecting a flood of foreclosures, the inventory is going to weigh on home prices for years. So we are not expecting much appreciation for quite a while," Mr. Young told MortgageWire. Of the 20 cities in the Case-Shiller HPI, only Los Angeles and San Diego posted price increases in January on a non-adjusted basis. In Los Angeles, prices rose 0.9% during the month and 3.9% over the previous 12 months. San Diego experienced a 0.4% price increase in January and is up 5.9% from January 2009.

HOPE LoanPort, the new counselor Web-based tool that streamlines submission of completed loan modification applications, including those used for the Home Affordable Modification Program, has named six people to serve on its board of directors. The organization also named its CEO. There are plans to expand the Board in the near future to reflect the diversity of the organizations involved with this web portal initiative. Larry Gilmore, currently the deputy director of the HOPE NOW Alliance, will assume the day-to-day management of HOPE LoanPort. The following individuals will make up the board of directors: William Longbrake, an executive in residence at the Robert H. Smith School of Business at the University of Maryland where he works on a variety of business, policy and governance issues; John Dalton, former Secretary of the Navy in the Clinton administration; John Courson, the president and CEO of the Mortgage Bankers Association; Faith Schwartz, the executive director of HOPE NOW; Kenneth Wade, the CEO of NeighborWorks America, a public nonprofit corporation established as the Neighborhood Reinvestment Corp. by an Act of Congress in 1978; and Camillo Melchiorre, senior vice president of loss management for Radian Guaranty Inc.

Stewart Lender Services is offering a new tool designed to assist lenders and servicers to comply with the Supplemental Directive 09-09, 10-01 and other changes under the Home Affordable Modification Program, which were recently issued by the Treasury Department. According to executives of the provider of origination, loss mitigation, and real estate owned management solutions for lenders and servicers, the new tool enables users to outsource processing in compliance with the new Treasury requirements. The SLS borrower outreach team collects financial packages and conducts the underwriting for borrowers who qualify for HAFA foreclosure alternatives, and performs upfront title reviews to determine whether a short sale or deed in lieu is the best option. Also, the system assists lenders following Resolution of Active Trial Modifications 10-01, during the conversion from a stated income to a verified income model and the Imminent Default rule changes and the measurement of debt coverage ratios for borrowers less than 60 days delinquent.

According to Aite Group senior analyst John Jay, the impact of adjustable-rate mortgages resetting at higher rates is now expected to be less severe than feared. Low interest rates, loan modification efforts and the fact that many borrowers have already defaulted, mean less rate hikes and fewer defaults, said Jay. "The fact that the number of exotic, adjustable-rate mortgages scheduled to reset to higher rates is shrinking should not be taken as a sign that this sector is 'OK.' It is only manageable from here because so much of the sector already fell into default and required loan modifications or some other type of lender remediation," he added. "If such products are to be offered ever again in the future, lenders are advised to underwrite the loans to the fully-indexed and maximum loan sizes. In addition, the creditworthiness of the borrower must be able to withstand economic scenarios. After all, the current remaining nontraditional ARMs were underwritten to what was assumed to be a real estate market that would never decline."

The Treasury Department has increased the incentives for servicers, investors and distressed homeowners to participate in an expedited short sales program that goes into effect April 5. Under the Home Affordable Foreclosure Alternative program, the servicer can receive a $1,500 incentive and the homeowner can receive $3,000 when a short sale or deed-in-lieu transaction is completed. "That $3,000 is going to turn some heads," said Travis Olsen, chief operating officer of Loan Resolution Corp. "That is going to make it truly worthwhile" for the borrower to complete a short sale, he added. LRC specializes in short sales. Last December, Treasury proposed to pay the servicer only $1,000 and the homeowner $1,500 for relocation costs. Treasury also doubled the maximum payoff for subordinate lien holders that relinquish their claims and the reimbursement for first mortgage investors. Now the investor can pay the second lien holder up to 6% of the loan amount with a $6,000 cap and be reimbursed on a one-for-three match for up to $2,000. Originally, Treasury capped reimbursement at $1,000 and the payoff at $3,000. Subordinate liens must be extinguished under HAFA so the property can be sold and the former homeowner can walk away debt free.

Fannie Mae recently completed a bulk auction of 212 real estate owned properties, its second such offering of the year. The GSE, whose stated goal is to sell REOs to owner occupants, would not comment on the auction but GSE sources and bidders confirmed it. Investors familiar with the matter noted that the properties were in multiple states and represented some of Fannie's most dilapidated holdings. "You might say this was the bottom of the barrel," said one West Coast-based investor. "One had a cracked foundation -- stuff like that." Investors were offered an opportunity to buy the entire package or bid on eight "sub pools." The properties, includes homes or plots in Arizona, California, Colorado, Idaho and Utah. In January Fannie sold roughly 260 REO homes to 10 different investors.

Executive of major banks will be testifying before the House Financial Services Committee soon on their efforts to modify and write down second liens. Committee chairman Barney Frank, D-Mass, has summoned Bank of America, Citigroup, JPMorgan Chase and Wells Fargo to testify on April 13. Chairman Frank is concerned that the major banks have become the "principal obstacle" to modifying first mortgages because of their large holdings of second liens and home equity loans. And he has been pressuring the banks to fully participate in the Treasury Department's fledging second lien modification program. "We will be urging the banks to show full cooperation with this plan at a hearing," Rep. Frank said, and "we hope they will be able to explain how they are working with it." The committee chairman also welcomed the Obama administration's new initiatives to assist unemployed homeowners and underwater borrowers. "I was particularly pleased that the administration has adopted the proposal that many of us have been advocating to provide help to the unemployed. While clearly there are some people in trouble on their mortgages who bear some of the responsibility for their plight, this is not true of the unemployed who are fully deserving of this help," Rep. Frank said.

Federal regulators are working on ways to match holders of delinquent and/or modified first mortgages with the holders of seconds in an effort to improve communication between the two parties so they can restructure loans. According to a Comptroller of the Currency/Office of Thrift Supervision report, it is often difficult to obtain good lien information when the firsts and seconds are held by different entities. In a new report, the agencies say, "Initiatives are now under way to make this information more available." Banks and thrifts that provide data for the agencies' "Mortgage Metrics Report" have large second lien portfolios but nearly 90% of the corresponding first mortgages are securitized or held by other investors. OCC and OTS note that banks and thrifts are required to review second liens when the first is delinquent or modified and "hold appropriate loan loss reserves to reflect the elevated risk" of default or loss. Regulators alerted institutions to this long-standing accounting requirement in a December 2009 notice.