Servicing

While the 2010 outlook for the broader economy is somewhat mixed, lenders were largely in agreement that home prices appear to have stabilized throughout most of the country, according to analysts at Barclays Capital. Residential portfolios continue to constitute a large portion of troubled assets and the degree to which banks have provided for losses related to these portfolios varies widely, based on its new report, "Homebuilding and Building Products." In the report, many management teams pointed to improving credit metrics, believing that the pace with which residential troubled assets grow will continue to decline. Analysts say lenders continue to celebrate reduced exposure to homebuilders (albeit largely due to write-offs and sales), and similar to trends impacting the residential portfolio, and they are currently experiencing lower in-flows of problem assets in this category. "The pace with which land deals are coming to market has accelerated, several banks indicated an aggressive stance towards moving through REO inventory." The company said the sequential rise in banks' troubled debt restructuring balances suggest increasing participation in recent loan modification programs such as the government's HAMP initiative as well as internally-generated company programs.

Commercial lenders throughout the country are becoming increasingly aware of their need to enter into modification agreements with their borrowers, says Kevin Levine, executive vice president of Strategic Asset Services of Woodland Hills, Calif. Levine explained that commercial loan values are falling in most markets, and that the office buildings, retail centers and multifamily residences are losing tenants at an increasing pace due to the economic recession. As a result, borrowers are experiencing compressed cash flow, and are unable to meet their loan payments. "Unless the loan is modified to reduce the payments, the lender inevitably will be forced to commence foreclosure proceedings," he says. "But balance sheets of banks and other lenders are only able to absorb a limited number of foreclosed properties, and that limit is being approached or exceeded by many lenders." When his company first began offering commercial loan modification services in early 2009, many lenders were reluctant to recognize the seriousness of their commercial loan problems and modify the loans, he added. Levine said in the past several months that recognition has increased dramatically. "Commercial lenders are now being compelled to negotiate with their borrowers. It is preferable for them to have a paying asset, even at a reduced return, than to go through the expense of foreclosure and incur property management expenses during a two-three year holding period while attempting to sell the property."

In an effort to support the Federal Neighborhood Stabilization Program, offer eligible buyers downpayment, closing cost assistance, and a two-year home warranty Freddie Mac and New Vista plan to auction hundreds of real estate owned homes in Las Vegas and California. The plan is to auction Freddie Mac-owned homes on April 24 in Las Vegas and April 25 in California, which is before the federal homebuyer tax credit up to $8,000 expires on April 30, 2010. Freddie Mac HomeSteps REO homes in Las Vegas and in Inland Empire properties in California will be available to first time homebuyers and owner occupants in support of the federal Neighborhood Stabilization Program, which makes homebuyers eligible for closing costs and downpayment assistance when they buy foreclosed or abandoned homes in designated communities. This way the federal assistance is combined with the federal tax credit to make purchasing HomeSteps homes more affordable. HomeSteps and New Vista plan to hold separate afternoon auctions for bidders who do not qualify for the NSP program but intend to occupy the homes as their principle residences. Homebuyers also benefit from the SmartBuy program under which HomeSteps will pay up to 3.5% of the closing costs and offer a two-year limited home warranty on homes sold as primary residence when the purchase price is equal to or greater than $25,000.

The 30-day delinquency rate on securitized multifamily mortgages spiked 330 basis points to 13.2% in March from February with the default of the Stuyvesant Town and Peter Cooper Village project in Manhattan. Without the $3 billion in Stuyvesant Town CMBS moving into the "foreclosure" category, the delinquency rate would have jumped 62 bps to 10.5%, according a Trepp LLC report. The New York firm tracks the performance of commercial mortgage-backed securities. Trepp reported the 30-day delinquency rate on all CMBS hit 7.6% in March, up from 6.7% in February. "Weakening commercial real estate and construction loans continue to drive bank failures," the Trepp analysts said in a separate report. They estimate that 200 banks with $170 billion in assets will fail in 2010, up from 140 banks last year with the same amount of assets. "The highest concentration of at-risk banks are in the boom/bust markets of Florida, Georgia and California and the rust belt markets of Illinois, Wisconsin, Minnesota and Michigan," the Trepp report says.

Retreat Capital Management Group, a loss mitigation and portfolio management firm in Lake Forest, Calif., is now offering property preservation services to its clients. Through a partnership with Elevate Property Services, Retreat Capital's new property preservation services include inspections, initial securing services (such as lock changes and removal of debris), code violation abatement, ongoing maintenance, and full renovation services. These services, which can be ordered individually or in customized packages, are standardized so lenders can be sure that each property will be handled in a uniform and consistent manner. "It often doesn't take much for a vacant foreclosed property to fall into such disrepair that disposition becomes significantly impaired," says Jim Orth, managing partner for Retreat Capital Management. "Our property preservation services give our lender clients a simple way to get and keep their REOs in top shape so they can shorten their time on the market and maximize their returns."

Freddie Mac has issued guidance to assure lenders they can continue to originate loans on flood-prone properties despite a temporary shutdown of the National Flood Insurance Program. Freddie requires lenders to continue to perform flood zone determinations and follow normal flood insurance policies, according to the March 29 guidance. The secondary market agency said it will purchase loans if borrowers have completed an application for flood insurance and evidence shows they paid the insurance premium. The Federal Management Emergency Agency's authority to issue and renew flood insurance polices expired March 28 after the Senate failed to pass a NFIP extension. Congress is now on recess until April 12. During this hiatus, FEMA cannot write new flood insurance policies, renew policies or increase coverage. However, it is not a violation of law to originate loans when flood insurance is not available. "You can go ahead and originate and close a loan," said Vicky Vidal of the Mortgage Bankers Association. The MBA associate vice president indicated it is pretty much business as usual. "If the servicer and homeowner have received a renewal notice and pay it, it will be honored and the policy will not lapse," she said.

The National Foundation for Credit Counseling is celebrating April as Financial Literacy Month with the launch of termineconsudeuda.org, designed to educate Spanish speakers about financial challenges related to job loss, foreclosure, and consumer debt obligations. Education tools available on the site include a consumer tips section, a budget worksheet, multiple calculators and consumer tips articles, credit counseling process information, answers to frequently asked questions, and information on how to locate an NFCC Member Agency to set an appointment for counseling. It adds to previous NFCC products available in Spanish such as: Claves Para Ser Propietario (Keys to Homeownership), Mejore su Suerte (Better Fortunes), Hay Mas de Una Salida (More than One Way Out), Viva Una Vida Mas Plena (Live a Richer Life), a financial recovery roadmap post-bankruptcy, and a free DVD about foreclosure. The NFCC network of member agencies includes hundreds of trained and certified Spanish-speaking counselors.

The Association of Mortgage Investors has put together a white paper for Congress and regulators as they consider ways to revitalize private sector demand for mortgage asset-backed securities. The association of institutional investors and asset managers offers a set of "guiding principles" that according to a representative are based on lessons learned over the last three years. It includes providing loan-level information investors, rating agencies and regulators can use to evaluate collateral both at pool underwriting and over the life of a securitization; it requires an after securitization "cooling off" period that gives investors time to review and analyze loan-level information; it makes deal documents for all asset-backed securities and structured finance securities publicly available; it directly addresses conflicts of interest between servicers and investors.

The Veros quarterly forecast shows improvements in some hard-hit markets such as California, while continued bad news is reported for Florida.For example, a growing number of coastal areas in California are showing modest signs of appreciation, along with San Diego's Carlsbad and San Marcos sections, which are leading with an expected appreciation of +3.4%. Los Angeles and San Francisco are close behind, even though they were not among the top five in the last quarter. Meanwhile, "The Great Plains region including Texas remains steady." Veros Real Estate Solutions' Eric Fox reports that although there are no overwhelmingly strong appreciating forecasts among the larger metropolitan areas, "the depreciating forecasts are noticeably milder than a year ago." The Santa Ana, Cal., based risk management and collateral valuation services provider also reports its forecast update for March 2010 through March 2011 indicates gradual improvement of property value trends in some markets of key interest.

Home prices in most metro areas will continue to fall before they stabilize at real prices below the lowest levels of the last 20 years, according to the House Price Forecast Index by University Financial Associates of Ann Arbor, Mich. One of the worst examples is Detroit, where 10 years of real price gains were erased in just four years. The report describes the Detroit metro area as "the canary in the coal mine this cycle," where falling house prices arrived earlier than in other areas. Further researchers note that other metros that have already or will soon converge to pre-bubble real prices include Las Vegas, Phoenix, inland California, and many south Florida metros.