Servicing

The Federal Housing Administration is taking another crack at creating a refinancing program that requires principal writedowns and gives investors an option to cut their losses on underwater conventional loans. The FHA refinance option requires servicers to write down the principal amount of the mortgage by at least 10% so the loan can be refinanced into a standard, fully underwritten FHA mortgage with a 97.75% loan-to-value ratio. To qualify, the borrower must be current on the existing mortgage and payments on the new FHA-insured mortgage cannot exceed 31% of the borrower's income. If there is a second lien on the property, the refinanced combined LTV cannot exceed 115%. "This refinancing will help homeowners by setting monthly payments at the affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth," according to a summary of the new refi program. This new refinancing option will be available in the fall, possibly earlier. For the past two years, FHA has been trying to get a principal writedown program called Hope of Homeowners off the ground without a lot of success. The congressional mandated H4H program has too many restrictions and places too many obligations on the borrowers and investors. The new FHA refinancing program is much simpler and it appears administration officials believe it will be attractive to investors and homeowners. The minimum FICO credit score is 500.

The Obama administration is expanding its flagging HAMP program to address the two main drivers of foreclosures-job loss and underwater mortgages where borrowers owe more on their loan than the property is worth. Under the new initiative, the Treasury Department will pay incentives to Home Affordable Modification Program servicers for allowing unemployed homeowners to skip three to six months of payments while they look for work. The Treasury also is encouraging servicers to consider principal writedowns for HAMP-eligible borrowers who owe more than 115% of the current appraised value of their home. Incentives will be paid for each dollar of principal writedowns by servicers and investors to bring the loan-to-value ratio below 115% and the monthly payments down to 31%, along with lowering the interest rate and extending the term. Lenders will treat the writedowns as forbearance over the first three years. The principal reduction does not become permanent unless the borrower is current on the modified mortgage for all three years. Treasury also is increasing incentives for investors to writedown or to relinquish their claims on second liens.

Growing mortgage foreclosures and unemployment have the National Credit Union Administration expecting losses at corporate credit unions to be higher than the $6 billion originally projected. "The losses are coming in greater than projected," said Melinda Love, chief examiner for NCUA. Fourth quarter losses for investments held by all corporate CUs came in slightly higher than NCUA had projected based on data provided by PIMCO: $307 million, compared to $302 million. But senior NCUA executives expect the bonds held by the corporates, mostly mortgage-backed securities, to continue to deteriorate as mortgage foreclosures rise and unemployment remains at high levels, said Love. What she called the "shadow foreclosure market" is expected to continue to weigh on such securities, she said. "It's not likely that the losses are going to come in less than what is projected now," she told the Credit Union Journal, a sister publication to National Mortgage News. The NCUA chief examiner declined to give an updated loss estimate on the corporate losses, saying the figures have not been shared with the NCUA Board yet. But several independent observers have projected losses on the corporates to be as high as $10 billion.

The newest participant in the government's Second-Lien Modification Program is Citigroup. It becomes the fourth participant in the program, joining Bank of America, Chase and Wells Fargo. "It is our priority and commitment at Citi to help homeowners in need," said Vikram Pandit, chief executive. "The 2MP program will further improve the affordability on mortgages and help families facing financial distress stay in their homes."

Ambac Financial Group Inc. has at the direction of Wisconsin's insurance commissioner established a segregated account for certain mortgage-related liabilities in a move the commissioner said is aimed at protecting the company's municipal bond policyholders. Ambac Assurance Corp., which is based in Wisconsin, has established the account for liabilities that it said are primarily policies related to residential mortgage-backed securities and other structured finance transactions. "Virtually the entire insured municipal portfolio remains outside the rehabilitation proceedings," said Michael Callen, chairman of Ambac's board. The company said the move stems from the insurance commissioner's concerns that "immediate action is necessary to address AAC's financial position." The commissioner is starting rehabilitation proceedings with respect to the liabilities in the segregated account to facilitate what Ambac described as "an orderly run-off and/or settlement of those specific liabilities" but AAC itself is not in rehabilitation proceedings. Ambac also said it has reached a non-binding agreement on the terms of a proposed settlement agreement with several counterparties to "commute substantially all of its remaining collateralized debt obligations of asset-backed securities." However, the company said the rehabilitation plan makes it "highly unlikely that AAC will be able to make dividend payments to Ambac for the foreseeable future." While the company "does not believe the segregated account rehabilitation constitutes an event of default under its bond indenture" and foresees having enough liquidity to satisfy its needs through the second quarter of 2011, it said it may consider bankruptcy. The New York-based Ambac Financial Group's stock has been trading at less than $1 per share since late last year and as of late Thursday morning had dropped close to roughly $0.60 per share from about $.080 per share the day before.

Bank of America Merrill Lynch has hired Wall Street veteran Steve Harris as managing director in charge of mortgage sales for its Americas division. Harris will report to Michael Hokin, head of America's mortgages and securitized product sales at the bank. According to StructuredFinanceNews.com, Hokin-who was formerly head of global securitized markets sales at Citigroup-joined Bank of America Merrill last September. Prior to his hiring, Harris had a six-month stint at Rafferty Capital as a manager in structured products. From 1987 to 2009 he worked for Goldman Sachs as a manager in mortgage sales.

Data from ForeclosureListings.com comparing February to January show that Texas has witnessed the highest increase in statewide foreclosures with a rise of 35.3%, followed by Michigan at 17.54%, California at 11.93%, and Florida at 4.71%. Georgia showed a decline of 5.55% and Arkansas showed the largest drop in foreclosures at 28.6%. Atlanta and Denver saw decreases in foreclosures from January, yet the number of actual foreclosures in February was still relatively high at 1,039 and 2,056, respectively. "The foreclosure trend continues. We found it interesting that the larger cities as above had [better performance in term of relative month-to-month percentages] than the comparatively smaller cities of Spring, Texas, and of Garland, Texas, with 165 and 167 total foreclosures at 46% and 43% increases over January, respectively," said Kevin Simpson, a sales manager with ForeclosureListings.com. Larger cities such as Houston which showed an increase from January of over 37% with 1,192 homes foreclosed, and Phoenix, Ariz., with an over 34% increase and 1,645 homes foreclosed continue to demonstrate the plight of unemployment and abandonment in search of locations for people to live where they can find jobs. "But there were some signs of improvement, for lack of a better word," he said. Little Rock, Ark., showed a monthly drop of 35.34% with only 75 foreclosures from the previous month, and Riverdale, Ga., showed a decrease of 25% with only 956 homes foreclosed. Likewise, in two large cities of note: Washington reported 169 foreclosures, a difference of 19.9% less than January, and Atlanta saw a drop of 6.98% in the same time period.

New government figures show that home prices fell 0.6% in January after a 2% drop in December, a sign that the housing market is far from being on a steady road to recovery. According to a home price index compiled by the Federal Housing Finance Agency, prices fell in six geographic regions but rose in two: a 2% gain for the Mountain region, and a 0.4% improvement in the West North Central. Prices in the Pacific region remained unchanged. Over a 12 month-period ending in January, home prices are down 3.3% based on residential loans purchased in the secondary market by Fannie Mae and Freddie Mac. The December drop was revised downward from 1.6%, the GSE regulator said. Since January 2009, prices have dropped 3.3% to a seasonally adjusted 194 index value. The FHFA HPI is down 13.2% from the peak in April 2007.

New home sales fell for the fourth consecutive month in February but sales were down by only 2.2%, despite severe winter weather in many parts of the country. The U.S. Census Bureau reported that sales of newly constructed homes fell to a seasonally adjusted annual rate of 308,000 in February from a 315,000 rate in January. The January rate was revised upward from 309,000, which means the drop in sales from December to January was 8.9%, as opposed to 11% as originally reported. The Census Bureau report shows that sales in February fell 20% in the Northeast and 18% in the Midwest. Sales were up 20% in the West. New home sales have slumped to the lowest level since 1963, according to Weiss Research analyst Mike Larson. "The market remains stuck in the doldrums," he said. But he expects some pick up in sales in March and April with the homebuyer tax credit due to expire at the end of April. "The credit-fueled pop won't be anything like what we saw the first time around, however," Larson said.

A new TARP IG report on servicer performance under the Home Affordable Mortgage Program says that even though loan restructuring efforts improved in recent months, mortgage firms will not be able to sustain the pace. In January and February, residential servicers approved roughly 50,000 permanent loan modifications per month, a vast improvement over earlier efforts. (Roughly 168,700 permanent modifications have been written since August.) However, the Troubled Asset Relief Program IG notes that the number of troubled homeowners starting the three-month HAMP payment trials is declining while at the same time servicers are tightening standards for new entrants. In addition, servicers are concerned that the 835,200 borrowers currently in payment trials include a sizeable number of homeowners who are unable-or unwilling-to make the required payments. Also, it appears that some homeowners are using the HAMP trials to forestall foreclosure. "Several of the servicers interviewed reported concerns about homeowners trying to game the system in this fashion," the report says.