Servicing

Bank of America, which controls 21% of the servicing market, Wednesday unveiled a plan to consider principal writedowns for certain struggling mortgagors instead of cutting their note rates. In some cases principal will be reduced to 31% of a consumer's household income. At press time Bank of America was unveiling details of the plan, which falls under its National Homeownership Retention Program, its in-house proprietary loan modification effort. However, Bank of America mortgage chief Barbara Desoer warned that the new principal reduction effort would be "limited in scope" and will only be available to "certain eligible borrowers." The bank stressed that only "certain NHRP-eligible loans" will be subject to principal reductions. The mega-servicer is targeting troubled loans it inherited via its 2008 acquisition of Countrywide Financial. Bank of America said it would consider principal reductions on certain negative amortizing payment option ARMs and will convert some of these loans to fully amortizing products.

Architects are the first to feel the pain of a sagging housing market and the first to see the beginnings of an upswing. So if the recent uptick in project inquiries received by the Dallas- based Humphries and Partners is any indication, the apartment business is starting to look up. The highly-regarded design firm, which last year submitted the largest number of new FHA 221(d)(4) financed market rate projects of any architect in the country, hasn't been overwhelmed by requests from multi-family developers, but "we are encouraged by positive signs in the market," said Mark Humphries. "Not a deluge, but strong," Humphries said of the inquiries. "The wise apartment developers recognize that interest rates will never be this low, construction volume will never be this low, construction costs will never be this low, and the pending demand is going to be the largest growth in apartments ever seen."

The California Attorney General over the weekend closed two companies engaged in what it calls "fraudulent foreclosure-assistance" scams that gave consumers "false hope after paying upfront fees for nonexistent loan-modification services." In closing U.S. Foreclosure Relief Corp. and H.E. Servicing, Inc., AG Edmund Brown secured $1 million in court ordered restitution against the firms and officers George Escalante and Cesar Lopez. The state had filed suit against the firms in a joint action brought with the Federal Trade Commission. The AG's office said an investigation found that "the defendants used aggressive telemarketing tactics to convince distressed homeowners to pay $1,800 to $2,800 in upfront fees for loan-modification services that included reductions in principal and lower interest rates." The AG claims that in sales calls, H.E. Servicing claimed it had successfully negotiated 10,000 loan modifications. However, a full review of internal records found the company opened only 2,960 loan-modification files and completed only 311. The state says California homeowners accounted for 15% to 20% of the company's opened loan-modification files. The two men could not be reached for comment at press time.

The Senate Banking Committee late Monday passed a financial services regulatory reform bill as Republicans agreed to let the measure go through committee and work with Democrats on a possible compromise before it hits the Senate floor. The panel passed the 1,300-page bill by a 13 to 10 vote along party lines. The legislation -- which includes language on MBS risk retention -- largely resembles the bill that Senate Banking Committee chairman Chris Dodd (D-Conn.) introduced last week. The mortgage industry is lobbying against risk retention language that could crimp a revival of the private label MBS market. Sen. Dodd thanked Sen. Shelby (R-Ala.) for allowing the bill to clear committee this week which was Dodd's major goal in calling the markup. Sen. Shelby said he did not want to turn the markup process into a "long march" by offering hundreds of amendments. "Although I have raised a number of serious concerns I remain optimistic that we can, over time, reach an agreement that will garner bipartisan support," said Sen. Shelby. "I just don't think we are quite there yet."

Refinancings are becoming a higher proportion of Federal Housing Administration early defaults, as the performance of FHA purchase mortgages improves, according to Potomac Partners, a consulting firm. "Refinancings are 44% of FHA originations and 70% of its early defaults and claims," said Potomac partner Brian Chappelle. Historically, refinancings have performed much better than purchase mortgages. But that changed in the fourth quarter of 2008, according to FHA Neighborhood Watch data, when the percentage of defaults and claims (two years after origination) on refinancings hit 4.38%. At year end 2009, it was up to 5.9%, compared to 5.05% for all FHA single-family loans. The good news is that purchase mortgages are performing well and FHA experienced a 24 basis point decline in the total default and claim rate to 4.81% as of February 2010. "To have early defaults decreasing is really encouraging," Mr. Chappelle said.

Freddie Mac on Tuesday approved a reactivated subsidiary of The PMI Group Inc., Walnut Creek, Calif., as an eligible mortgage insurer, sending the MI's stock soaring. PMI has effectively created a "good bank" MI unit which allows it to continue writing policies in states where there is a risk-to-capital ratio requirement or a minimum policyholder position requirement. The unit, which is called PMI Mortgage Assurance Co., or PMAC, has $28 million in capital. A PMI spokesman said the company has not determined when PMAC will be implemented. In trading, PMI's shares were up 17%. Several MI firms have used the "good bank" strategy to segregate out the risk inherit in their "legacy" coverage.

Existing home sales fell fractionally in February from the previous month but the housing and mortgage industries received a new dose of bad news Tuesday morning with total inventories rising 9.5% during the month to 3.59 million units. Also, some housing analysts now expect a compressed spring home buying season because of expiring federal tax credits benefiting first-time home buyers and certain move-up customers. Another bad omen for the market, according to analyst Eric Landry of Morningstar, is an increase in listings by non-distressed sellers. The National Association of Realtors reported that existing homes sales slipped 1.4% in February on a seasonally adjusted basis to 4.37 million units. (The figure excludes condominiums and cooperatives.) Compared to February of last year, one- to four-family home sales rose 4.3%. NAR is blaming the poor numbers, in part, on bad weather in the Northeast and mid-Atlantic. "Some closings were simply postponed by winter storms, but buyers couldn't get out to look at homes in some areas and that should negatively impact near-term contract activity," said NAR economist Lawrence Yun. He added that, "Although sales have been higher than year-ago levels for eight straight months and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment."

Fannie Mae and Freddie Mac will not be buyers -- or active sellers -- of mortgage-backed securities while they remain in conservatorship, Treasury secretary Timothy Geithner declared Tuesday. During this conservatorship period, the secretary said Treasury will continue to provide capital for the GSEs, allowing them to support the primary and secondary mortgage markets. The Federal Reserve is slated to stop buying agency MBS at month's end and there had been speculation that the GSEs might become buyers -- if necessary -- to keep rates from spiking. At the same time, Treasury wants to reduce their giant investment portfolios. "Treasury remains firmly committed to ensuring that the GSEs' retained portfolios are substantially reduced," Geithner told the House Financial Services Committee. The secretary also said it would be "irresponsible" to abolish the GSEs today but he favors a redesign of the nation's housing finance system. At the beginning of Tuesday's hearing, committee chairman Barney Frank raised the issue of whether FHA, GNMA, and the FHLBs should be restructured too. Mortgage Bankers Association president Michael Berman told the panel the Obama administration should begin to wind down the GSEs as the housing finance system transfers to a new model. "Measures such as focusing the GSEs on a narrow range of mortgages and winding down their portfolios can be undertaken now," Mr. Berman said. "Additionally, the use of good/back bank strategy would help retain the best people, processes and infrastructure from the GSEs," the MBA president testified.

Tranzon Auction Properties, with corporate offices in Portland, Maine, has been engaged by TD Bank to market and auction over 50 properties throughout the East Coast from their REO portfolio. The properties represent a diverse mix of real estate, from 190 residential building lots in Northport, Fla. to a former nightclub in Atlantic City, NJ. Tranzon Auction Properties has partnered with its affiliates, Tranzon Alderfer (Penn.), Tranzon Fox (Va.), and Tranzon Driggers (Fla.), to auction the bank-owned properties in both online and live bidding formats. The "Spring Roundup," as Tranzon has dubbed the multi-property sale, will take place throughout April and May, kicking off with the live auction of a single-family home in Springfield, Massachusetts on April 15th. "This venture is unique in that it offers such a wide range of opportunities to bidders... both end-users and investors alike. Whether you're interested in a marina-side condo or an industrial warehouse, there's something for everyone," said Thomas Saturley, president of Tranzon Auction Properties.

Chase is the latest mortgage servicer to sign up for the Second-Lien Modification Program, also known as 2MP. Other servicers participating in the program are Bank of America and Wells Fargo. Under 2MP, homeowners may see the interest rate on their second lien loan reduced to 1% for a five-year period. But to qualify, the borrower must already have completed a trial modification on their first mortgage. Chase will modify second lien loans no matter if Chase or another servicer services the borrower's first lien loan. David Lowman, head of home lending for Chase said 2MP makes it easier to coordinate modifications with other servicers because of consistent standards.