Servicing

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.

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.