Servicing

Fannie Mae on Friday clarified its timeline for its massive buyouts of seriously delinquent loans that reside in agency MBS, confirming that 220,000 notes will be bought in April alone. The April buyouts (for loans 120 days or more past due) affect MBS with coupons of 6.5% or higher. In May lower yielding coupons (6% yield) will be targeted followed by 5.5s and 5s. This is largely in line with expectations that Fannie would buy out the loans by coupon, starting with the highest yielding securities. Fannie's clarification was designed to calm the market but could prove jarring to investors pursuing MBS-related swap strategies that had been based on the relative uncertainty of Fannie buyouts (in relation to Freddie Mac buyouts). In the wake of the clarification, market participants should short these strategies, according to a Barclays report.

Certain deficiencies in the reconciliation process for AH Mortgage Advance Trust 2009-ADV have led Moody's Investors Service to put the servicing advance facility's ratings on watch for possible downgrade. Potentially affected are up to $225 million in securities issued in the deal, which are backed by reimbursement rights for servicing advances that America Home Mortgage Servicing Inc. makes on certain residential mortgage-backed securities. The rating action reflects concerns about "a significant number of aged reconciliation items outstanding" in AHMSI's custodial bank accounts. AHMSI said reporting inconsistencies between two different technology systems are involved and at the time of this writing it had most recently estimated it would be able to fix the problem in four to six months. Reconciliation items, or discrepancies between cash book/loan level records and those shown on monthly bank statements, are "not uncommon," Moody's said. But "servicers will typically resolve such items within 30 days of being identified," the rating agency said. "As items age beyond 30 days or more, the probability that either the servicer or the SAF may suffer a loss increases, although there has been no evidence of this from items cleared to date," Moody's added. In addition to the age and number of the items, the rating agency is concerned that "even as AHMSI has cleared a large number of outstanding items, new reconciliation items have been created."

Job loss and reductions in income are responsible for 58% of the seriously delinquent prime loans in Freddie Mac's portfolio, according to the government sponsored enterprise. Another 16% of Freddie prime loans are 90-days or more delinquent due to "excessive obligations," which includes mortgage debt as well as credit card, auto loans and other indebtedness. Freddie Mac has a 4% serious delinquency rate. Meanwhile, the Treasury Department has reported that 57% of borrowers qualifying for a permanent HAMP loan modification have lost their job or faced a reduction in hours or wages. Another 11% of borrowers cite excessive financial obligations as the reason they needed a loan modification under the Home Affordable Mortgage Program. In 2009, Freddie assisted 143,000 delinquent borrowers through the HAMP program and nearly 14,000 completed the 3-month payment trials and received a permanent modification. HAMP servicers generally reduce the payments on the first mortgage to 31% of the borrower's income, down from a 45% mortgage debt-to-income ratio, according to Treasury. However, a HAMP applicant generally enters the program with a total (back-end) DTI ratio of 76.4%, which is reduced to 59.8% with the modification. While HAMP will provide "permanent relief for millions of families and reduce the overall number of seriously delinquent loans, not all trials or even permanent modifications will be successful in preventing borrowers from losing their homes," said Freddie chief economist Frank Nothaft.

Origen Financial Inc., a real estate investment trust that manages residual interests on securitized manufactured housing loans, lost $2.3 million for the fourth quarter and $8.6 million for the full year 2009. This is an improvement over net losses of $4.4 million and $35.4 million for the same periods in 2008. In July 2008, the Southfield, Mich., company exited both the manufactured housing loan origination and loan servicing businesses. Net interest income for the fourth quarter was $8 million, down 10% from the same period in 2008, while for all of 2009, it was $31.5 million, up 4%. Origen's fourth quarter loan loss provision was $5.4 million, down 10% from the fourth quarter 2008. Ronald Klein, Origen's chief executive, said "we are generally pleased with the loan portfolio performance in 2009, especially in light of the economic environment. While fourth quarter 2009 loan performance worsened, particularly for California loans, we have seen improvement thus far in 2010 and we are hopeful that some stabilization is returning to the housing market."

Pentagon Federal Credit Union, Alexandria, Va., the nation's third largest credit union, said Friday it has signed with Sun West Mortgage Co. to offer reverse mortgages to its members. PenFed, one of the biggest mortgage lenders among credit unions, will initially market the federally insured Home Equity Conversion Mortgage reverse mortgage to its members located in Washington, D.C.; Maryland and Virginia. PenFed's Reverse Mortgage eliminates the upfront origination fee - 2% of the adjusted property value - and the $35 monthly servicing fee, which are customary in the industry. Consequently, PenFed's competitively priced reverse mortgage will make additional home equity available to the homeowner.

The Federal Home Loan Bank of San Francisco has sued nine securities dealers that sold the government sponsored enterprise nearly $20 billion in private-label mortgage backed securities. The San Francisco bank, like other FHLBs, suffered losses due to its investment in AAA-rated private-label MBS. The complaint filed in Superior Court in the County of San Francisco, alleges that the dealers made "untrue or misleading statements" about the characteristics and quality of the mortgage loans underlying the securities. The San Francisco FHLB is seeking to rescind those MBS purchases, which originally cost $19.1 billion. In February, the Seattle FHLB filed a similar lawsuit against issuers to compel them to buy back $4 billion in private-label MBS.

Interactive Mortgage Advisors, Denver, is selling $532 million of Fannie Mae servicing rights in an auction that closes March 31. The package carries delinquencies and foreclosures of 3% and has a weighted average coupon of 5.4%. All of the loans are collateralized by properties in the Pacific Northwest. The seller's identity was not disclosed. A handful of other portfolios are on the market, including a $23 billion package of receivables from AmTrust Bank, and $10 billion in rights from Flagstar Bancorp. The AmTrust portfolio is being offered by Milestone Merchant Partners on behalf of the Federal Deposit Insurance Corp. IMA is the advisor on the Flagstar deal though it -- as well as the thrift -- have declined to talk about it.

Fannie Mae, which has been saddled with more foreclosed homes than any investor in the U.S., spent $449 million last year maintaining those properties, according to a new report from the GSE. The government-controlled company said it spent $182 million making "significant repairs" to its real estate owned (REO) inventory and $267 million on "maintenance." The GSE sold 120,000 REOs last year, with 68% of them going to owner occupants. Fannie also sold properties in bulk to investors, though that represents a small portion of its sales. In a recent interview, a GSE spokeswoman said the company prefers to sell its REO to owner occupants.

Republicans on the House Financial Services Committee Friday released a bare bones blueprint for the future of the nation's housing finance system, saying "private capital" should be the "primary source" of home mortgage money, replacing Fannie Mae and Freddie Mac. According to a document entitled "Goals and Principles for GSE Reform," Republicans, led by ranking member Spencer Bachus (R-Ala.), said Fannie and Freddie should wind down their operations within four years. Under its blueprint, the GOP thinks a covered bond market should replace the secondary market role currently played by the GSEs. They also want to see an end to GSE "jumbo loan limits" which they say is a taxpayer subsidy for mortgages made to millionaires. To date, the government has provided $127 billion in capital to Fannie and Freddie through the purchase of preferred stock. The cash has kept their net worth positions above zero. Next year the Obama Administration will release its official plan on restructuring the GSEs. Fannie and Freddie were taken over by the government in September 2008.

The nation's mega banks and other depositories repurchased roughly $30 billion in residential mortgages from Fannie Mae and Freddie Mac in the second-half of 2009 and will suffer losses of up to 40% on the loans, according to a new report from Credit Suisse. Penned by CS analyst Moshe Orenbuch, the report notes that repurchase volumes are accelerating and will "remain elevated in 2010 and moderate thereafter." Mr. Orenbuch estimates that large cap banks followed by CS account for roughly 88% of the $30 billion in buybacks. Among this universe of large caps, he told National Mortgage News, is Wells Fargo & Co., Bank of America, JPMorgan Chase, and Citigroup -- all of which have acknowledged buyback problems in earnings reports. The analyst said the loans being repurchased are "likely to be delinquent and/or deficient" and include what he called "differentiated" products, meaning alt-A, interest only mortgages and payment option ARMs. But there is some good news in the report: "given the bulk of the repurchases are from the 2007 vintage, we would expect repurchase demands to moderate in 2011, as the quality of industry originations strengthened during 2008."