Servicing

Freddie Mac is coming to market with a $1.1 billion MBS backed by multifamily loans. The various pass-through certificates in the bond are collateralized by 68 recently originated multifamily mortgages from Freddie approved seller/servicers. It is the second of six such issuances anticipated during 2010. These "K-006" certificates, which will price on or about March 25 and settle 10 days later, will be offered by several dealers lead by JPMorgan Securities Inc. and Bank of America Merrill Lynch. Co-managers for the transaction include Deutsche Bank Securities Inc., Goldman Sachs, Jefferies & Co. and Sandler O'Neill.

Home price declines will continue into the spring before beginning to stabilize and then recover modestly in the remainder of the year, according to the January Loan Performance Home Price Index from First American CoreLogic. Nationally, single-family house prices are expected to decline another 3.7% before bottoming in April. National home prices, including distressed sales, decreased 0.7% in January 2010 compared to January 2009, a big improvement over December's year-over-year price decline of 3.4%. Excluding distressed sales, year-over-year prices declined in January by 0.4%. On a month-over-month basis, the national average home price index decline accelerated, falling by 1.9% in January 2010 compared to 0.8% in December 2009, indicating the housing market still remains weak. The markets with the largest future price declines are in Michigan, Oregon, Nevada, Maryland and Arizona, with predicted declines in the 3.5% to 4.5% range. Markets expected to see appreciation soon are located in Alabama, South Dakota and Kansas, with predicted appreciation in the 0.5% to 1.5% range. Sales of distressed properties continue to skew both actual and predicted price declines downwards, the HPI said. Going forward, house prices may increase over the next year by 4.5%. Excluding distressed sales, over the next year house prices could increase by 5.6%. Two major unknowns may affect the forecast, including how much of the "shadow inventory" of homes may come on to the market later in the year, and the expiration (or possible extension) of the federal homebuyer tax credit in April which has stimulated sales activity and the clearing of inventory.

Wells Fargo & Co. became the second mortgage servicer to agree to a government plan to modify the second liens of borrowers who have received a modification of their first mortgage. Bank of America signed up for the plan, known as "2MP," in January. "When a customer has reduced payments, it frees up the cash flow to benefit everybody," Kevin Moss, an executive vice president of Wells Fargo's home equity group, said in an interview. "This program will simplify the process." First-lien servicers participating in the plan are required to notify second-lien holders that a first lien has been modified through the Home Affordable Modification Program. The company said at the end of February that it had modified second liens for 180,000 customers and first liens held by 500,000 customers through various internal and government programs, including HAMP.

Even as the federal government prods the mortgage industry to avoid foreclosures through loan modifications and short sales, California may soon let such help become costlier for borrowers. Debt forgiven on a home loan is considered income and normally subject to taxation. In 2007, however, Congress forbade the Internal Revenue Service to tax forgiven mortgage debt through 2012. Also in 2007, California adopted a ban on state taxation of mortgage-balance forgiveness through the following year. But the ban was never extended. In February the state Senate passed a bill that would put forgiven mortgage debt off-limits to state taxation from 2009 to 2012, aligning California with the federal law. But the bill has not passed the Assembly. And Gov. Arnold Schwarzenegger, who is trying to close a $20 billion budget deficit, said he would veto the legislation because of an unrelated provision that would increase penalties for companies that abuse tax credits. If the bill were enacted, homeowners could seek refunds for 2009 taxes already paid. But in the meantime state income tax returns are due April 1 or a penalty will be assessed. The State Franchise Tax Board has indicated a willingness to work with taxpayers to create a payment schedule. However, the state charges interest at a rate of 4%.

Integrated Mortgage Solutions, a third-party provider of asset management services, and the Houston-based REO Leasing Solutions, LLC are joining forces to address rapidly growing loss mitigation and REO challenges in today's housing market. In working with REO Leasing Solutions, IMS will be able to offer additional loss mitigation and REO options to its customer base. "REO Leasing Solutions brings a national perspective to this emerging market," said Cheryl Lang, president and CEO of IMS. According to recent reports, more than 5 million households are behind on their mortgages and risk foreclosure. With unemployment rates hovering near 10% nationwide, the number of distressed borrowers is likely to remain high over the next year. Both companies agree that servicers are in need of solutions that help them manage the increasing volume of defaulted loans on their portfolios. "Ever-changing legislation necessitates uniting with a proven organization that has deep experience in the both the mortgage market as well as property management in the residential market," said Lang. IMS is able to give their investors immediate options, even at their initial due diligence of a distressed portfolio, added Alan Paylor, president of REO Leasing Solutions LLC. REO Leasing Solutions can model a rent/lease option and provide cash flow analysis and ROI on a portfolio or a single loan.

Lender Processing Services has launched a new short-sale service to help mortgage firms handle their growing caseload of REO properties. The Jacksonville, Fla.-based vendor is offering the service through its Asset Management Solutions division. The company oversees a network of asset managers to market and sell distressed and depository-owned properties. The unit performs such functions as reviewing title, resolving junior liens and reviewing property values against short-sale offers. In other short-sale news, Loan Resolution Corp., Scottsdale, Ariz., said it is hiring 100 new workers this month to meet demand for the Treasury Department's new Home Affordable Foreclosure Alternatives program. LRC says it needs the additional workers to meet "unprecedented growth as demand for short sales and deed-in-lieus skyrockets." The vendor moved into a 30,000-square-foot office in North Scottsdale in September 2009. The new positions range from executive slots down to entry-level positions including asset managers.

Despite efforts by appraisers to discredit broker price opinions, there is no reason why the Treasury Department should ban the use of BPOs on short sales, according the National Association of Realtors. "There is no evidence that BPO exacerbates mortgage fraud or abuse," NAR says in a letter to Treasury secretary Timothy Geithner. The Realtors point out that BPOs are used to analyze mortgage loan portfolios for risk management and fraud detection. Home Affordable Modification Program servicers are gearing up to implement a new process to expedite short sales and Treasury has authorized the use of BPOs. Three appraisal groups recently warned Treasury that its decision to use BPOs could exacerbate mortgage fraud. "There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents," NAR president Vicki Cox Golder said in the letter to Geithner. The Appraisal Institute, American Society of Appraisers and National Association of Independent Fee Appraisers claim that real estate agents and brokers generally are not independent or properly trained valuation specialists. "They have an inherent bias toward quick results which produces a fee for themselves," the appraisal groups said in a March 8 letter.

GMAC Financial Services has come to market with a $22 million package of nonperforming residential loans that were culled from securitizations. A company spokeswoman noted, "The vast majority of these loans are not part of ResCap's owned loan portfolio. This type of transaction is something we have done and continue to do in the normal course (of business)." GMAC's mortgage affiliate, Residential Capital Corp., is the servicer of the underlying loans. A few weeks back it put out for bid a $250 million package of NPLs. It said the offering went well but has not released any information on which firm was the winning bidder or the price paid.

The Federal Open Market Committee issued a statement Tuesday indicating that the Federal Reserve will follow through with its plans to end its purchases of agency mortgage-backed securities this month as well as with plans to end a program supporting loans backed by new-issue commercial MBS in June. The agency MBS and debt purchases "are nearing completion, and the remaining transactions will be executed by the end of this month," the FOMC said. However, the committee also noted that it will "continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability." The FOMC also said in its statement that the Fed plans to follow through with its plans to close its Term Asset-Backed Securities Lending Facility program for loans backed by new-issue commercial mortgage-backed securities on June 30 and close the TALF program for loans backed by other types of collateral by March 31.

While delinquency rates in the U.S. have risen to historic highs, the pace of deterioration has slowed, according to the February 2010 Mortgage Monitor report by Lender Processing Services Inc. in Jacksonville, Fla. Nearly 7.5 million loans are in some stage of delinquency or foreclosure, with an additional 1 million properties in REO or post-sale foreclosure. Approximately 2.5 million loans that were current on Jan. 1, 2009, were 60 or more days delinquent (including foreclosures) as of Jan. 31, 2010. Despite extraordinary loss mitigation efforts that have resulted in the execution of approximately 2 million loan modifications, including the federal government's Home Affordable Modification Program trial periods, LPS said the number of new delinquencies since Jan. 1, 2009, still exceeds this number by 25%. More than 31% of loans that have been delinquent for six months are not yet in foreclosure, while 22.8% of loans delinquent for 12 months have not been moved to foreclosure status (up from 9% in 2008). While the total loan delinquency rate was 10.2%, the foreclosure inventory rate was 3.3%. The total noncurrent loan rate was 13.5%, and states with the most noncurrent loans included Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Illinois, Michigan and Ohio. States with fewest noncurrent loans included North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.