Servicing

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.

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.