Servicing

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."

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.