Servicing

Condominium developers in South Florida's famed South Beach area have closed on some 4,150 new units since 2003, for an average price of $891,000 per unit. But that still leaves about 1,450 apartments that remain unsold, according to a report published by Condo Vultures, a Bal Harbour-based real estate consulting firm. The unsold inventory represents 26% of the units built since '03 in the 37 projects erected in the trendy, 24-block South Beach neighborhood. Meanwhile, Condo Vultures also reports that more single-family houses are on the market in Palm Beach than in any other county in South Florida, and the inventory isn't getting any smaller. More than 10,000 houses were for sale in the county at the beginning of March, an increase of almost 4% since Thanksgiving. By comparison, the inventory of unsold houses in Miami-Dade is down more than 6% to about 8,300 units, while in Broward, the inventory is relatively unchanged at some 8,100 houses. Consultant Peter Zalewski suggests that one reason for the increase in the number of homes up for grabs in Palm Beach County is that some owners who are under no pressure to sell believe that sales have begun to stabilize and have decided to test the market.

Although 20% of U.S. mortgages are currently under water, Americans' risk of defaulting on their home loans is at its lowest point since 2005, according to an executive and academic expert at a risk-management firm. "Although house prices will continue to decline, the rate of decline has decelerated," said Dennis Capozza, founding principal of University Financial Associates and a professor of finance and real estate at the University of Michigan's Ross School of Business. "The hardest-hit areas have begun to return to sustainable levels," he said. "Slower house price depreciation will mitigate risk levels for mortgage lenders." The UFA Default Risk Index, which measures the risk of default on newly originated prime and nonprime credit mortgages by tracking local and national economic conditions, has fallen to 158 for the first quarter 2010. This is down from last quarter's 164. The index represents a comparison with the average from the 1990s, represented by 100. "Thus, the worst-case risk of default on home loans is 1.58 times (or 58%) higher than the average of the 1990s," according to UFA, which noted that this peaked at 330 in 2007.

Appraisers are raising alarms that the Treasury Department's decision to use broker price opinions (BPOs) for its new short sales program will exacerbate mortgage fraud and property "flopping." Three appraiser groups are urging Treasury to review the Home Affordable Foreclosure Alternatives program guidelines and prohibit the use of BPOs for property valuations on short sales. Their letter to Treasury secretary Timothy Geithner points to a new trend in sales of distressed properties: "flopping," whereby the value of a home is artificially deflated using a BPO and sold to a related party of the real estate agent who quickly sells that property for a profit. "Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists. They have an inherent bias toward quick results which produce a fee for themselves, irrespective of whether the lender/servicer/property owner/borrower gets a fair return on a short sale," the March 8 letter says. The Appraisal Institute, American Society of Appraisers and National Association of Independent Fee Appraisers signed the letter. Property "flipping" (as opposed to "flopping") usually involves the quick sale of real estate using straw borrowers (and payoffs to these borrowers) to artificially inflate a home for quick profit or some type of equity stripping scheme. Inflated appraisals play a key role in flipping schemes.

More than 1 million U.S. consumers have lost their homes to foreclosure since the end of 2008, according to new figures compiled by RealtyTrac, Irvine, Calif. About a fifth of those foreclosures occurred in California, according to figures from MDA DataQuick. Experts believe that unless loan modifications are more successful, that four- to five-million more could lose their homes over the next five years. According to a report in The Orange County Register, quoting RealtyTrac information, banks took title to 918,376 REOs nationwide in 2009, a 6.6% increase from 2008, when 861,664 U.S. homes were lost to foreclosure. In January, the latest month for which figures are available, banks took control of 87,648 REO units nationwide.

Phoenix Capital, Denver, is working on bringing an $800 million package of servicing rights to the auction market, according to one advisor familiar with the transaction. The seller is believed to be PMC Bancorp of California. No other information was available on the portfolio as NMN went to press. Phoenix and PMC did not return telephone calls on the matter.

The Government National Mortgage Association should be given its independence from the Department of Housing and Urban Development, its former president said. Joseph Murin, who ran Ginnie Mae for two years and is now a private sector consultant, called on Congress to cut the agency loose from HUD, during a speech he made at the recent Midwinter Housing Conference. Thanks to the collapse of the nonprime mortgage market, GNMA's issuance volume is booming. Along with Fannie Mae and Freddie Mac, GNMA-backed product dominates today's mortgage market. Mr. Murin left GNMA this past summer. The agency guarantees almost $1 trillion in product compared to $350 billion two years ago. Mr. Murin believes that because GNMA is now so large and plays such an integral part in the secondary market, "it requires a structure that provides for its independence and the ability to respond to the always changing secondary market." (For the full story see the weekly edition of National Mortgage News.)

Commercial banks will be big buyers of agency MBS this year and help keep mortgage rates in check after the Federal Reserve withdraws from the market, according to the head of securitization strategy at Barclays Capital. Managing director Ajay Rajadhyaksha said the banking sector is flush with cash and it normally starts buying securities as the economy comes out of recession. "I would expect $400 billion to $500 billion of buying from banks in securities -- primarily agency MBS in 2010," he told reporters. "I am not worried about mortgage-backed securities being bought," he added. After buying $1.25 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS over the past 15 months, the Fed is slated to exit the market at the end of this month. Speaking at a National Association of Business Economics conference in Washington, the Barclay's MBS strategist said mortgage rates could rise 50 basis points in the second quarter and another 50 bps by yearend. However, pension funds, mutual funds and insurance companies were big sellers of MBS in 2009 and they will probably be buyers this year. "Mortgage rates will rise but the backstop will come from the private sector," Mr. Rajadhyaksha said.

Two top officers in charge of the fast growing MetLife Home Loans, Memphis, have departed the bank-owned residential lender/servicer, National Mortgage News has learned. Leaving the company is Peter Makowiecki, a senior vice president at MetLife Bank who had responsibility for MLHL, and Jeffrey Brown, a vice president at the bank who played a key role in the firm's originations. Both men were on board at First Horizon Mortgage when its parent bank, First Tennessee Corp., sold most of the lender to MetLife almost two years ago. At the end of September, MLHL ranked 11th nationwide in originations with a growth rate of 456%, according to the Quarterly Data Report. A spokesman for MetLife in Rhode Island confirmed to NMN that the two men resigned from the company "effective immediately to pursue other interests." He declined to elaborate. The two men, who were based in Texas, could not be reached for comment. Mr. Brown is the son of Carl Brown who ran Carl I. Brown & Co. for many years before that nonbank was sold to First Tennessee back in 1995. "Jeff has been with them a long time," said one business associate. "At one point he was the head of all production."

Wolters Kluwer Financial Services is moving to help financial institutions rapidly comply with the Federal Reserve Board's upcoming changes to Regulation E with the launch of a new online resource center. The Reg E changes require institutions like mortgage servicers for example, to gain approval from consumers before charging overdraft fees on one-time debit card or ATM transactions. Wolters Kluwer Financial Services has created an online resource center to help institutions comply with Reg E revisions that take effect July 1 for new accounts and Aug. 15 for existing ones. The company has also launched Reg E Opt-in Manager, a solution that allows institutions to expedite generation and electronic delivery of opt-in notices to consumers for consent.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.