Servicing

DebtX is auctioning off two separate commercial nonperforming loan portfolios totaling $411 million, the largest of which consists of 25 multifamily loans controlled by the Department of Housing and Urban Development. The HUD portfolio - $306 million in size - also includes a mortgage backed by a healthcare facility. DebtX, a government approved auction company, has set March 24 as the bid date. The company said it also is taking bids on a $105.5 million portfolio of nonperforming residential and commercial loans on a behalf of a "commercial bank in the western U.S." DebtX would not identify the seller. The bid date on the second offering is March 22.

The GSE regulator has extended the Home Affordable Refinance Program for one year so that Fannie Mae and Freddie Mac can continue to refinance high LTV and underwater mortgages. Launched last April, HARP gives the government-sponsored enterprises the flexibility to go beyond their normal underwriting and mortgage insurance standards to refinance mortgages they already own or guarantee. In 2009, the two GSEs refinanced 190,000 single-family loans with loan-to-value ratios of 81% up to 125%. Fannie Mae disclosed that it requested a HARP extension in its 2009 annual financial report. "Unless our regulator grants our request for an extension," Fannie said, the HARP program will expire after June 10 and "we will no longer have the flexibility" to refinance these loans. Federal Housing Finance Agency acting director Ed DeMarco said current market conditions warrant an extension. It will "support and promote market stability," he said, and encourage more lenders to "fully adopt the HARP program." Fannie has already refinanced over 100,000 families under the HAMP program, reducing their monthly payments by $150 on average. "Extending HARP for another year will enable us to help even more families achieve an affordable mortgage," said Fannie president and chief executive Michael Williams.

The IRA Advisory Service, an analytics firm, says GMAC Financial Services could be forced into bankruptcy protection, despite receiving more than $15 billion in federal assistance. In a report to clients, the Torrance, Calif.-based advisor called GMAC (whose holdings include the troubled Residential Capital Corp.) a "bank holding company searching for a business model." A spokeswoman for GMAC said it has no intention of filing for bankruptcy. "The company has taken a series of steps recently to strengthen its capital position," she said. But IRA told its clients it has concerns about GMAC's source of funding: "GMAC has essentially substituted FDIC-insured deposits for commercial paper, and has done so with terms and conditions that allow investors to walk out the door at any time and without penalties."

Fannie Mae plans to purchase up to 200,000 delinquent loans out of its mortgage-backed securities in March, but is holding off on giving guidance on whether it can maintain that run-rate over the coming months. It's expected that premium coupons will be bought out first with lower coupons acquired over subsequent months. The release of Fannie's promised second wave of information on its plan for massive buyouts has brought clarity to a market that has been somewhat volatile due to lingering uncertainties about the process. New information released by Fannie sheds more light on the pace and priority of the buyouts - as well as on Fannie's 120-day-plus delinquency rates. A Barclays report released Tuesday says the information about timing is more important in its view but still lacks specifics. Fannie said it plans to repurchase 150,000 to 200,000 delinquent loans in March, giving researchers information that helps them price MBS. As far as the new information about Fannie's 120-day-plus delinquencies, this generally puts Fannie "on par in terms of disclosures with Freddie Mac," according to Barclays.

DebtX, a full-service loan sale advisor based in Boston, is selling $105.5 million in primarily non-performing loans for a regional bank in the western United States. The portfolio is comprised of 71 loans and 33 relationships. The collateral includes commercial and residential properties located primarily in California, Washington, Oregon and Arizona. The three largest loans in the pool have a combined principal balance of $47.6 million. Bids are due by 2 p.m. Eastern Daylight time on Monday, March 22, 2010. Due diligence materials are now available at www.debtx.com. "Over the past six months, the number of bids per offering at DebtX has increased an average of 25% due to heightened demand for performing and non-performing loans," said DebtX CEO Kingsley Greenland. "A growing number of equity buyers are seeking to re-enter the commercial real estate market by purchasing loans because many distressed properties are in default or are unable to service their debt."

The Obama administration's loan modification program is a "failure" that is hurting more homeowners than it is helping, according to a report issued by Republicans on the House Oversight and Government Reform Committee. Representatives Darrell Issa, R-Calif., and Jim Jordan, R-Ohio, claim the administration's Home Affordable Modification Program is "misguided" and hundreds of thousands of borrowers in HAMP payment trials will never qualify for a permanent modification. "Money that could have been spent on affordable rental housing is instead being spent on mortgage payments when many of these homeowners have little hope of permanently keeping their homes," Rep. Jordan said. The congressmen offer few suggestions for improving HAMP but press the Treasury Department to release more information about its net present value test, which is used to evaluate mortgages for a modification. "If the secret NPV test underestimates the re-default rate, servicers will grant too many futile modifications," the report says. Committee Democrats have opened a HAMP investigation and have raised similar concerns about the NPV test. Separately, a public opinion poll commissioned by the National Association of Home Builders shows that 65% of homeowners believe the government needs to do more to keep families from losing their homes.

Industry lobbyists are having a hard time getting senators or their staffs to focus on the issue of MBS risk retention, which could dramatically reduce the securitization of mortgages and other assets - and increase the cost of credit. Senate Banking Committee members are intensely engaged in drafting a regulatory reform bill and fighting over ways to protect consumers, regulate derivatives and deal with the issue of institutions that are "too big to fail." At the same time, there is a consensus on the committee that securitizers - especially those creating MBS - should retain 5% to 10% of the risk when they issue mortgage-backed securities. The holding of this risk is called "skin in the game" and lawmakers see it as a way to prevent another subprime meltdown. But accounting rule changes and a capital regulation recently finalized by the banking regulators have turned this politically attractive concept of imposing risk retention into a roadblock to securitization. "It will not work," said Anne Canfield, executive director of the Consumer Mortgage Coalition. "You will not have any securitizations any more." Under the new capital rule, any bank retaining credit risk (and therefore potentially sharing losses) must hold capital against the entire MBS, not just 5% of the MBS. The risk retention requirement and the additional capital charge "eliminate any benefit of securitizing assets," Ms. Canfield said.

Distribution data show U.S. investors bought 65.8% of Fannie Mae's $4 billion two-year Benchmark Notes new issue on Friday, followed by Asian investors who bought 20.2%. European investors bought just 1.2%. The balance of investors hailed from other miscellaneous geographic regions. Fund managers bought 59.4%, central banks bought 33.1%, state/local governments bought 4.4%, insurance companies bought 2.5%, foundations/nonprofits bought 0.3%, commercial banks bought 0.2% and retail investors bought 0.1%. The new issue due April 4, 2012 (CUSIP 31398AH54) was priced at 99.959 to yield 1.020% at a spread of 20 basis points above the 0.875% Treasury due Feb. 29, 2012. The Benchmark Notes' payment dates are each April 4 and Oct. 4, starting this year. Barclays Capital Inc., Citigroup Global Markets Inc., and Morgan Stanley & Co. are the joint lead managers. The co-managers include Blaylock Robert Van LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., FTN Financial Capital Markets, Jefferies & Company Inc. and UBS Securities LLC.

Fannie Mae said Friday that many mortgage lenders are not complying with the most basic underwriting guidelines, such as confirming a borrower's identity or verifying a Social Security number. Marianne Sullivan, a senior vice president and Fannie's chief risk officer, sent a nine-page letter to lenders announcing a "Loan Quality Initiative" to ensure that loans meet the government-sponsored enterprise's credit and eligibility guidelines. Sullivan said Fannie analyzed the primary drivers of loan-repurchase requests and has launched the initiative to identify ways to improve compliance with its guidelines. "Many repurchase requests are driven by the fact that the delivered loan does not meet Fannie Mae's eligibility requirements," she wrote. In the next few months, the government-sponsored enterprise plans to add quality-control policies to monitor and assess the effectiveness of lenders' own quality-control plans. Lenders now will be required to obtain documentation to confirm the occupancy of a property. They also must determine that a borrower's debts are not only evaluated as part of the qualification for a mortgage but also are disclosed on the final loan application signed by the borrower at the closing table. Separately, Fannie reported Friday that its net loss narrowed to $16.3 billion in the fourth quarter, from $25.2 billion a year earlier. The GSE also said it requested another $15.3 billion from the Treasury to help eliminate its net worth deficit. Fannie has not been able to maintain a positive net worth without government assistance since September 2008. The GSE expects to receive the additional funds from the Treasury by the end of March, bringing its total government support to $75.2 billion.

Stung by continuing writedowns on risky alt-A, interest-only, and negative amortization loans, Fannie Mae posted a $16.3 billion loss in the fourth quarter, and said it would ask the U.S. Treasury for $15 billion in cash to keep its net worth above zero. In supplementary documents filed with the Securities and Exchange Commission, the government-controlled GSE revealed that a stunning 36% of loans it bought from 2005 to 2008 are in some category of delinquency. Its entire book-of-business ($2.796 trillion) carries a 5.38% 'serious delinquent' rate. Its worst loans - in terms of late payments - come from three states: Nevada (a 13% delinquency rate), Florida (12.8%) and Arizona (8.8%). In the fourth quarter of 2008 the late payments for these three were: 4.74%, 6.4%, and 3.4%, respectively. The GSE lost $72 billion for all of 2009, compared to a $59 billion loss the prior year. To date, the Treasury has pumped $75 billion into Fannie and $52 billion into Freddie Mac to keep them in the black. Government regulators - which placed the two into conservatorships in September 2008 - fear that MBS investors will not buy their securities if the GSEs are in a negative net worth position. During the most recent quarter, Washington-based Fannie suffered $11.9 billion in credit losses and a $5 billion write-down for low income tax credit investments. "Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning," said Fannie's chief executive, Mike Williams.